Why are you more likely to become a homeowner if your parents are?

There are several factors that may influence your path to homeownership, and one of them may be your parents.

“If your parents are homeowners, you're more likely to be a homeowner,” says Susan M. Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania.

Homeowner parents are more likely to directly help their children with down payments through gifted funds or loans, create multigenerational households to help young people save money, and even impart first-hand knowledge about how to achieve homeownership, experts say.

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The trend follows a broader underlying phenomenon, or “intergenerational status transmission,” said Doyle Myers, a professor at the Sol Price School of Public Policy at the University of Southern California.

“If your parents are more educated, you're more educated. If one parent is more educated and has more money, that means you have more money,” said Myers, whose research focuses on linking demographic data to housing trends.

In 2023, about 23% of first-time buyers used a gift or loan from friends or family to make the down payment on their home, according to the National Association of Realtors.

Separately, Zillow's chief economist, Skyler Olsen, said in August on CNBC's “Last Call” that 40% of first-time homebuyers are getting money “from mom and dad's bank” for down payments, up from a third before the pandemic. .

“Some of that is hard-earned savings,” she said. “The other part is, for example, a gift from family and friends.”

“It's clear that intergenerational wealth is linked to home ownership,” Wachter said. If a parent is a homeowner, they are more likely to help with their child's down payment, she said.

In fact, the rate of youth homeownership increases with family income and the effect is exacerbated with parents' homeownership status, according to a 2018 report by the Urban Institute, an economic and social policy think tank based in Washington, D.C.

If your parent isn't a homeowner, “you're less likely to gain intergenerational wealth or transfer gifts from your parents for a down payment, which has become very important as down payments increase,” she said.

“As prices go up, down payments have to get larger,” Myers agrees. “No one can save up to $100,000; that's not realistic.”

Nearly a third, 31%, of Generation Z adults, or those born in 1996 or later, live at home with their parents or a family member because they can't afford to buy or rent a place of their own, according to a report by Intuit Credit Karma. . is found.

The lack of affordable housing options is pushing young people to live with their parents, and multigenerational living can help young people build their savings to become homeowners, Wachter said.

But it's more difficult for those whose parents are not homeowners: “Renting households are often prevented from bringing more people into their homes. As a homeowner, you have more space and flexibility; you'll be able to do that.” “There is this generational tendency to be renters.”

The Urban Institute found that young people with homeowner parents are more likely to become homeowners themselves because they can get more information about the mortgage application process directly from their parents.

“Because parents are so familiar with homeownership, they are more likely to encourage their children to do it and show them how to do it,” Myers said. “It's like a 5 percentage point bonus by having parents who own homes.”

Renter parents may express more “heartbreak” about the idea of ​​owning a home: “If they don't do it, they don't talk about it,” he said.

Cultural factors during someone's upbringing can also influence their potential home buying and renting activity. “It's a valid item,” Myers said.

If a young adult grows up with homeowner parents, they will be more motivated to achieve the same status because they know the benefits firsthand.