Rate buydowns, negotiations, and nepo money: Here's how people are affording homes in today's market
Some are getting creative with rate buydowns and negotiations.
Other buyers are seeking down payment assistance from their parents.
With high mortgage rates and home prices outpacing wage growth, it's easy to find yourself wondering how anybody is buying a house in today's economy.
Homes have been unaffordable for many Americans in recent year, especially as prices skyrocketed after the pandemic and never really came back down to earth.
It doesn't look like the outlook for next year will be any better, either. Mortgage rates are expected to remain high, exacerbating the lock-in effect and keeping existing home sales low, Goldman Sachs said in a recent report.
To crack into the market, buyers are getting creative, whether through different financing structures, bargaining, or tapping into generational wealth.
Rate buydowns
With mortgage rates hovering near 7%, more homeowners are opting for a rate buydown to decrease their monthly costs.
According to Goldman Sachs, the prevalence of rate buydowns has increased drastically post-pandemic, with roughly 40% new home sales involving a temporary rate buydown. Temporary rate buydowns reduce the buyer's interest rate for the first few years before the full rate kicks in.
You can also buy mortgage points upfront to lower your rate for the full term of the loan. One point is typically 1% of the overall mortgage and lowers the interest rate by 0.25%.
Sometimes, homebuilders or sellers will also offer rate buydowns to close a sale faster.
"It is something that we're seeing more of right now," Daryl Fairweather, chief economist at Redfin, said of rate buydowns.
It's a good strategy if you have more cash upfront and you're planning to stay in the house for the long term, Fairweather said. However, if you're planning on selling or if rates come down in the near term, a rate buydown might not be the best option.
"If you end up selling a year or two from now, then you just bought those points, but you're not actually ever going to use them," Fairweather told Business Insider.
Negotiations
Affordability might be constrained, but buyers may still have room to negotiate.
Sellers who purchased their homes during the pandemic are realizing that demand for homes has come down amid economic uncertainty. Sellers now outnumber buyers, and especially in hot pandemic markets like Florida and Texas, homes are sitting on the market for longer.
Sellers are offering concessions such as cash, closing costs, repairs, and mortgage buydowns to entice buyers and close the deal.
"Now that it's more of a buyer's market, buyers are taking their time. They realize that they can get a different home if the seller isn't being reasonable," Fairweather said.
Additionally, with slowing rent growth, buyers can afford to be patient instead of rushing into the housing market. Goldman Sachs expects year-over-year shelter inflation to drop from 4.1% today to 2.6% by December 2026.
"They can go to the rental market, where rents are pretty flat, and they can wait it out another year if they don't feel like the market has shifted enough in their favor," Fairweather said.
Nepo money
And finally, some homebuyers are getting help from family.
A Redfin study from earlier this month found that nearly a quarter of Gen Z and millennial homebuyers who recently bought a home received assistance from their families through either a cash gift or an inheritance. Almost 21% of young homebuyers received a cash gift, and 11% used an inheritance for their down payment.
As of 2024, the average down payment on a home was $63,000, or roughly 16.3% of the overall home price — a significant sum for younger homebuyers to front without help from family. Younger buyers might also be struggling with other financial obligations like student loans and high rents.
Parental support isn't new, and Gen Z and millennials are fully tapping into it amid rising costs of living. Many younger people are opting to live with their parents, especially in expensive markets such as the Northeast and the West.
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