Propmodo Daily

By Franco Faraudo · Mar. 28, 2024

Greetings!

Home sales are picking up, but buyers aren't financing like they used to. A new report shows a surge in "nepo-baby" home purchases, with younger buyers relying on their parents' money in this high-interest rate environment. Today's email explores how the proposed estate tax could further incentivize this trend.

Before we dive into today's news, we have a quick update on yesterday's story about Adam Neumann's Flow bidding on WeWork. While we discussed whether the company deserved a $500 million valuation, a Flow representative reached out to clarify that another significantly higher bid for WeWork has also been submitted. Here's their statement: "Two weeks ago, a coalition of half a dozen financing partners – whose identities are known to WeWork and its advisors – submitted a potential bid substantially exceeding the amount reported by The Wall Street Journal without contacting us." We'll keep you updated as more details emerge about the competing offers to buy WeWork.

Looking for the latest in lighting innovation? This week on Propmodo Technology, we're exploring circadian lighting, designed to boost wellness in the workplace by mimicking natural light patterns. Plus, learn how networked LED systems can save energy and create better work environments.

Now, let's dig in!

New Estate Tax Proposal Will Fuel the Rise of “Nepo Babies” in the Housing Market

There is a new derogatory term floating around popular culture: nepo babies. If you haven't heard that term yet, it describes the long list of rich and famous people who got their start thanks, at least in part, to their rich and famous parents. This term has now been borrowed by the real estate industry to describe the growing number of people who are using their parents' money to buy a house.

This isn't a small phenomenon either. A new report by Redfin shows that 36% of younger homebuyers expect to receive at least some cash from their parents. Only five years ago, the percentage of homebuyers using their parents' money was half of that.

Parents are using their money to help their kids buy homes in a tough lending environment. Rather than see their offspring struggle under the weight of nearly 8 percent mortgage rates, many parents are providing enough funds to make an all-cash offer. In January, the number of all-cash home purchases reached an all-time high of 32% of all home sales.

Besides the growing number of baby boomers looking to help out their kids, another contributing factor to the nepo-homebuyer trend is the new estate tax rate under the proposed Federal budget. Right now, the government taxes any inheritance over $13.61 million. If passed, the new budget would drop that exemption down to $3.5 million.

In pop culture, the conversation around nepo babies has often been a way to discredit some people's success. In real estate, it could lead to even more conversation around wealth equality. Higher interest rates are meant to tame inflation and help protect lower-income citizens, but they also put homeownership out of reach for all but the most fortunate. The pain being felt in real estate isn't exclusive to large corporations or rich landlords – if anything, they are the ones with the money and connections to deal with high-interest rates.

If first-time homeownership continues to fall to the point where it becomes a political issue, the government will be forced to take action. They'll need to either reduce interest rate hikes or find new ways to help those who can't rely on their parents' money.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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