The Gift Debate
Happy New Year! The holidays are just about over for most of us, and many are probably hoping to leave talk of gifts alone for another couple of months at least. But today we want to talk about a debate surrounding a certain type of gifts, the gift of a down payment; and whether or not new rules imposed on these gifts would help or hurt the market.
“It is a very simple equation: consumers in the market, especially first-time buyers, get concerned about missing the boat on low rates and get the down payment gifted from parents who are sitting on hundreds of thousands in home equity, which in turn keeps purchases going,” says Lior Hershokovitz of Mortgage Edge. “The abundant supply of cheap money in the system empowers sellers and they feel more confident securing top dollar for their property.”
Those gifts have led some brokers to believe that putting easy money into the marketplace bloats the prices; and will continue to see property prices rise while buyers continue to struggle with affordability.
“At the end of the day it is still easy money and the gifts play a part. But you still have lenders who do a 35-year amortization as long as it is a conventional mortgage,” Hershokovitz continues. “So, that too, plays a factor in all this; the low rate, extending the amortization and parents today willing to give more and more money (are all) contributing.”
And he says, this is only going to continue unless even more government rules curb the ability of prices rising even more.
“The trend will continue unless the government comes with regulations and says you can only gift so much or if they become more stringent with the documentation regarding the gifts. Right now that’s not happening,” says Hershkovitz. “It could also potentially create some resistance to giving gifts if parents have to show their own financial history when giving a gift for mortgage.”
But, he says, any new rules could also end up hurting the marketplace.
“I think it’s very commendable that parents are stepping up to the plate and helping their children get into homes,” he says. “But obviously, once you make that more difficult or you put the onus on the parents to put give more information it could be detrimental to the market.”