Illiquid Homeownership and the Bank of Mom and Dad

In September 2025, the Federal Reserve published this 67-page research paper titled "Illiquid Homeownership and the Bank of Mom and Dad" as part of the Federal Reserve's Finance and Economics Discussion Series. The author, Eirik E. Brandsaas, explores how parental financial transfers influence the homeownership rates of young households in the United States. We've provided a summary below:

Core Objective

The study quantifies the extent to which "the Bank of Mom and Dad"—parental transfers—affects the ability of adult children to become and remain homeowners. It uses a life-cycle overlapping generations model to analyze the interaction between altruistic parents and their children.

Key Findings

• Substantial Impact on Ownership: Parental transfers account for 13 percentage points (or roughly 27%) of the homeownership rate among young households.
• Beyond the Down Payment: While transfers are famous for helping children overcome initial borrowing constraints (the down payment), the paper argues they serve a second, equally vital role: insurance against illiquidity. * The "Insurance" Channel: Homeownership is a large, illiquid investment. Future potential transfers from wealthy parents act as a safety net, reducing the risk of being "house-poor." This insurance allows children to weather income shocks without being forced to sell their homes.
• Strategic Use of Illiquidity: Interestingly, the model suggests that children of wealthy parents may prefer the illiquidity of housing. Because they cannot easily tap into home equity, they are more likely to successfully "signal" a need for help to their parents, effectively using the house as a commitment device to secure future transfers.

Policy Implications

The paper highlights a "counter-intuitive" effect of housing policies:

• Lowering Barriers: Policies that lower entry barriers (like reduced down payment requirements) can actually increase the reliance on parental wealth. This is because more children of wealthy parents who were "on the margin" are pulled into the market.
• Increasing Liquidity: Policies that make it easier to access home equity (improving liquidity) tend to reduce the relative importance of parental transfers as an insurance mechanism.

Conclusion

The research concludes that parental wealth is a primary driver of housing inequality. The "Bank of Mom and Dad" does not just help children get through the door; it provides a unique form of lifetime financial security that allows them to maintain homeownership through economic volatility, a luxury often unavailable to first-generation homebuyers.