Millennials are co-buying homes because of the disastrous state of the housing market

The tragic economic plight of the millennial has been extensively documented (although sometimes questioned and debunked). The startling fact of two historic recessions before they turned 40 is contrasted with the refrain baby boomers had to weather high interest rates and economic downturns, too. But two stark facts support the narrative that the generation entering homebuying age has terrible economic luck (again): the level of affordability and the competition with older buyers.

The housing market is the least affordable it’s been since 1984, and the baby boomer generation, which struggled to get off its feet in the ’80s, has the cash and the equity today to muscle millennials out. In fact, recent data shows the median age of a U.S. homeowner is 59 years old. Enter “carpooling for homes.”

Austin Allison, cofounder and CEO of property brokerage Pacaso, sees the growing trend of co-ownership as a kind of life hack, the way you would with a commute.

“Co-ownership is like carpooling for homes,” he tells Fortune. “Co-owning with family or friends offers a solution, lowering the entry barrier and addressing affordability challenges.”

Opendoor Technologies, an online company that buys and sells residential real estate, found first-time homeownership in co-buying is becoming more common among first-time homebuyers, particularly millennials. Jennifer Patchen, an Opendoor real estate broker, says this should come as no surprise, given it’s millennials who introduced crowdfunding and are also notorious for wanting to generate passive income and work side hustles.

“Millennials are often the ones looking for alternative strategies for funding a home and are really leading the charge for redefining traditional homeownership,” Patchen tells Fortune. “The primary drive of co-ownership is cost saving. Co-buying allows millennials to buy now, securing an affordable place to live in the present, while setting up a solid investment for the future.”

Another report by JW Surety Bonds shows nearly 15% of Americans have co-purchased a home with a person other than their romantic partner—and another 48% would consider it.

The market has grown so unaffordable because of mortgage rates that reached two-decade highs in late 2023, and home prices trended up nationwide, a spokesperson with JW Surety Bonds, which provides bond and insurance services to mortgage brokers, contractors, and other businesses, tells Fortune.

“Co-ownership helps buyers share the financial strain of owning a home, making it more affordable for those who can’t afford to buy one independently,” the spokesperson said. (JW Surety Bonds surveyed more than 1,000 Americans for the study.) Preferred co-buyers among respondents include a friend, sibling, parent, and extended family.

But this trend also tells a dark story about what’s become of the American dream of homeownership.

Whither the millennial American dream?

In October 2023, mortgage rates peaked at 8%, a two-decade high, and have since dropped to 6.34%. Elevated home prices across the U.S., along with consumer challenges associated with an inflationary period, have made homeownership the least accessible it’s been in decades—particularly for younger generations. Home prices are up about 50% in the past five years, according to the Case-Shiller Home Price Index.

Gen Zers and millennials have found increasingly creative ways to generate the income they need for a down payment and sky-high monthly mortgage payments, like taking on side hustles and asking for money from family and friends, so the concept of co-buying is just another hack to break into an unbearable housing market.

Baby boomers came out on top of the 2023 housing market, sitting on either completely paid-off homes or with low mortgage rates nabbed during or before the pandemic. That left millennials and Gen Zers with the scraps of starter homes left on the market and mortgage rates that hadn’t been seen in decades.

That’s why co-buying has been more attractive for these two generations. It allows them to achieve homeownership at a younger age without as much overhead investment.

JW Surety Bonds’ study also shows a split in generations’ motivations for co-owning. Gen Z is the most interested in co-buying a home for a personal residence, it found, while older generations are most interested in doing so as an investment opportunity. Some of the top benefits of co-owning a home include sharing costs, affording a better home, an investment opportunity, and sharing responsibilities for the home, according to respondents.

“The future of co-buying could redefine the definition of traditional American homeownership,” Patchen says. “While we don’t have a crystal ball, buyers are getting creative in order to make their dreams of homeownership in the U.S. a reality.”

Christopher M. Naghibi, executive vice president and chief operating officer at First Foundation Bank, also says he has seen more non-romantic partners buying properties together.

With mortgage rates as high as they are, “people can’t buy homes without pooling resources and working together to create ‘pseudo-households’ where their purchasing power combined can get them into a property where they can share in the equity upside,” he tells Fortune.

The pitfalls of co-ownership

While co-ownership has undeniable appeal in the form of cost savings, it has plenty of pitfalls, too. It’s an “interesting animal,” said Nikki Beauchamp, an associate broker at Sotheby’s International Realty who has worked with clients pursuing co-ownership in New York City. Homeownership is “generally already complicated and not suited to nontraditional scenarios,” because condos and townhomes are more popular purchases in New York City than single-family homes.

“Given the affordability crisis that permeates much of the U.S. at the moment, I think there is a great likelihood that people will look at [co-buying] as a more viable option in order to own property,” she tells Fortune.

But co-ownership has challenges of its own, she reminds buyers.

“When you are buying with anyone, you need to consult with attorneys and tax professionals, and also consider what the plan is in case of/when a participant passes,” she says. “Things become exponentially more complicated when there is a death involved.”

Death is one of the less common endings to co-ownership, though. More commonly, friends can have a falling out. Someone may need to move—or may lose their job. The report by JW Surety Bonds shows that top concerns among respondents include interpersonal conflict, legal and financial complications, potential for financial loss, and difficulty selling or transferring ownership.

Patchen suggests running through a four-part checklist before considering co-ownership. This includes aligning on financial expectations, conducting credit checks, considering a mortgage strategy, and agreeing on an exit strategy.

“As shared ownership gains a broader recognition and acceptance, it may become as popular as finding a roommate for renting is in today’s world, with the added benefit of being a potentially very profitable investment,” she says. But “there’s always going to be a risk in co-ownership, as an unexpected relationship breakup, romantic or not, is never out of the question.”

A version of this story appeared on Fortune.com on January 10, 2024.