Buying a house used to be a major milestone that was realistically achievable on a single income, but the housing affordability crisis has made that goal nearly impossible for most Americans. Home prices have drastically outpaced wages, and interest rates are higher than ever before. Now that median home prices have topped $400,000, many people need more than a decade to save for a traditional 20% down payment, and by the time they accumulate the funds, they’re priced out by interest rates and can’t afford to buy a home in a good neighborhood.
If you’re determined to buy a home but you can’t figure out how to make the finances work, it’s time to consider co-buying with a friend or family member. If you choose this path, you’ll be in good company. A Rocket Mortgage survey of house hunters found that nearly 60% of renters are open to co-buying a home with friends.
Friends pooling money to buy a property isn’t entirely new, but it’s becoming mainstream out of necessity.
The housing market is no longer affordable
Both home and rent prices have surged in the last decade, while wages have stayed about the same. The tiny minimum wage increases in cities like Seattle didn’t make a difference. Most people can’t afford rent or a mortgage. That’s why people are getting creative.
From the outside, it might seem like the problem is just normal inflation. That’s not the case. The numbers used to make sense, and now they don’t. Homes used to cost around 2-3 times a person’s annual income. Today, a home costs between 5 and 7 years of income or more.
- 1970s: The median home price in the ‘70s was between $23,000 and $35,000. At that time, the median household annual income was between $9,000 and $13,000. Buying a home was expensive but attainable.
- 1980s: In the ‘80s, median home prices were around $47,000 and $79,000, and interest rates started to climb. At one point, interest rates were as high as 18%. Buying a home in the ‘80s was expensive but still doable.
- 1990s: Naturally, home prices drastically rose in the ‘90s to $120,000 to $150,000. However, incomes were also rising and interest rates dropped to 7 to 9%. The price-to-income ratio was fairly stable at this time. But that didn’t last long.
- 2000s: Home prices rose to $200,000 and higher before the big 2008 crash. After the crash, prices dipped and then rose again.
- 2020s: Home prices in the 2020s have been astronomical. The median home price has reached $400,000, while the median household income is barely $75,000.
The current numbers make homeownership impossible for many people, and that’s exactly why they’re buying homes with friends and family.
Wages aren’t keeping up
The housing affordability crisis is largely caused by stagnant wages. Even though wages were growing in the past, it wasn’t much. The general trajectory of home prices has always risen out of proportion compared to wages. Today, housing costs are rising so high and so quickly that most people are locked out of the market.
Debt is another problem many people face. Household debt is higher than ever. Student loans, credit card balances, and high car payments increase debt-to-income ratio and reduce the loan amount you can qualify for. Even if you’re earning more money than your parents did when they were your age, you probably can’t afford to buy a home on your own.
The benefits of pooling your money
If buying a home with other people is your only way into the housing market, you’ll experience plenty of benefits that make it worthwhile. For instance, combined incomes can push you into a higher approval bracket and help you qualify for a higher loan amount. It can also improve the terms of your loan by giving you a lower interest rate.
Where down payments are concerned, instead of spending ten or more years saving for a 20% down payment, you can split it with your co-buyers and purchase your home faster. You’ll also split ongoing costs like property taxes, repairs, maintenance, and renovations.
Perhaps the biggest benefit is being able to afford a home you truly want to own. Many people are stuck buying property in bad neighborhoods because they can’t get a big enough loan to buy the home they really want. With qualified co-buyers that provide access to larger loans, you’ll be able to choose where you live rather than being forced to settle for less.
If you’re struggling, try a new strategy
If you’ve realized that solo homeownership in the U.S. is no longer affordable, don’t give up. Consider co-ownership with friends or family who also want to buy a home. It’s the easiest way to get into a market that is quickly moving out of reach.
