Despite soaring mortgage rates dampening demand, historically low inventory continues to drive up home prices and values across the United States. This trend brings both opportunities and challenges for homeowners and buyers alike.
The Million-Dollar Home Boom
An astonishing 8.5% of U.S. homes are now valued at $1 million or more, marking the highest share in history. This represents a significant increase from 7.6% just a year ago and more than doubles the 4% share observed before the COVID-19 pandemic.
In raw numbers, this translates to 8,022,439 U.S. homes worth at least $1 million as of June 2024, compared to 7,155,393 in June 2023 and a mere 3,427,869 in June 2019, before the pandemic began.
Factors Driving the Surge
The unprecedented rise in million-dollar homes can be attributed to several key factors:
- Record-high home prices: The median sale price nationwide saw a 4% year-over-year increase in June.
- Luxury market growth: The median sale price of U.S. luxury homes rose 9% year-over-year to a record $1.18 million in the second quarter.
- Supply shortage: Despite slow homebuying demand due to high mortgage rates, a severe lack of inventory is fueling competition and keeping prices elevated.
The Paradox of High Prices and Low Demand
Interestingly, home prices continue to rise despite sluggish demand. This phenomenon is primarily due to the ongoing supply shortage. While inventory has slightly improved recently, it remains approximately 30% below pre-pandemic levels. Many homeowners are reluctant to sell, as they are locked into low mortgage rates from previous years.
Regional Variations in Million-Dollar Home Growth
The surge in million-dollar homes is not uniform across the country. Some key observations include:
- The share of homes worth $1 million or more increased year-over-year in 47 of the 50 most populous U.S. metros.
- Austin, TX saw a slight decrease, with 10% of homes now worth $1 million or more, down from 10.1% last year.
- Indianapolis, IN and Houston, TX maintained their previous year’s percentages at 2% and 3.6%, respectively.
California: The Epicenter of Million-Dollar Homes
California continues to dominate the million-dollar home market:
- Anaheim: 58.8% of homes are now worth at least $1 million, up from 51% a year ago.
- San Diego: 42.6% of homes are valued at $1 million or more, increasing from 36.5%.
- Los Angeles: 39.3% of homes have reached the million-dollar mark, up from 35%.
- San Francisco and San Jose: Both cities boast around 80% of homes worth seven figures.
The Most Affordable Major Metros
On the opposite end of the spectrum, several major metropolitan areas still offer relatively affordable housing options:
- Detroit, Cleveland, Pittsburgh, and Kansas City, MO: Less than 1% of homes in these cities are valued at $1 million or more.
Implications for Homeowners and Buyers
This trend has significant implications for both current homeowners and prospective buyers:
- For homeowners: The increasing likelihood of their property being worth over $1 million translates to a more valuable real estate portfolio.
- For buyers: The rising share of homes listed for seven figures makes it increasingly challenging to afford a home, especially for first-time buyers.
The Tech Industry’s Impact
In high-priced markets like the Bay Area, the tech industry continues to play a significant role in driving home prices. Employees from companies like Google, Apple, and Facebook are often able to navigate the expensive housing market with less hesitation.
A Glimmer of Hope for Buyers
Recent declines in mortgage rates have provided some relief for buyers, increasing their purchasing power by tens of thousands of dollars. This trend has begun to bring some buyers back to competitive markets like the Bay Area.
The Future of the Million-Dollar Home Market
As the real estate landscape continues to evolve, several factors will likely influence the future of million-dollar homes in the U.S.:
- Potential changes in mortgage rates
- Economic conditions and job market trends
- New construction and housing supply developments
- Shifts in remote work policies and migration patterns
As the share of million-dollar homes reaches unprecedented levels, the U.S. housing market finds itself at a critical juncture. The coming months and years will reveal whether this trend represents a new normal or if market forces will eventually bring about a rebalancing of home values across the country.
