Why Million-Dollar Homes Are on the Decline
Dirt-cheap loans, the rise of remote work and stimulus payments fueled a historic housing boom during the pandemic that sent home prices to record highs. But what goes up must come down.
According to Realtor.com, the median home value fell to $424,000 in March from its peak of $449,000 last June. There are 20% fewer homes on the market this spring than last. They go unsold for an average of 18 days longer; and, when they sell, they sell for less.
But the market’s downward shift is most apparent in the properties on the high side of the median.
In 2023, million-dollar homes are becoming harder to come by.
It’s Getting Harder for Sellers To Ask for 7 Figures
The chill running through the housing market is cooling high-end houses especially quickly. According to Redfin, luxury home sales fell by a record 45% year over year, to the second-lowest level ever. That outpaces even the steep 37% decline in sales of non-luxury homes.
Naturally, prices are falling along with demand.
Redfin reported in March that the percentage of homes worth at least $1 million has fallen from its all-time high of 8.6% last June to 7% today.
All of those enviable houses are still standing, but their values are rapidly falling — and the reason is in the rates.
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A Million Bucks Cost a Lot More To Borrow Than Last Year
With the average mortgage rate well over 6%, it would cost more to buy an $800,000 home today than it would have to buy a $1 million home one year ago, when rates were around 3.5%.
That reality has forced even well-heeled buyers to lower their lofty standards when browsing Zillow for potential nests. For proof, just look at the effect rising mortgage rates have had on the regions with the highest concentrations of wealth:
- In San Francisco, which has a higher percentage of million-dollar homes than any other city, 80% of houses are now worth seven figures, down from 86.3% one year ago.
- Last year, 50% of homes in Oakland were worth $1 million or more. Today, it’s more like 44.8%.
- In Seattle, the percentage fell from 30.9% to 27.5%.
- New York saw its share of $1 million homes drop from 32.5% to 29.5%.
- San Jose dropped from 81.7% to 79.2%.
Despite the large percentage of sellers who are slashing prices, today’s high mortgage rates still put high-value homes out of reach for many in the aristocracy. For example, the median home value in San Francisco fell from $1.41 million to $1.28 million during the luxury crash. But the median buyer would pay $8,372 per month at today’s rates compared to $7,100 one year ago despite a nearly 10% drop in price.
Many Fled Pricey Cities When They Could; Others Got Fired
San Francisco, San Jose, Seattle and the other big cities that lost the most million-dollar homes all have one thing in common: They’re tech hubs.
Many high earners in that industry lived in those places because they had to — to make big bucks in tech, they had to spend big bucks to live in tech cities. Redfin’s data shows that the rise of remote work unshackled them from expensive urban centers. Many fled to get more house for less in areas with lower living costs, selling their high-end homes for massive gains at the height of the housing boom.
Shortly after, massive layoffs swept the tech industry and many of those who hung around simply couldn’t afford their houses anymore. Now they’re selling for less than they had hoped and certainly for less than they could have last year.
The Million-Dollar Market Was a Bubble Waiting To Pop
On average, home values are falling across the spectrum; but, if they’re crashing especially hard and fast in the luxury market, it’s probably because the high-end segment hyper-inflated during the boom.
According to CNN, the overall median home price soared by an eye-popping 42% between the pre-COVID start of 2020 and the end of 2022. But, during that same period, the percentage of million-dollar properties more than doubled from 4.2% to 8.6%.
Overall, the pandemic housing boom was historic, but for the million-dollar market, it was unsustainable.
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