I’m a Real Estate Agent: Why There’s a Record Number of Million-Dollar Homes
According to Zillow, there’s a record-high number of million-dollar homes in the United States. In fact, there are 500 U.S. cities where the average home value is at least $1 million. Last year, that number was just 491.
Even in states where the typical home value isn’t quite that high, prices are still increasing. This has made it harder for people — especially first-time buyers or those who don’t have a high net worth — to afford real estate, even for residential purposes.
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Of course, listing price isn’t the only issue here. Many homes, especially those valued at $1 million or more, come with high interest rates, property taxes, and homeowners insurance premiums. Along with this, U.S. cities where the typical home value is at least $1 million have also seen increased prices.
Right now, the average home in the U.S. is worth 4.2% more than it was a year ago. In cities that meet the million-dollar mark, the cost of real estate has grown by 4.6% year-over-year.
But why are there so many more million-dollar homes now? And what does this mean for someone looking to buy property in the U.S.?
GOBankingRates spoke with real estate agents Martin Orefice and Colten Claus to get their thoughts. Here’s what they told us.
Why There Are So Many Million-Dollar Homes
So, why is there a record number of million-dollar homes in America? Colten Claus, an associate broker with 8z Real Estate in Colorado Springs, had a few thoughts:
Economic growth plays a role. “Over the years, there has been significant economic growth and wealth accumulation in certain demographics, particularly among high-income earners,” he said. “This wealth enables more people to afford and invest in high-end properties.”
Inflation impacts everything — including real estate. Inflation, Claus said, has contributed to the rise in home prices. In areas where prices were already near the million-dollar mark, they simply went over.
High demand and limited supply equals price surges. Competition is another big one. The higher the demand, the higher the costs. “Places like San Francisco, New York City, and parts of Southern California are prime examples where location drives up home prices,” he said.
More people want luxury. “There’s a growing market for luxury homes that offer unique amenities and bespoke features,” Claus said. “These homes naturally command higher prices.”
Regulatory factors could be limiting supply. Again, cost is largely about supply and demand. The more limited the supply, the higher the potential cost. “In many areas, zoning laws and building regulations limit the construction of new homes,” said Claus. “[This] can restrict supply and push up prices of existing homes.”
People still view real estate as an investment. “Real estate is often seen as a safer investment compared to other options like stocks or bonds,” said Claus . This attracts more property investors. While the individual investors might not be having much of an impact on national prices, the big ones — the corporations — likely are.
Martin Orefice, a real estate agent and the CEO of Rent To Own Labs, put it even more succinctly.
“A million-dollar home doesn’t mean what it used to. In high-demand markets like New York, San Francisco, or Los Angeles, a million dollars will only get you a decent-sized house, not a mansion,” he said. “Even in cooler markets, a million dollars is approximately the price point for large homes in nice suburbs. Home prices have gone up, and new construction tends to happen in more profitable, high-priced areas. This is the result.”
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Future of Real Estate in the US
While it’s hard to say exactly what’ll happen in the future, Claus and Orefice both have some predictions.
“While the housing market may have its ups and downs, the trend is clearly towards more value over time,” said Orefice. “Sooner or later, you won’t be able to get a home for less than a million dollars.”
Claus added that factors like ongoing urbanization, limited supply in high-demand areas, local regulations and policies, and inflation are likely to continue to drive housing prices up. Along with this, as these already expensive cities continue to develop and attract more people to the area, investors and other high-net-worth individuals are likely to continue to purchase these properties — thus leading to continually rising prices.
What These Changes Mean for the Average Buyer
For real estate investors and high-net-worth individuals, the rising prices might not be as much of a concern. For the typical buyer, however, they pose some major challenges.
One of the biggest ones is, of course, that the prevalence of million-dollar homes raises the bar of entry into homeownership. This is especially likely in areas with high-valued properties — like California — where the average buyer might already struggle to afford a home.
This, in turn, can lead to what Claus called “market displacement.”
“In cities with many high-priced homes, middle and lower-income families might find themselves priced out of the market,” he said. This can result in longer commute times for those who still want to remain in the area but have to move further away. And it can lead to people who’ve already lived in those areas relocating altogether.
The surge in million-dollar homes also means potentially higher competition and fewer options for those looking for a traditional — more affordable — starter home.
“This is another sign that the bottom of the housing market is simply not there anymore,” said Orefice. “Starter homes are harder than ever to find, and more expensive than ever when they are available.”
Of course, this doesn’t mean it’s impossible to afford a home. For the typical buyer, it might just be necessary to expand the search and, at the very least, go beyond places where housing prices are already nigh astronomical.
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This article originally appeared on GOBankingRates.com: I’m a Real Estate Agent: Why There’s a Record Number of Million-Dollar Homes
