Million-Dollar Homes Are Less Common As High Mortgage Rates Cool The Market

Million-dollar-plus homes are making up a smaller portion of the housing pie than they did in the spring according to a recent survey. Just over 7% of homes in the U.S. are worth $1 million or more. The share has dropped from June 2022’s all-time high of 8.6% and remains essentially unchanged from a year earlier–but it’s up from 4.2% just before the pandemic began.

The report found that the free fall is an illustration of the cooling market. Home values and prices have dropped from record highs as 6.5%-plus mortgage rates dampen home buying demand. That has pushed a certain portion of homes that would have been worth seven figures at the peak of the pandemic home buying frenzy below the million-dollar threshold.

Some of the decline from the June peak is due to seasonality, as home prices typically decline in the second half of the year, but the June-to-January drop noted in this report is much bigger than usual.

“Home values are coming down from their peak and fewer sellers could fetch seven figures–but that doesn’t mean buyers are getting a break,” said Chen Zhao, Redfin’s economics research lead. “The typical home buyer’s monthly mortgage payment is even higher than it was when home values peaked in the spring because rates are so much higher and although home prices have come down, they certainly haven’t crashed. Now isn’t the time for buyers who need to take out a loan to get a good deal. Buying an $800,000 home today would cost more per month than buying a million-dollar home a year ago.”

With today’s 6.6% mortgage rates, a buyer who made a 20% down payment would pay $5,241 for an $800,000 home. With the 3.5% rates common in early 2022, that same buyer would pay $5,034 per month for a $1 million home.

The portion of homes worth seven figures has nearly doubled since before the pandemic, and the typical home is worth significantly more. That’s due mostly to home prices soaring as demand skyrocketed during the pandemic and partly to the general uptick in home values over time.

Bay Area, Seattle and New York are losing million-dollar homes the fastest

The share of homes valued at seven figures is falling quickest in the Bay Area and other expensive coastal areas. Just over 80% of San Francisco homes are worth at least $1 million–the biggest share of the 99 most populous U.S. metros, but down from 86.3% a year ago.

Oakland, California, where 44.8% of homes are worth $1 million or more, down from 50% a year ago, experienced the next-biggest decline. It’s followed by Seattle (27.5%, down from 30.9%), New York (29.5%, down from 32.5%) and San Jose, California (79.2%, down from 81.7%).

The Bay Area has seen outsized drops because home prices there have dropped more than in other places. San Francisco’s median sale price fell 9.4% year over year in January and Oakland’s fell 7.8%, two of the three largest declines in the U.S. Rising mortgage rates have hit expensive markets particularly hard because homes there are so expensive, with even a small bump in rates translating to a big increase in monthly mortgage payments.

One factor is certainly the price of housing in the Bay Area, where as of February, the median sales price for single-family homes stood at $1.335 million, and $1.9 million within the city of San Francisco, according to the California Association of Realtors.

Using a variation of the example above, even a nearly 10% drop in San Francisco’s prices doesn’t cancel out the impact of today’s high mortgage rates. The typical San Francisco home buyer would pay $8,372 for today’s median-priced ($1,278,000) home with a 6.6% rate. A year ago, a buyer would have paid $1,410,000 for the typical home–but their monthly payment would have been much lower, around $7,100 with a 3.5% rate.

The prevalence of tech workers is another reason for falling prices in those places. There isn’t as much demand for homes there as there once was because of the popularity of remote work, and stumbling stocks and the surge of layoffs in the industry means fewer people can afford to buy.

Still, the vast majority of homes in the Bay Area are worth at least a million dollars, and more than a quarter of homes in Seattle and New York hit that mark.

Florida is home to more million-dollar homes than a year ago

Roughly 1 in 7 (14.4%) of Miami homes are worth at least $1 million, up from 11.5% a year ago, the biggest increase of the metros in this analysis. The next-biggest upticks are in North Port, Florida (11.3%, up from 9.1%), Anaheim (54.2%, up from 52.2%), Nashville (8.4%, up from 6.4%) and West Palm Beach, Florida (12.8%, up from 11.1%).

Million-dollar homes are making up a larger chunk of Florida’s housing stock because many parts of the Sunshine State are still seeing substantial upticks in home values and prices. Florida was home to six of the 10 metros with the biggest home-value increases last year, and Miami, North Port and West Palm Beach all saw 5%-plus annual price increases in January.

Florida homes are holding their value because there’s still healthy demand from buyers, especially out-of-town remote workers moving in from more expensive parts of the country.

Florida’s population increased by 1.9% to 22,244,823 between 2021 and 2022, surpassing Idaho, the previous year’s fastest-growing state, according to the Census Bureau. Between 2010 and 2020, national growth dipped from 0.9% to 0.5% each year while Florida’s increases ranged from 1% to 2%.

Five of the nation’s 10 most popular migration destinations are in Florida, despite its status as the most hurricane-prone state in the country. Redfin agents report that home buyers typically move in for the state’s relatively affordable homes, beaches, warm weather and lack of a state income tax.

All in all, the portion of homes worth at least a million dollars is up from a year earlier in 70 of the 99 most populous metros. It’s unchanged in 11 and down in the remaining 18.