A record 8.5 percent of homes in the United States are now worth $1 million or more, according to a recent report by real estate brokerage Redfin.
This marks the highest percentage ever recorded, more than doubling the rate from before the COVID-19 pandemic when only 4 percent of homes were valued at seven figures.
The surge in million-dollar homes is driven by persistently high home prices, even as the market faces other challenges.
California, in particular, stands out, with the state witnessing the most significant growth in high-priced properties. Cities like Anaheim, San Diego, and Los Angeles top the list for the highest concentration of million-dollar homes.
Redfin points to “record high” home prices as the main factor behind this increase. Although price growth has slowed slightly this year, it continues to rise steadily on a year-over-year basis, pushing many homes into the million-dollar category.
Despite higher mortgage rates, which have more than doubled since their pandemic-era lows, home prices remain elevated due to a persistent shortage of housing supply.
This shortage is partly because many homeowners, who secured low mortgage rates during the pandemic, are reluctant to sell and take on new, higher-rate mortgages. As a result, housing inventory is still about 30 percent below pre-pandemic levels.
This situation has created a tough market for buyers, especially first-time homebuyers, who are finding it increasingly difficult to afford a home.
“Home prices, insurance, and mortgage rates have shot up so much that many people are either priced out of the market or weary of committing to such a high monthly payment,” said Julie Zubiate, a Redfin Premier agent in the Bay Area, where the median sale price is now a staggering $1.5 million.
Lawrence Yun, chief economist at the National Association of Realtors, suggests that some relief might be on the horizon, noting a “slow shift” from a seller’s market to a buyer’s market.
However, with the median price of homes at a record high, any significant drop in prices seems unlikely in the near term.
Adding to the pressure on homeowners is the current state of interest rates and foreclosures.
Despite elevated home prices, foreclosures in the first half of 2024 have actually fallen, with filings down 4.4 percent compared to the same period last year, according to real estate data curator ATTOM. This suggests a potential stabilization in the housing market.
However, the situation took a turn in July, with foreclosure filings jumping 15 percent from the previous month, signaling a possible reversal in the trend.
Rising foreclosure rates are often triggered by high interest rates, which place considerable pressure on homeowners with variable- or adjustable-rate mortgages.
As these rates remain elevated, homeowners are forced to allocate a larger portion of their income to cover interest payments, leading to financial strain and, in some cases, foreclosures.
The 30-year fixed mortgage rate has hovered above six percent for nearly a year, putting additional pressure on homeowners.
The federal funds rate, a key driver of mortgage rates, has also remained elevated in the range of 5.25 to 5.5 percent. As long as this rate does not significantly decrease, mortgage payments will likely continue to be a challenge for many.
Interestingly, while the share of million-dollar homes increased in nearly all major metropolitan areas, it fell in Austin, Texas, where new construction helped boost supply and keep prices in check. This trend contrasts with California, where the housing supply crunch continues to push prices higher.
The affordability of housing is emerging as a significant issue for the upcoming election.
While Vice President Kamala Harris has proposed plans to address housing affordability, including building 3 million new homes, critics are skeptical of these measures.
Former President Donald Trump, though not yet detailing a specific housing plan, has emphasized reducing energy costs as a way to ease financial burdens on Americans.