An analysis by Zillow has found that there are now 550 cities that they consider to be “high value,” meaning that the typical home costs $1 million or more. This is an increase of 59 cities over the previous year, and 28 cities higher than the previous high set in 2022. This effect is said to be the byproduct of low housing supply and high interest rates, which has helped to keep prices artificially high.
A Growth in High Value Cities
According to Zillow’s analysis, there are now 550 cities where the typical home sells for $1 million or more. While some of these cities are places where the wealthy have traditionally lived, and thus home prices are usually fairly high, many of the cities are merely hot locations for real estate investment and development. California had the highest number of high value cities, numbering at 210, with New York, New Jersey, Florida, Massachusetts, and Colorado following far behind.
Problems with the “Lock-in” Effect
One of the major causes for the growth in high value cities is what the study refers to as the mortgage “lock-in effect.” This is where existing homeowners who bought their homes when they were much cheaper (and, typically, at a much lower interest rate) feel trapped in their existing mortgages due to the vast difference in pricing and mortgage rates. This has kept many old homes off the market, keeping prices up.
Housing Inventory Remains Low
In addition to current homeowners feeling trapped in their existing mortgages, new homes have not been built at anywhere near the rate necessary to keep up with demand. This promotes heavy bidding for what homes are built, as buyers compete over the limited number of properties on the market. This has caused the prices for homes to skyrocket, even in places that traditionally were not considered places for heavy real estate investment.
Impacts on Home Affordability
While this is generally good news for current homeowners, who may have seen their homes increase dramatically in terms of equity, this has been disastrous for first time buyers seeking affordable homes. It has become that much harder for people to break into the real estate market, especially in places where real estate investment is at its heaviest. High interest rates have also exacerbated the issue, ensuring that affordability issues will continue to be a problem for some time.
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