The Rise of Million-Dollar Cities in the U.S. Real Estate Market

The U.S. real estate market is currently experiencing a significant increase in the number of “million-dollar” cities, with a record 550 areas where the typical home is valued at $1 million or more. This surge in million-dollar cities can be attributed to the mortgage lock-in effect, according to a recent analysis by Zillow. The lock-in effect has dissuaded homeowners with low-interest rates from listing their properties for sale, leading to a limited supply of available homes in some markets and subsequently driving up sale prices.

Skylar Olsen, chief economist at Zillow, highlights the impact of the interest rate lock-in on sellers’ decision-making. She notes that many sellers are holding off on selling their homes due to the favorable interest rates they secured, leading to a scarcity of available properties in certain markets. This phenomenon has contributed to the increase in million-dollar cities across the country, with California leading the pack with 210 such cities.

Regional Disparities in Million-Dollar Cities

Interestingly, the rise in million-dollar cities is not uniform across the country, as some areas have lost their “million-dollar” status. Regions where homeowners already had higher interest rates between 6% and 7% are not as affected by the lock-in effect, resulting in an increase in supply as more sellers are willing to list their properties for sale.

For instance, Florida and Texas, both known for their high-cost luxury markets, saw a decline in the number of million-dollar cities. Florida lost three million-dollar cities, including Siesta Key, Santa Rosa Beach, and Sanibel, while Texas lost Sunset Valley and Volente near Austin. However, it is uncertain whether this decrease is a long-term trend, as these states continue to have a significant number of million-dollar cities, with 32 in Florida and 14 in Texas as of February.

The Role of New Construction in Shaping the Real Estate Landscape

In areas where million-dollar cities have lost their status, the presence of new construction plays a pivotal role in reshaping the real estate landscape. Olsen emphasizes the importance of new construction in providing more inventory and alleviating supply constraints in markets that have seen a decline in million-dollar cities.

Olsen highlights that regions with a higher concentration of new construction are less susceptible to the lock-in effect, as they have a more robust supply of homes available for sale. This trend suggests that the real estate market is dynamic and influenced by various factors, including interest rates, new construction, and seller behavior.

The rise of million-dollar cities in the U.S. real estate market reflects the complex interplay between economic factors and consumer behavior. While the lock-in effect has contributed to the scarcity of homes for sale in some markets, regions with a higher supply of new construction have been able to maintain a more balanced real estate landscape. As the market continues to evolve, it will be essential to monitor how these trends shape the future of million-dollar cities across the country.