The number of “million-dollar cities” with home listing values exceeding an average of $1 million has tripled since 2020, according to recent Zillow data.
With the average price of a home up 19.6% last year, according to Zillow, 146 new “million-dollar cities” were added in 2021 — the most ever in one year — bringing the total number to a new record of 481.
While Idaho, Montana and Tennessee gained million-dollar cities for the first time, California, Massachusetts and New York added the most new cities with average home values above $1 million. Most million-dollar cities are located in large coastal regions, like Los Angeles and San Francisco, with 44% of them in California.
“The surge in demand for housing last year sent home values skyrocketing, even in places where prices already were sky-high, and that helped tip a record number of cities into the million-dollar club,” says Jeff Tucker, a senior economist at Zillow.
The median price of a home in the U.S. is now $408,100, which is $85,500 more than it was in Jan. 2020, according to price information from the St. Louis Fed.
The dramatic increase in median home prices is largely the result of a longstanding shortage of homes, exacerbated by strong demand and construction disruptions during the pandemic.
First-time buyers are getting priced out
Escalating home prices have made it even harder for first-time home buyers to afford property.
The median down payment for first-time buyers is 7% of the total cost of the home, according to a 2020 survey by the National Association of Realtors. That works out to a down payment of about $70,000 for an average home in a million-dollar city.
Considering that millennials, many of whom are buying homes for the first time, have average personal savings of $63,300 and often carry a hefty amount of student loan debt, many simply can’t afford to cover down payment on a new home.
There are federal and state programs that offer incentives for first-time buyers, like Federal Housing Administration (FHA) loans, but they come with restrictions, like mandatory down payment insurance and a price ceiling of $647,200 in most markets.
These programs do offer what are known as “jumbo-sized” mortgage loans for markets with million-dollar homes, but they have stricter guidelines for borrowers, larger down payment requirements and sometimes higher interest rates, per the Washington Post. You can look up the FHA loan limit in your country using this list.
However, “the government programs are not enough,” says Desh Weragoda, chief technology officer for mortgage lender MBANC. “Look at any open house — they’re crazy crowded. The competition and demand is so high that even if you have government help, someone else might come in with 50% down.”
While increased mortgage rates are expected to cool down the housing market somewhat, experts expect home prices to continue growing in 2022, although at a more modest rate compared to 2021.
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