Million-dollar homes are no longer anything special

May 19, 2016

A million-dollar home may be out of reach for many Americans, but a new report from the real estate website Trulia says that in many major cities, seven-figure values are becoming common.

The share of homes with values topping $1 million rose from 1.6 percent to 3 percent nationwide between 2012 and 2016. But many major metro areas are seeing far more dramatic increases. Some 57 percent of San Francisco homes are now worth a million or more, up from 20 percent in 2012. Areas outside Silicon Valley are also seeing big jumps.

Some of this simply reflects overall rising housing prices, pushing more homes into seven-figure territory. But that’s not the whole story.

“Most construction today is actually in the middle to upper end,” said Trulia chief economist Ralph McLaughlin.

Urban land prices are high, which means that in the absence of government incentives to do otherwise, developers need to build expensive homes to make money. Not as many starter homes are being built. There are extremely limited choices for first-time buyers and middle-class families hoping to live in desirable cities.

“We’re talking about home price increases, but you can look at rent increases, which are just as astronomical,” said Carol Galante, a former Federal Housing Administration commissioner who is now a professor in affordable housing at University of California, Berkeley.

High rents mean renters can’t save up to buy. And rising prices make it hard for existing owners to trade up. It’s a situation that leaves a lot of people stuck. Unsticking them will take wage growth or more housing. Probably both, and perhaps much more.