The real estate market in the United States has seen a significant increase in the number of “million-dollar” cities, with a record 550 such areas as of February. This marks an increase of 59 cities from the previous year, surpassing the previous record set in 2022. The rise in million-dollar cities can be attributed to the mortgage lock-in effect, which has discouraged homeowners with low-interest rates from selling their properties. This has led to a limited supply of homes in some markets, driving up prices for the available properties. Skylar Olsen, chief economist at Zillow, emphasized that the interest rate lock-in causes sellers to hold onto their properties, further contributing to the scarcity of homes for sale.
California stands out as the state with the highest number of million-dollar cities, with 210 cities fitting this category. This is 12 more than the previous year and more than the combined number of million-dollar cities in the next five runner-up states – New York, New Jersey, Florida, Massachusetts, and Colorado. The impact of the lock-in effect on supply is particularly noticeable in areas with historically high prices, as sellers become more sensitive to interest rates. While California experienced a significant increase in million-dollar cities, some areas saw a decline in this status.
Areas with homeowners already locked into higher interest rates, typically between 6% and 7%, have not seen the same impact of the lock-in effect. These areas have seen an increase in the number of sellers willing to list their homes for sale, resulting in a rise in supply. Conversely, areas like Florida and Texas, which are home to high-cost luxury markets, have seen fluctuations 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.
Uncertainty in the Market
While certain areas have experienced a decline in the number of million-dollar cities, it is unclear whether this trend will continue in the future. Florida and Texas, despite losing some million-dollar cities, remain prominent high-cost markets with a significant number of such cities. The real estate market is constantly evolving, with factors like interest rates, supply, and demand playing key roles in determining home values. As seen in Naples, Florida, where the most expensive home in the U.S. was listed for $295 million, the luxury real estate market continues to draw attention and investment.
The rise and fall of million-dollar cities in the United States reflect the dynamic nature of the real estate market. While the lock-in effect and interest rates have influenced the supply and demand for homes in certain areas, regional disparities and market fluctuations contribute to the ever-changing landscape of real estate in the country.
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