Who can afford that? The question has become more prevalent than ever, as dwindling supply has nudged the median home price ever higher, according to a new report by LendingTree that examined the U.S. metros with the highest share of million-dollar homes.
The report found specifically that California remains a very expensive destination. According to the report, the percentage of owner-occupied units valued at $1 million or more clocked in at an eyebrow-raising 71.57% in San Jose. This was followed by San Francisco at 56.57% and Los Angeles at 36.42%.
In cities like San Francisco and San Jose, a million-dollar home is a relatively basic residence, due in large part to shrinking supply, the report said. Until the supply issue is more balanced, affordability will remain high—and less people will have access to housing based on their current earnings level, the report points out.
“While homes worth $1 million or more aren’t universal (and remain relatively rare in most metros), there’s no getting around the fact that home prices are generally moving upward,” the report authors write. “The biggest reason is a lack of housing supply. Though estimates vary, experts generally agree the U.S. is short millions of housing units. This puts significant upward pressure on housing costs, as prices tend to rise when supply is low and demand is high. Steep prices are often felt the most in large metros, where roadblocks such as overly strict zoning laws can make new construction difficult and exacerbate supply issues. If left unaddressed (as it often is), a lack of supply can make prices once reserved for only the most luxurious homes more common.”
It’s not all doom and gloom though. The report also found that metros such as Cleveland, Buffalo and Louisville had low shares of million-dollar properties as a percentage of total housing stock. Per the report, the percentage of owner-occupied units valued at $1 million (or more) in Cleveland was just 1.09%, with Buffalo following at 1.16% and Louisville at 1.44%.
The report also proffered explanations for the rise of home prices by region and listed solutions for those seeking to buy in an expensive area. In terms of reasons for larger metros seeing soaring prices, the report cited the fact that these areas have the strictest zoning laws, making new construction more difficult to get approved. This means existing homes will have the price increase factored in, since the demand either remains constant or rises depending on the attractiveness of the metro, the report noted.
In terms of brainstorming solutions to the affordability crisis, the report cited researching different mortgage options, boosting your credit score and comparing rates as solutions that could ease the burden on folks who might have a difficult time making their homeownership dream come to fruition.
A good credit score allows for better interest rates, while mortgages insured by the FHA are easier to obtain for those with poor credit or a lack of funds. In more expensive areas, the FHA has been known to offer loans that exceed a million dollars with a loan limit ceiling set at $1,149,825. Lastly, the report stated that shopping around for and comparing different companies’ mortgage rates was another beneficial tactic for those looking to ease their cost burdening.
To view the full report, click here.
