Austin Business Journal writes, "Nick Wemyss saw firsthand how the Covid-19 pandemic fundamentally reshaped the luxury housing market.
Wemyss, a real estate consultant and Realtor at Berkshire Hathaway affiliate Intero Real Estate Services, watched as the rise of remote work freed people to relocate from his home base in Los Altos, California — where home prices on average top $4.7 million — to surrounding cities and counties. Those relocations drove up home prices in places like Reno, Nevada, and around Lake Tahoe.
It was a pattern that was replicated in markets across the country.
“This isn't just growth. It's a complete redesign of where wealth lives,” Wemyss said. “While traditional luxury markets like Silicon Valley, Manhattan and Los Angeles maintained their status, new luxury areas have emerged."
In the fourth quarter of 2019, just 32 ZIP codes across the country posted an average home-sale price of $2 million or more, according to data provided to The Business Journals by Intercontinental Exchange Inc. By the fourth quarter of last year, that number had ballooned to 117 ZIP codes. Fueling the increase was the red-hot housing market of 2021 and 2022, when an increase in remote work combined with low inventory and massive demand to send home prices soaring — pushing prospective buyers into bidding wars.
In the second quarter of 2020, the median sale price for homes sold in the United States was $317,100, according to data compiled by the Federal Reserve. By the second quarter of 2022, that number was $437,700, up 38%. It has since dropped to $419,200, but that's still up 32% from five years ago.
The rapid increase also diversified the nation's multimillion-dollar markets, according to the Intercontinental data. In 2019, just three of the 32 ZIP codes with an average sale price of at least $2 million were outside of California: two in New York, one in Massachusetts. By the end of 2024, markets in Arizona, Florida, Texas, Utah and elsewhere had joined the list.
Jo Ann Bauer, associate broker and Realtor at Coldwell Banker, said the pandemic was a “perfect storm” for the luxury housing market in Arizona.
“The region experienced a significant influx of out-of-state buyers, many of whom were migrating from higher price-point areas like California,” Bauer said in an email.
Among the markets impacted is the Phoenix-area town of Paradise Valley, where the average price of a home soared to more than $3.1 million in the fourth quarter of 2024, according to the Intercontinental data.
Bauer said the Phoenix/Scottsdale metro area continues to see ripple effects from the pandemic-era surge.
“These numbers bode well for the future of the Phoenix/Scottsdale metro luxury market," she said. "Buyers in the $2M and above price point are primarily paying cash and are not impacted by higher interest rates, which are keeping many buyers in the more-moderately priced housing market at bay."
Soaring home prices push millennials into precarious home-buying position
The soaring number of ZIP codes requiring $2 million for a home comes as fewer and fewer millennials believe their generation can afford a home. That makes some so desperate for an affordable purchase they would be willing to buy a home with serious defects.
According to a recent survey by Clever Real Estate, just 21% of millennials believe their generation can afford a home, a substantial decline from 52% who said the same in early 2024. Additionally, 96% of respondents said they have concerns about purchasing a home, with 44% saying they're worried about finding an affordable home — up from 35% in 2024.
The report notes that the median home price is about $420,000, but 68% of millennials who want to buy a home in 2025 want to spend less than $400,000. That's up from 57% who planned to spend less than $400,000 last year.
The survey also showed that 57% of millennials have a strong enough desire to be a homeowner that they said they'd be willing purchase a home that smelled like cigarette smoke — and 41% said they would purchase a home that had asbestos in it. Forty-one percent also said they'd be willing to buy a house with pests in it, such as mice, cockroaches or spiders; 40% said they would buy a house with a leaky roof; and 35% said they'd be willing to accept foundation issues.
Home-buying challenges increase
The feeling that the dream of homeownership is slipping away comes as home prices rose at an increased rate at the end of last year. A study by Fannie Mae found single-family home prices increased 5.8% in the fourth quarter compared to the same three months at the end of 2023.
"Year-over-year home-price growth accelerated in the fourth quarter, following back-to-back quarters of deceleration," said Mark Palim, Fannie Mae senior vice president and chief economist, in a statement. "Inventories of existing homes for sale have improved from a year ago but remain historically low, due largely to the so-called 'lock-in effect.'"
That lock-in effect suggests that homeowners who might be interested in selling their homes now would rather wait than wade into a housing market with mortgage rates that might be twice the rate they currently hold.
Palim stressed that since the beginning of October, mortgage rates have increased from a low of 6.1%, hovering close to 7% ever since, which hurts affordability. Those rates would have to come down to help ease the housing market, he said.
The cost of a so-called “starter home” has soared in recent years, as well, according to an analysis by Redfin Corp. In 2012, the typical median sale price for what Redfin defined as a "starter home" was $95,000. That price rose in 2019 to $165,500 — and it rose further, to $250,000, last year.
The research also notes that while the typical household earns 8.9% more than they need to afford the median-priced starter home, in 2019, the typical household earned 57% more than they needed to afford the median-priced starter home. In 2012, the typical household earned 113% more, or more than twice as much as they needed.
“Starter homes aren’t what they used to be. A decade ago, a turnkey four-bedroom house in a nice neighborhood was often considered a starter home, but today, a small fixer-upper condo is often all a first-time homebuyer can afford," said Redfin senior economist Elijah de la Campa in the report. “The American Dream is changing; for many, it no longer involves a house and a white picket fence.”"
Source: Austin Business Journal
Written by: Andy Medici
Published: February 14, 2025
Posted by Grossman & Jones Group on
Leave A Comment