One part of the housing market is doing brisk business, says analyst who called 2008 housing crash

By Aarthi Swaminathan

'It's been a rocket ship,' Ivy Zelman, a housing analyst, says about sales of million-dollar homes

The housing market has been stuck in the doldrums, with high home prices and interest rates driving some would-be home buyers away.

But one part of the real-estate industry is showing signs of life, with not just inventory but also sales picking up the pace: the category of homes selling for more than $1 million.

"It's been a rocket ship," Ivy Zelman, the chief executive of Zelman & Associates, a research firm focused on the housing industry, said Wednesday.

Her comments came during a webcast hosted by Walker & Dunlop, a commercial-real-estate financing company that owns Zelman & Associates. Zelman, a housing analyst, is known for predicting the 2007-08 housing-market downturn.

"We've seen a tremendous spike in homes purchased that are valued over $1 million," she added, "and it makes sense given the fact that we have had so much home-price appreciation."

Aspiring homeowners today face one of the most expensive housing markets in U.S. history. Buyers are facing rising home prices, due in part to lower-than-normal housing supply.

Supply is improving, and 37% more homes were listed for sale in June compared with the same period a year ago, according to an analysis from Realtor.com. But inventory is still not back to prepandemic levels: It's down 32% compared with 2017 and 2019 levels, the company noted.

Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.

Yet the high end of the real-estate market has seen inventory grow significantly, resulting in an uptick in sales activity. The chart below from Zelman's firm shows the steady increase in sales of $1 million-plus homes over the last five years.

In May, sales of homes over $1 million rose 22.6% across the U.S. from the same month a year earlier, according to data from the National Association of Realtors. The jump was even more pronounced in expensive markets like the Northeast, which saw sales increase in May by nearly 37% year over year.

In contrast, sales of more affordable homes stalled. Sales of homes in the $500,000-to-$750,000 price range only rose 6.9%, and sales were only up 1% in the $250,000-to-$500,000 range.

Part of the reason sales of homes valued over $1 million were on the rise was due to a run-up in home prices over the last few years. Between May 2019 and May of this year, the median price of a resale home in the U.S. rose from $277,700 to $419,300, a 40% increase.

The increase in home values has allowed many homeowners to level up. "Record-high wealth from the stock market and home prices are permitting more financial comfort among the top tier," Lawrence Yun, chief economist at the NAR, told MarketWatch.

In several coastal U.S. cities, the typical home comes with a $1 million-plus price tag. California is home to the highest number of U.S. cities where the typical home is worth $1 million or more, at 210, according to an analysis by the real-estate company Zillow (Z). Runners-up are New York, with 66 cities, and New Jersey, with 49 cities.

To afford a $1 million house, a potential buyer would need an annual income of at least $218,000, according to Bankrate. The comparison-shopping site's analysis assumed that monthly housing costs are no more than 28% of total income, and that no more than 36% is spent on monthly debt payments - such as for credit cards or student loans - overall.

What money-related issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-13-24 0623ET

Copyright (c) 2024 Dow Jones & Company, Inc.