Rising home prices and interest rates squeeze all but the richest homebuyers

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By Martha C. White

Although growth in the housing market is slowing, the number of million-dollar homes in the United States is on the rise, creating pockets of affluence in a housing market experts say is becoming increasingly unaffordable.

New research from real estate site Trulia found that roughly 3 million homes across the country today are worth $1 million or more. This amounts to around 3.6 percent of the entire housing market; just six years ago, only 1.5 percent of all homes had million-dollar price tags.

Trulia found that the number of seven-figure homes and the highest rate of increases are overwhelmingly concentrated in California. In San Francisco alone, four out of five homes crack the million-dollar threshold. Outside of the Golden State, Honolulu, Seattle and Long Island, N.Y., also saw major increases in homes worth $1 million or more.

At just over 14 percent, San Jose had the highest year-over-year increase in million-dollar homes, according to Trulia’s report.

“The areas I’m concerned about are the areas that aren’t responding where prices are still accelerating, like San Jose,” said Daren Blomquist, senior vice president at Attom Data Solutions. “That’s a sign that these areas have such constrained inventory that there are hardly any properties just sitting vacant. That’s continuing to put upward pressure on prices,” he told NBC News.

These kinds of increases aren’t sustainable, Blomquist suggested. “That seems to defy reason a little bit and those are… red flags there.”

In the rest of the country, it’s another story. “The tax law changed the benefit of various deductions for housing — that’s hurting certain markets,” said Mark Zandi, chief economist at Moody’s Analytics.

The average home price in August rose by an annualized 5.8 percent, the fifth month in a row in which price appreciation slowed, and dropping below the 6 percent threshold for the first time in a year, according to the S&P CoreLogic Case-Shiller Home Price Index.

Price gains are slowing, but this isn’t making houses any more affordable — because mortgage rates are rising, which is cooling demand for homes. “The survey’s 30-year fixed-rate, at 5.15 percent, was the highest since April 2010,” said Joel Kan, associate vice president of economic and industry forecasts for the Mortgage Bankers Association, in a recent report. The MBA’s weekly survey found that mortgage applications for both purchases and refinancings fell by 4 percent for the week ending Nov. 2, a nearly four-year low.

Zandi also said Trump’s tax policies were acting as a brake on the market. “Housing is already being affected because of all the fiscal stimulus,” he said, because the massive amount of short-term stimulus injected into the economy by the deficit-funded tax cuts is pushing up borrowing costs.

“In the last year the benchmark 30-year, fixed mortgage rate has climbed more than one percentage point,” said Greg McBride, chief financial analyst at Bankrate. “There is a very pronounced impact on affordability. A year ago, for somebody who was approved for a maximum loan of $250,000, at today’s rates — all else being equal — they’d only be approved for a loan of $220,000,” he said.

But although mortgage rates overall are rising, the richest homebuyers are insulated to a greater degree than other borrowers. That’s because so-called jumbo loans — those above $453,100 in most of the U.S., or above $679,650 in high-priced areas like New York City — are generally held in-house by banks rather than packaged into securities and sold off to investors. “Jumbo mortgages are not dependent on the secondary market,” Bankrate’s McBride said. “Individual lenders have a lot more flexibility on pricing.”


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