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The share of U.S. homes valued at $1 million or more has fallen to 7% as of January 2023, down from a peak of 8.6% in June 2022. This decline signals a cooling housing market, driven primarily by rising mortgage rates that have dampened buyer demand and caused home values to recede from record highs. Despite this drop, the proportion of seven-figure homes remains significantly higher than the pre-pandemic level of 4.2%, and for most buyers, the increased cost of borrowing means monthly payments are actually higher now than a year ago.
The primary driver behind the shrinking share of million-dollar homes is the sharp increase in mortgage rates. As rates surged from historic lows near 3.5% in early 2022 to over 6.5% by early 2023, the monthly cost of homeownership rose dramatically. This cooled buyer demand, leading to a moderation in home prices. While some seasonal decline is normal in the latter half of the year, the drop from June 2022 to January 2023 was substantially larger than typical patterns.
"Home values are coming down from their peak, meaning fewer sellers can command seven figures," said Chen Zhao, Redfin Economics Research Lead. "However, this doesn't translate to a buyer's market. The typical homebuyer’s monthly mortgage payment is higher now than when home values peaked because the increase in mortgage rates has more than offset the slight dip in prices."
To illustrate, a buyer putting 20% down on an $800,000 home at a 6.6% rate would have a monthly payment of approximately $5,241. A year prior, that same buyer could have purchased a $1 million home with a 3.5% rate for a lower monthly payment of around $5,034.
The correction is most pronounced in some of the nation's most expensive metropolitan areas, where high prices amplify the impact of rising rates.
These markets are sensitive to rate hikes because even a small percentage increase adds hundreds of dollars to the monthly payment on a high-priced home. Additionally, the tech sector's shift toward remote work and recent layoffs have reduced demand in tech-centric hubs like the Bay Area and Seattle.
While some markets are cooling, others are still seeing growth in the number of seven-figure homes, largely due to strong inbound migration and sustained demand.
Florida markets remain strong, attracting remote workers with their relative affordability compared to the Northeast and West Coast, along with attractions like beaches, warm weather, and no state income tax. Overall, the share of million-dollar homes increased in 70 of the 99 largest metros, remained unchanged in 11, and declined in only 18.
For prospective buyers, the current market presents a complex calculation. While listing prices have softened, higher mortgage rates mean affordability has not improved. Based on our experience assessment, buyers should focus on the total monthly payment rather than just the sale price. Sellers in markets that are cooling may need to adjust their price expectations, as the pool of buyers qualified for a million-dollar mortgage has shrunk.
The key takeaway is that the housing market is undergoing a significant rebalancing. The frenzy of 2021 has subsided, but a return to pre-pandemic affordability is unlikely in the near term. Buyers and sellers must navigate a landscape where financing costs play a larger role than they have in over a decade.
