Update: This story was updated on March 16, 2023 to add more context surrounding Carl Gambino’s comments on Los Angeles’ new ULA Tax.
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When the market was at its peak in July 2022, 522 U.S. cities’ typical home value was $1 million or more.
As of January 2023, following a market cooldown months in the making, only 464 of those million-dollar cities remain, according to a new report from Zillow.
Since the market’s peak, the typical home in million-dollar cities lost an average of $114,500 in value. That drop comes after rising mortgage rates led to a serious curb in buyer demand, and buyers who still had to buy sought out homes with lower asking prices to combat higher rates. As a result, some of the country’s priciest markets have felt the impact of the market slowdown most intensely.
“Unfortunately for buyers, mortgage rates have overwhelmed these price cuts,” Anushna Prakash, economic data analyst at Zillow, said in the report.
“But even though competition is picking up as we enter home shopping season this spring, it’s a much friendlier environment to buy a home for those who can make the finances work. Sellers may have missed the market’s peak, but they can still get a higher price for their homes than last year in most markets, and certainly more than they would have before the pandemic.
“Getting the pricing right and boosting a home’s online curb appeal are keys to success for this spring’s sellers.”
Zillow’s Home Value Index shows that the typical U.S. home is worth 4.1 percent less than it was in July. Meanwhile, in million-dollar cities, home values have dropped an average of 6.3 percent.
California has lost the most million-dollar cities by far, with 20 of the state’s million-dollar cities falling off the list since July. Following California, Texas and New Jersey lost the most million-dollar cities at five cities each. Florida had four cities drop off the list and Utah and Hawaii each lost three million-dollar cities.
At the metro level, Los Angeles had the greatest number of cities fall below the $1 million mark, with seven cities dropping below that value. The New York City metro area lost six million-dollar cities while San Francisco lost four and Austin lost three.
Carl Gambino of the Gambino Group at Compass told Inman that he has seen an especially pronounced drop in activity across lower million-dollar price points in Los Angeles. However, the recent approval of the ULA Tax — also known as the “mansion tax” — a new tax on real estate sales of $5 million or more that goes into effect April 1, has driven ultra-luxury sales, Gambino added. He recently sold two eight-figure homes in Los Angeles as a result of pressure from the ULA Tax, one for $25 million and another for $55 million.
“Definitely in the $5 million and below [price point], I’ve seen a significant drop in sales and pricing and activity,” Gambino said. “I think in L.A., especially the closer we come to the ULA Tax, people are becoming more and more uneasy.
“I literally got a call this morning from someone who wanted to list a house for $5 million and they were like, ‘Oh my god, I forgot [about the ULA Tax].’ I told them, ‘You have to incorporate the tax into your numbers,’ and they immediately were like, ‘Let’s just rent the house and not sell it.'”
The measure will place a 4 percent tax on sales between $5 to $10 million and a 5.5 percent tax on sales at or above $10 million.
Coastal states encapsulate the majority of the million-dollar city list with 387 out of the 464 million-dollar cities residing in a state on either coast. Out of the 37 cities with a typical home value of more than $3 million, 36 are located in coastal states and one is in Hawaii.
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