'Million-dollar ZIP codes' are on the rise -- and it could spell trouble for America's homeownership rate

San Jose CaliforniaSundry Photography/ShutterstockYou’ll need a jumbo mortgage to buy a home in San Jose, CA.

The US housing market has recovered from the 2008 sub-prime mortgage crisis by at least one metric.

Today, more than one in 25 ZIP codes in America could be called a “million-dollar ZIP.” That’s 172 more than at the housing-market peak in 2007.

Zillow defines million-dollar ZIPs as areas where at least 10% of the homes are worth $US1 million or more.

“It’s a sign of the times that over half the housing stock in the US has regained value since the housing bust, and many markets are more expensive than they have ever been,” Zillow’s chief economist Svenja Gudell told Business Insider.

Home prices have surged across the country in response to stagnant housing supply. Coupled with slow wage growth, homeownership is no longer within reach for many Americans, especially millennials. As of July, the national homeownership rate was just under 64%, and even lower in many coastal markets, where million-dollar ZIPs abound.

“It shows how tough it is to break into the market as a buyer. Even though mortgage rates are so low, the down payment on a $US1 million home is hard to save for,” Gudell said. “Millennials are trying to break into these homeownership markets because the jobs are there, and they’re having a hard time.”

The average home value in a million-dollar ZIP was $US900,584 in May, nearly 4.5 times the national home value of $US200,400.

Though high prices are a sign of recovery, movement hasn’t been consistently skyward. In 2014, the total number of million-dollar ZIPs in the US dipped to 958, according to Zillow, about 0.5% fewer than pre-recession era.

But by May of 2017, that number had risen to 1,280, equal to 4.35% of all US ZIP codes. The West Coast accounted for nearly one-third of that growth, minting new million-dollar ZIPs in Seattle, Portland, San Francisco, San Jose, Los Angeles, and San Diego.

Another 26% of new million-dollar ZIPs since 2014 came from New York, Boston, Miami, and Washington, DC.

San Francisco and San Jose metro areas lead the nation, with 74% and 77%, respectively, of all ZIP codes considered million-dollar areas. Seattle experienced remarkable growth as well, doubling its million-dollar ZIP count since 2007 to 38 — 24% of the metro area’s total ZIPs.

Coastal housing markets have always been more expensive than markets in interior states, but with increasing millennial populations in these cities, many of whom are looking to settle down, prices are being driven even higher.

“A million-dollar home is no entry level home,” Gudell said. “Even for a well-off millennial, you’re going to have a hard time scraping together a down payment for that home and a lot of times you’re not getting a conventional mortgage, you’re getting a jumbo mortgage.”

Ultimately, the surge in million-dollar ZIPs is a likely contributor to today’s record low homeownership rates among millennials, along with increased student debt burdens, and choosing to live with family. As long as home prices continue to rise in popular markets, pricing out young people, Gudell said, renter populations — and rents — will increase, too.

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