The pandemic economy pushed Southern California’s competitive housing market into such overdrive that a defining marker of wealth — the million-dollar home — has become the norm in a growing number of places.
Homes worth $1 million or more now dominate communities from Altadena at the foot of the San Gabriel Mountains to West Adams in South L.A. As bidding wars send prices even higher, more people are being priced out of communities where they grew up and homeownership is becoming more out of reach for low- and middle-income Californians.
At the same time, the proliferation of million-dollar homes shows that the price point is not a stretch for a growing share of Californians. It still requires financial strength to purchase such a home, but a surging stock market, rising incomes and historically low borrowing costs have made the $1-million house more common than ever.
That convergence of factors during the pandemic has reinforced the inequality of life in America: High earners are making, or at least saving, more money while grounded and working from home as millions of households are behind on rent.
With homes selling at a record pace, many to buyers paying well over the asking price, The Times set out to understand more about the forces shaping the pandemic real estate market: Who are the buyers behind these frenzied sales, and what is motivating and enabling them?
A data analysis showed the spread of homes valued at or more than $1 million across a geographic span. As of July, there were 55 cities and unincorporated areas in Los Angeles and Orange counties where the “typical” value of a single-family home was $1 million or more, according to a formula devised by online real estate company Zillow.
Seventeen of those places — including Burbank, Fountain Valley and Torrance — crossed the $1-million threshold during the pandemic.
In the city of Los Angeles, 15 neighborhoods have hit the $1-million valuation since March 2020. In Leimert Park, Woodland Hills, Eagle Rock — among others — the typical home is now valued at $1 million or more.
Alec Zopf and Dee Foster beat out 27 offers and 15 counteroffers — three of them all cash — for their new home in Highland Park. They ended up paying nearly $280,000 more than the original list price. A heartfelt letter accompanied their $1.175-million bid, to make it stand out from the crowd.
“During the process, I was thinking, ‘I’m a reasonable person and won’t be bullied into making an unreasonable choice,’” Zopf said. “But I also knew that initial price was artificially low to attract more bidders.”
California has faced the million-dollar house boom with previous rising real estate markets. But during each expansion, the valuation enters new communities, or grows more common in neighborhoods where $1 million once bought a lot more.
“I don’t even have two bathrooms,” said Alan Torres, a 35-year-old software engineer, who along with his wife, Vanya, recently paid $1.04 million for a two-bedroom, one-bathroom house in Echo Park.
A search of the Multiple Listing Service shows data for 198 homes that have sold for between $1 million and $1.1 million in the city of L.A. so far this year. Of those, none is bigger than 3,000 square feet; 25 are less than 1,000 square feet.
The overall median size in the city of L.A. is 1,500 square feet of living space with three bedrooms and two baths on a 5,500-square-foot lot.
“When I got into this business, a million-dollar home was a beautiful five-bedroom traditional-style home on a very large lot in a desirable area,” said Sotheby’s agent Maureen Hollingsworth, who has worked 41 years in Southern California real estate. “Today, it buys you a two-bedroom on a tiny lot.”
The boom reflects a broader upswing in the market. As real estate prices rise across the board, $500,000 houses become $600,000 houses and $1-million houses become $1.2-million houses.
The pandemic unleashed new home-buying demand, as people with means desperately wanted out of their cramped apartments and small houses. At the same time, many millennials are entering their 30s — the typical age of a first-time home buyer.
Meanwhile, mortgage rates below 3% lured more people and investors into the market, allowing them to bid aggressively on properties so limited that homes have been selling faster than in any time recorded.
Zopf and Foster kicked off their saga with an open house over FaceTime. The seller’s agent quickly let them know that offers were already stacking on the home listed at $899,000.
Though they originally wanted to stay under $1 million, they said they knew they could afford more. Nervous they’d lose out, they made an initial offer of $1.075 million, only to see the seller counter with $1.1 million.
Facing 15 other counterbidders, Zopf, 35, and Foster, 32, came back with $1.15 million, including a clause to raise to $1.175 million if their bid was matched.
It was, so the couple then changed tactics: They penned a note explaining their intentions to start a family in the home — along with an offer to let the seller rent the home for two months while the seller moved into their next place.
It worked — the three-bedroom cottage was theirs.
How is $1 million affordable?
The sharp growth in home prices since the onset of the pandemic, after years of steady increases, is raising more concern that low- and middle-income Californians are becoming priced out of homeownership.
Zillow data show the bottom, middle and top of the market have seen roughly equal price increases since the start of the pandemic. Data from Redfin show 10% of L.A. County homes sold this year between January and mid-August went for at least $100,000 over the asking price, compared with 2% during the same period in 2019.
Contributing to those sharp price increases is the fact that in some ways, housing — including the $1-million house — has become more affordable for a growing segment of buyers.
In early September 2006, if a buyer got the 6.47% average mortgage rate and put 20% down on a $1-million house, they would have a monthly mortgage payment of $6,266 a month, including property tax and insurance, according to a Redfin payment calculator.
In 2018, when interest rates were 4.54%, the same $1-million house, with the same down payment, would cost $5,298 a month.
Today, the monthly mortgage payment on that $1-million house would be $4,546, using the average rate for the week that ended Sept. 9 — 2.88%, according to Freddie Mac. That’s about $1,700 less than in 2006, and the equivalent of an entire monthly mortgage payment in some areas of the country.
Although the majority of households can’t afford that, there’s a sizable minority that can.
The people interviewed by The Times who paid $1 million or slightly more included first-time home buyers who are dual-income couples in their 30s and 20s, working in entertainment, engineering and tech jobs.
Lenders will readily approve loans for a $1-million house for households with annual incomes of $150,000 or more, with solid credit, a 20% down payment and minimal other debts, said Jeff Lazerson, a mortgage broker in Laguna Niguel.