Halstead Property

Million-Dollar Homes Are Now A Dime A Dozen

Demand for housing still outstripping supply in many U.S. markets

The Associated Press

Updated: 3:57 p.m. ET Sept. 27, 2005

NEW YORK

- Everything about Frank Fazio’s new two-bedroom apartment on

Manhattan’s Upper West Side is decidedly average, including its price:

a hair under $1 million.

With

five rooms and about 1,050 square feet of space, the place is a nice

size, by New York standards, but it is no mansion. There are no

chandeliers, no soaring cathedral ceilings and no doorman downstairs to

help with groceries.

"There

is nothing that would make you say, 'Wow this place must have cost a

million bucks,'" said Fazio, 42, a banker who relocated from Chicago.

Yet pay a million he did, something more Americans are doing these days.

For the

first time, there are more than 1 million owner-occupied homes in the

United States worth $1 million or more, according to a Census Bureau

survey published late last month.

Once a

symbol of unusual wealth, million-dollar dwellings now seem like a dime

a dozen in some places. San Francisco alone has more than 20,000 of

them. There are another 46,000, or so, in Orange County, Calif.

In

Manhattan, even someone with a million dollars in their pocket can't

buy luxury. The average price for an apartment in all but Harlem and

the borough’s northern tip climbed above $1.2 million in the second

quarter of 2005, said Gregory Heym, chief economist for Terra Holdings,

an owner of real estate brokerages in the city.

"For a million dollars, you couldn’t get a two-bedroom on the East Side," Heym said.

The

surge in high-end prices has happened quickly. The Census Bureau’s 2004

American Community Survey found 1,034,386 homes worth at least $1

million in 2004, compared to 595,441 in 2002 and only 394,878 in 2000.

Demand

for housing is still outstripping supply in many U.S. markets, said

John M. Clapp, a professor of finance and real estate at the University

of Connecticut. Low interest rates have made it easier for people to

afford more house, as have some new financing methods, like

interest-only adjustable mortgages, which initially allow buyers to

lower their monthly payments.

Even in land-rich cities like Phoenix, the demand for housing in mature neighborhoods has outstripped supply.

In a few

exclusive communities, $1 million won’t buy you more than “an acre of

dirt,” said Kristy Ryan, a broker at Re/Max Fine Properties in

Scottsdale.

In other

parts of town, $1 million is still enough to build a 4,000-square-foot

villa with a pool and a three-car garage, but Ryan noted that the same

house might have sold for $700,000 just five years ago.

"Some

people are disappointed when they get here," she said of the

northerners who continue to arrive in droves. "They don’t realize how

much it has appreciated in the last few years."

How will homeowners fare?

Federal

Reserve Chairman Alan Greenspan has warned that housing prices in some

markets have been driven to “unsustainable levels,” and some homeowners

have borrowed heavily against their homes’ equity to fuel their

consumer spending. If mortgage rates rise, that spending will have to

drop and homeowners will be forced to save, Greenspan said in a speech

to a bankers group Monday. But he added that homeowners on average have

enough equity to absorb the hit if home values drop.

The

losers in this hot market, Clapp said, are people buying a home for the

first time. At current interest rates, the monthly payment on an

$800,000 mortgage is about $4,700 a month. The financial hit is

especially bad in places like New York, where the city’s many

condominiums and co-ops require monthly maintenance fees that often

exceed $1,000 a month.

“I think they are stretched to the limit at this point,” Clapp said. “In some markets, renting makes more sense.”

Real

estate has become so hot that the boom has spread to neighborhoods

formerly written off by many investors as hopelessly impoverished.

Urban success story

In

Bedford Stuyvesant, the section of Brooklyn that was the setting for

Spike Lee’s 1989 film, “Do the Right Thing,” some owners were asking

more than $950,000 this week for their brownstones.

The

prospect that a neighborhood that experienced rioting in the 1960s and

a crack epidemic in the late 1980s would fetch such high prices now is

both an urban success story, and potentially dismaying, said Richard

Weeks, an agent at Coldwell Banker Mid Plaza Real Estate.

If a working-class family can’t afford a home in Bed Stuyvesant, he asked, just where can they buy?

“As an

African American, I worry about it,” said Weeks, whose listings include

a limestone town house in a fast-gentrifying section of the

neighborhood, priced at $975,000. “It is definitely going to become

harder for the people who aren’t well off to purchase there.”

If

prices stop rising, other potential losers could be speculative

investors who were counting on a quick resale of a home at a profit to

pay back debt. Economists have split over whether the rise in housing

prices constitutes a bubble that could burst at any time.

“In the long run, things have to come back into equilibrium,” Clapp said.

function readCookie(ck){var anyCookies=document.cookie;var pos=anyCookies.indexOf(ck.toUpperCase()+"=");var value="";if(pos != -1){var start=pos + ck.length + 1;var end=anyCookies.indexOf(";",start);if(end == -1){end=anyCookies.length;}value=anyCookies.substring(start,end);value=unescape(value);}return value;}

Tuesday, September 27, 2005