Where have homeowners built the most wealth?

The U.S. housing market finally is cooling, but longtime homeowners have reaped the rewards of robust price gains since the Great Recession. In some of the nation’s most expensive housing markets, even average homeowners are sitting on million-dollar properties.

These fortunate homeowners don’t possess vast estates or multi-storied mansions. They’re just owners of otherwise-ordinary homes that happen to be located in places with scarce land and high wages.

The most dramatic run-ups in real estate prices have come – not surprisingly – in Northern California. That region has experienced a combination of strong wage growth and a limited supply of new homes. Median home prices in Silicon Valley and San Francisco rose by $1 million from mid-2012 to mid-2022, according to a Bankrate analysis of National Association of Realtors  (NAR) data. Homeowners in Southern California and Hawaii also have experienced hefty appreciation.

The 5 priciest metro areas in the U.S.

Here’s a look at the nation’s most expensive housing markets and the way they’ve appreciated in the last decade, based on current and historic data compiled by NAR. The median price of an existing single-family home sold during the second quarter of 2022 eclipsed $1 million in four of those five markets.

San Jose, California

San Francisco

Anaheim, California

Honolulu

San Diego

The median price is the statistical midpoint – half of homes sold for more, half sold for less. So in these markets, even owners of modest homes possess properties worth $1 million.

But how much do you actually make?

Of course, owning a $1 million home doesn’t necessarily mean you can sell and walk away with $1 million. Most homeowners need mortgages to buy, and repayment of those loans is the first thing that comes out of any proceeds of a home sale. And if they refinanced or took cash out of their homes in recent years, their actual equity in the home could be much less than the magical seven-figure mark.

What’s driving the gap in home prices

The home prices in the most expensive markets are eye-popping precisely because they’re so high compared to other parts of the country. Median home prices are less than $280,000 in such major metropolitan areas as Buffalo, Cincinnati, Cleveland, Detroit and St. Louis.

That huge gap is partly a function of a quirk of housing economics — the fact that real estate markets are localized and self-contained. “Housing is an immovable good. A house in San Francisco can’t be moved to somewhere else,” says Mark Fleming, chief economist for title insurer First American. In contrast, “there’s a national price for an iPhone, because it’s a movable good.”

The supply of land available for development also plays into local home prices. So do local wages. “The value or the price is in large part a function of incomes in the area,” Fleming says. “Prices are different because incomes are very different.”

For example, median family income in Silicon Valley for 2022 is $168,500, according to Department of Housing and Urban Development data. In San Francisco, it’s $163,800. The typical family in Buffalo, by contrast, makes $87,700. In Cleveland, the figure is $85,400.

Do pricey markets appreciate more?

The markets that have been minting millionaire homeowners carry a major caveat: All are jaw-droppingly unaffordable. Anaheim, San Diego, San Francisco and San Jose rank as four of the five least affordable housing markets in the nation, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

But the huge price gains in those places over the past decade illustrate that perhaps it makes sense to stretch the budget to buy a house in an expensive area.

By contrast, some of the most affordable housing markets offer homeowners less in the way of wealth-building. In the Cleveland metro area, for example, the median home price of $103,900 looked quite reasonable back in mid-2012. A decade later, Cleveland’s median home price is $225,000. The 117 percent increase is respectable, but dollar-wise, the $121,000 gain is just a fraction of the appreciation experienced in the priciest markets.

However, it’s possible that the outsized price appreciation in coastal housing markets is slowing. The rise of remote work means those toiling in the tech industry can keep their Silicon Valley paychecks while living in more affordable areas. Fleming points to an exodus of homeowners from Northern California to places such as Boise, Idaho, and Austin, Texas.

The emigration of the Californians has caused intense inflation in those housing markets. In Boise, for example, median prices soared 278 percent in the past decade. In Austin, prices have risen 185 percent.

“You might get faster price appreciation in the less expensive markets,” Fleming says, “because demand is leaving the expensive markets.”