Help me understand demand for $2 million homes. What am I missing here?

I feel like I must be missing something, and I’m genuinely curious to hear other people’s thoughts on this.

In my area, the median household income is $50,000-$60,000. To be in the top 1% of income earners requires a household income of approximately $540,000.

This means roughly half the population should be looking for a home at a price point of $180,000-$240,000 or less, using the 3x-4x income rule. If you make $540,000, and follow the 3-4x income rule, you could be shopping for homes in the $1.5 million to $2 million range (and this assumes you’ve managed to save $300K-$400K for a down payment which is no small task). But, in theory, you should be competing against only 1% of the other residents (at most) because only 1% of people earn enough to purchase a home at that price point. Yet each time one of these houses hits the MLS, it sells above asking price within just a few days.

These aren’t investment properties or run down houses in need of a reno that would draw in developers and flippers. These are renovated, move in ready single family homes in the $1.5-$2 million range.

My question is, if only 1% of people can qualify for the mortgage on such a house, who are all these buyers and how do they have the funds for these houses?

In other words, how are there enough people (enough demand) earning enough money to qualify for a mortgage on a $2 million house to make the market at that price point so insanely competitive?

What am I missing? Is this purely a supply problem? Are people who make far less than $540K a year just saving up a million dollars in cash for a down payment over many years or something?

I’ve thought about people who already own a home trading up and using their equity. Let’s say you bought a starter home for $750K with 20% down five years ago, and now you sell it for $1 million. You would have $450K in equity, and after 6% commissions you’ve got a $423,000 down payment. You still need a very very high income to qualify for the mortgage on a $2 million house, even with $400K down. The principal and interest alone would be more than $7K a month, probably closer to $9K-$10K a month with taxes and insurance.

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source https://www.reddit.com/r/RealEstate/comments/mgu8m5/help_me_understand_demand_for_2_million_homes/