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The richest ZIP codes, and how they got there

Search the Internet for luxury real estate across the U.S. and you might be surprised by the results. Just because a neighborhood has a rarefied ZIP  code, it's no guarantee that all the houses listed within it will be equally opulent. Some may even be downright modest.
The 06831 ZIP code in Greenwich, Conn. is pretty — pretty expensive.
The 06831 ZIP code in Greenwich, Conn. is pretty — pretty
/ Source: Business Week

Search the Internet for luxury real estate across the U.S. and you might be surprised by the results. Just because a neighborhood has a rarefied ZIP code, it's no guarantee that all the houses listed within it will be equally opulent. Some may even be downright modest.

Take, for example, Greenwich, Conn. There in 06831 is a house selling for just $575,000. For the Wall Street and hedge-fund crowd who have flooded into town in recent years, a price that low is a rounding error. Far from a palace, it's a 672-square-foot cottage with two bedrooms and one bath, and it sits on just a tenth of an acre.

Why would anyone build such a dinky house in a place like Greenwich? Today, of course, no one would. The explanation is that the house was built way back in 1926, when Greenwich was a more or less normal country town with a handful of large estates. And therein hangs a tale about the transformative power of money.

Into the Stratosphere
Here's what's happening: The rising tide of wealth in the U.S., and the growing concentration of that wealth in relatively few hands, is being reflected in the tiering of the U.S. real estate market. Across the country, there are communities such as Greenwich that were once home to the merely affluent but have been gradually transformed into magnets for the growing class of the super-wealthy. In some of these towns — like Newport Beach in California's sunny Orange County, or Paradise Valley, Ariz. — the golden transformation is recent. Others, like Greenwich and Glen Head, N.Y., have been gilded for years.

In each of them, though, the same pattern is occurring: The very rich replace the well-to-do. The very rich, in turn, are displaced by the super-wealthy. Eventually, these towns levitate into the real-estate stratosphere, with anachronistic houses such as that little Greenwich cottage as the only reminder of what once was. (Interestingly, even in wealthy areas like Greenwich; Paoli, Penn.; or Manhasset, N.Y., more modest dwellings once were common. These were, after all, home to the mechanics, teachers and servants who worked for their richer neighbors. Today, even these homes, assuming they aren't torn down by a new owner and replaced with a much larger edifice, are priced well beyond the reach of ordinary taxpayers.)

In 2006, the nation-leading median sales price for a single-family house in 06831 was just a hair under $3 million — a figure that was pulled up by the big country estates and down by relics like the 672-square-foot cottage.

Short-Term Fall
More evidence that the top of the market is becoming detached from the rest: During the five-year boom in housing prices, from the third quarter of 2001 through the third quarter of 2006 — the last period for which data is available — overall housing prices rose rapidly, but prices in the nation's richest Zip codes went up even faster.

For the U.S. as a whole, the five-year increase in the Case-Shiller Home Price Index was 63.7 percent, while the increase was 79.5 percent for those Zip codes with a median sales price of $750,000 or more, according to Fiserv Lending Solutions, a unit of Brookfield (Wisc.)-based Fiserv that supplies data and software to lenders.

Even the most expensive Zip codes aren't immune to the current market downturn. Prices have fallen in most of them. But the increase in the ranks of the very well-to-do almost guarantees that demand to live in exclusive areas will continue to drive prices upward over the long run. (Last year's third quarter is the most recent for which Fiserv has complete data for its index, and last year's second quarter is the most recent for which it can calculate a reliable median price for each Zip code.)

The Lure of Zoning
Moreover, despite commanding lower values, the majority of homes have only fallen beyond the already inflated prices of recent years. Very few indeed have actually fallen below the price for which they were bought. In the case of homes that were bought prior to the real estate boom of this decade, their values still have seen significant, if not astronomical, appreciation.

The role of wealth in elevating certain areas was explained last year in an academic paper called "Superstar Cities" by economists Joseph Gyourko and Todd Sinai of the University of Pennsylvania's Wharton School and Christopher Mayer of Columbia University. The authors focus on entire metro areas, such as San Francisco and Boston, but in an interview, Sinai says that it's true on the Zip code level as well. Says Sinai: "High-income people are essentially outbidding low-income people for the more desirable suburbs."

Critical to the authors' argument is the limited supply of land in "superstar cities." Most of the Zip codes at the top of the list have either no developable land left or extremely restrictive zoning. So the only way people can get in is by buying from someone who's already there. That fits with the experience of Daniel Bowerstock, a broker in the barrier-island beach community of Avalon, N.J., which is the Garden State's most expensive Zip code. Says Bowerstock: "We have some of the most stringent zoning that I've seen. That, I would say, is the No. 1 draw."

No Poor People
The top Zip codes by state aren't all alike, reflecting the fact that the rich have varying tastes just like the rest of us. Glen Head is a glacier-sculpted, old-money town on Long Island's North Shore. Newport Beach is sun-baked and buzzing with the energy of high tech and other expanding businesses. Cambridge, Mass., is the home of both Harvard University and the Massachusetts Institute of Technology. Hinsdale, Ill., outside Chicago, is quiet. "The paper has, you know, if a cat's stuck in a tree," says John Eyen, a Coldwell Banker broker who lives in Hinsdale.

Some places can trace their surge in property values to the presence of booming local industry. A good example is the 98004 Zip in Washington state, which covers upscale Bellevue. Long a haven for executives who worked at Boeing or local lumber companies, beginning in the 1980s employees from tech companies such as Microsoft,, and Real Networks  have used their lucrative stock options to drive up local real estate prices.

Even within Greenwich, there are distinctions, says Tamar Lurie, a Coldwell Banker broker. Some people migrate to the big estates of 06831 for peace, quiet, and horses, while others move to the shoreline Zip of 06830 (No. 3 on the national list) for water views and a livelier lifestyle.

One commonality, though, is that you will be rubbing elbows with people who, like you, don't have to worry much about where their next meal is coming from. That in itself is a powerful lure for people who have finally made it to the top.