In America's Richest Small Towns: Big Sales Stall

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"Across the board, everyone brought their homes down 15 percent to 20 percent. Sellers are becoming more realistic" and buyers are more conservative, says Harald Grant, senior vice-president in Sotheby's International Realty's Southampton office.

After a strong first half in 2010, unit sales in Sagaponack and nearby Bridgehampton were down 18 percent year-on-year in third quarter, and the median sale price was down 53 percent, according to a report from real estate brokerage Corcoran. Despite this short-term softness, "Sagaponack is a strong market because it has cachet," Grant says.

A Premium to Rub Elbows

What makes small towns such as Sagaponack attractive is their proximity not just to natural beauty and first-class golf courses but also to other wealthy people. That's why the most expensive small towns often cluster around major financial centers. A survey of U.S. metropolitan statistical areas by consultancy Capgemini shows that New York City had 667,200 high-net-worth individuals, or people with investable assets of $1 million or more, in 2009—far more than any other metro in the country. Other wealthy areas include the Los Angeles metro area (235,800), Chicago (198,100), Washington, D.C. (152,400), and San Francisco (138,300).

Of the 50 most expensive small towns, 22 are in New York—namely, Long Island—and 13 are in California. Others were in Colorado, Florida, Massachusetts, Maryland, New Jersey, Washington. Making the ranking for the first time was even one town in Tennessee. Belle Meade (a very rich town in Tennessee).

Some well-known markets are less active. "Our really high-end market is almost frozen," and buyers do not seem to want to buy above the $6 million level, says Paul Grover, a partner in Robert Paul Properties, a Cape Cod brokerage. With Wall Street turning around, he anticipates that demand will pick up, "but we'll see it in New York first."

That note of hope is one that many real estate brokers and home sellers across the U.S. share. In expensive small towns like Sagaponack, however, even the battered prices might strike many Americans as wealth beyond the dreams of avarice. It's hard for someone who lives in a house valued in the mid-six figures—or less—to empathize with sellers asking prices in the seven- or even eight-figure range. But no owner likes to take a haircut when selling his home. Just ask Billy Joel.

Click here to see Businessweek.com's 2011 ranking of the 50 Most Expensive Small Towns in America.

Wong is a lifestyle and real estate reporter for Bloomberg Businessweek.