For many people who once only dreamed of a $1 million home, today a $500,000 home is looking pretty good.

Half a million dollars is, by almost any standard, a lot of money. But during the past few years, when credit was easy and regulations were loose, to many Americans it didn't seem like all that much.

That's because they were able to borrow huge amounts of money to buy new homes, often with little or nothing down. And while most homes sold in the U.S., even at the height of the housing bubble, were $500,000 or less, rising prices in most major cities and affluent suburbs around the country pushed the cost of a three-bedroom home well into seven figures or more.

In fact, in most parts of the country $500,000 has always bought plenty of house. But the gap between $500,000 and $1 million is more than monetary. It is also psychological. And during the recent boom years Americans became reckless consumers, buying cars, houses, clothes and much more that they couldn't really afford. The dream of a $1 million home, once so distant, became tantalizingly reachable.

Now that's all changed. While certain pockets, such as Manhattan, San Francisco, and Boston, remain high compared with the rest of the U.S., real estate prices around the country have fallen dramatically. The downside to this, of course, is that many people now owe more money on their homes than their homes are worth. The upside is that valuations are much more realistic—and affordable.

Pain Is Spreading

That's because homes priced at the half-million mark—and higher—are now also beginning to shrink in value. Initially, the properties hit hard by the subprime crisis were lower-priced dwellings more often than not bought by people with poor credit. But now, as too many of us are experiencing, the pain is spreading even to people with good credit and higher incomes.

Until recently, sellers in wealthy neighborhoods were somewhat protected from the subprime credit crisis and were still drawing buyers with high salaries, good credit scores, and a cushion of savings. But the problems worsened after Lehman Brothers collapsed on Sept. 15 and credit markets froze, corporate giants laid off thousands of highly paid workers, and the stocks that padded the portfolios of the wealthy plummeted.

And even once seemingly impervious markets such as New York City, Florida, and California, which had attracted well-heeled international buyers looking to take advantage of a weak dollar, began to struggle as the global economic slowdown washed over Europe, Asia, and even the Middle East.

Luxury home asking prices nationwide have fallen 5.4% since Jan. 4, and homes now stay on the market for 148 days compared with 125 days at the beginning of the year, according to The Institute for Luxury Home Marketing's Luxury Market Report, which tracked prices through Nov. 7. The data—compiled by Altos Research—look at prices in the top 10 wealthiest Zip Codes in 30 large metro areas around the country.

Waiting Game

"The entry level of the upper tier—the $500,000 price point and up—has been softening for a while," said Laurie Moore-Moore, founder and CEO of the Institute for Luxury Home Marketing, a Dallas-based group that trains high-end agents. "What we've also seen in the last month is huge uncertainty at the very top of the market. People want to know where are we headed, how serious [the downturn] is going to be, and what is the duration. There are enough questions that at even at the top of the market people are waiting and watching."

BusinessWeek.com put together a sampling of homes in 17 of the most affluent communities across the nation selling for about $500,000. A few years ago those homes would have likely commanded much higher prices.

Art Tassaro, a Realtor with Friedberg Properties in the wealthy New York suburb of Cresskill, N.J., said buyers have all but disappeared in the past few months. Sellers who want their home to move quickly need to be aggressive about pricing. One method is to average the three lowest sales prices in a given neighborhood during the past year and then discount that price by another 5%, he said.

"If it was bad before, it's worse now," Tassaro said.

Buyers' Market

Of course, grim times for sellers can be full of opportunity for buyers, especially those with cash, he said.

John Marcell, president of Better Mortgage Brokers in Upland, Calif., in San Bernardino County, said sellers are having to discount prices significantly to make a sale. Most sales are so-called short sales, where the lender agrees to accept less than the outstanding loan amount to avoid a foreclosure.

High-end homes are just sitting on the market in his area, he said. Entry-level homes now make up the market's strongest segment because first-time purchasers can take advantage of low prices without having to worry about unloading their existing homes, he said.

"The only sales of million-dollar homes are foreclosures," Marcell said.

How Much Home You Can Buy for $500,000

Scottsdale, Ariz.
$500,000

Address: 7269 E. Eclipse Dr.
3 beds, 2 baths
Size: 1,856 sq. ft.

The house, located in a North Scottsdale gated community with a heated swimming pool, has a private courtyard, a laundry room, and a covered patio.

Source: Sotheby's International Realty

Santa Barbara, Calif.
$549,000

Address: N/A
2 beds, 2 baths
Size: N/A

The ground-floor co-op has a private rear patio, and landscaped grounds with a swimming pool.

Source: Sotheby's International Realty

Danbury, Conn.
$549,900

Address: N/A
4 beds, 3.5 baths
Size: 3,353 sq. ft.

The house has an open floor plan, vaulted ceilings, and a finished family room with workout space. The master suite is on the mail level. The kitchen has an eating area that overlooks an in-ground poll and hot tub.

Source: Sotheby's International Realty

St. Petersburg, Fla.
$550,000

Address: 490 23rd Ave.
4 beds, 3 baths
Size: 2,290 sq. ft.

The house, built in 1924, has stone trim details on the ceiling and fireplace, hardwood floors and chandeliers, a kitchen with granite counters, and formal living and dining rooms.

Source: Alona Dishy, Realty Executives International

Arlington Heights, Ill.
$497,000

Address: 1010 W. Campbell
4 beds, 2.5 baths
Size: 2016 sq. ft.

The house is located in the northern Chicago suburb of Arlington Heights. The kitchen has cherry cabinets, a large center island, and a separate eating area. The home has a formal dining room, a great room with wood-burning fireplace, and hardwood floors.

Source: Sotheby's International Realty

Boston, Mass.
$515,000

Address: 382 Commonwealth Ave.
2 beds, 1.5 baths
Size: 875 sq. ft.

The two-bedroom condo is in an elevator building on Commonwealth Avenue. It has a large living room, high ceilings, and hardwood floors.

Source: Sotheby's International Realty

St. Louis, Mo.
$493,000

Address: 4330 McPherson Ave.
5 beds, 3.5 baths, 3,122 sq ft
Size: 3,122 sq. ft.

The house has large living and dining rooms and an eat-in kitchen. The second floor has a family room, master suite, guest bath, and two additional bedrooms. The third floor has an additional guest bath and two bedrooms.

Source: Pam Schneider, Coldwell Banker Gundaker

Lake Tahoe (Stateline), Nev.
$550,000

Address: 457 Barrett Dr.
3 beds, 3 baths
Size: 2,161 sq. ft.

The remodeled home has eco-sensitive hardwood floors, ceramic tiles in the master bath, and a new gas log fireplace. The house has more than $80,000 in treatments for people who are sensitive to chemicals.

Source: Sotheby's International Realty

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Slowing Sales of Luxury Properties Reveal 'Trophy Homes' Weighing Owners Down

As the luxury real-estate market slows to a snail's pace, real-estate brokers find themselves struggling to sell a growing number of "trophy homes" that are quietly gaining a new title: white elephants.

The term hails from a legend that Siamese royalty gave albino elephants -- revered but financially ruinous to maintain -- to unpleasant courtiers. Today, the financial burden of carrying an overly big, overly unique manse is being shared by many wealthy owners, who are finding out the hard way that not everyone is willing to pay up for their vision of a dream home. Realtors concede a growing number of these pricey pachyderms are sitting unsold for months and selling at steep discounts, if at all.

Some sellers are getting creative. On Thursday, the owners of Castlewood, a gothic castle in West Orange, N.J., hosted a live jousting competition to generate buzz among real-estate brokers. Designed in the 1850s, the 5,000-square-foot stone house is on two acres and features two towers, a staff apartment and a round bedchamber with a 28-foot-high domed ceiling. On the market for two years, the homeowners switched to a new agent, Sam Joseph of Re/Max Village Square and dropped the asking price to $2 million from $2.8 million, originally.

Greg Martz

A West Orange, N.J., castle on the market two years.

For most of the housing market's history, homeowners knew that big custom-designed homes that aren't in scale with their environs might eventually cost them. "You build [a white elephant] because you were successful in your career and you want to treat yourself," says Ed Kaminsky, who runs Premiere Estates, a California-based luxury auctioneer that specializes in marketing unique, hard-to-value houses. "But you can't expect to get your money out."

But it seems that tenet was forgotten during the boom. And in the meantime, formerly profligate consumers have become extremely price-conscious, says Gregory Hague, owner of Arizona-based Hague Partners, an affiliate of Christie's Great Estates. "It used to be that buyers looked for something that got them excited and emotionally engaged and then tried to negotiate a good deal. Now they're looking at price first."

Steven L. Good, head of Chicago-based real-estate auction firm Sheldon Good & Co., says the division of the company that specializes in selling homes that cost from $1.5 million up to $40 million has seen a sharp increase in offerings in the last year from wealthy homeowners who are frustrated because their homes aren't selling. And real-estate Web site Zillow.com turns up a number of unsold homes whose price tags and amenities are far fancier than their immediate environs might suggest.

Jay Graham

This 4,000-square-foot contemporary house is on the market for $3.95 million, making it the most expensive house for sale on Lake Donner, an alpine lake in Truckee, Calif.

In Broadview, a Seattle neighborhood known mostly for modest ranch houses, an Italian-style villa for sale features a four-car garage and an indoor koi pond. Nearly 10,000 square feet, the house has an asking price of $2.75 million and has been on the market for over a year.

Barney Garton, the listing agent, says the home's rare Puget Sound views make it "a great value." He says it hasn't sold because of its "unusual" architecture and the downturn.

In Truckee, Calif., a lake community about 17 miles north of Lake Tahoe, a $3.95 million lakefront contemporary house with an elevator, indoor lap pool and two garages stands out from the neighboring A-frame log cabins. Built in 1985 and designed by the owner's son, an architect, it was listed in June and is the most expensive house for sale on the lake. While it's received less traffic than expected, the owner is in no hurry to sell, says one of the listing agents, Charles White, of Donner Lake Realty. A more recently remodeled home with fewer amenities but more lake frontage recently sold for about $3 million.

In Dallas, Braden Power, a developer of apartment complexes, spent more than seven years designing and building his dream house: an 8,500-square-foot showpiece with contemporary, traditional and Moorish influences that opens to a central "natatorium," a double-height entrance courtyard with marble floors, two fireplaces, a mezzanine balcony and a central fountain and reflecting pool deep enough to swim in.

Mr. Power spared no expense: He hired an army of both traditional and contemporary designers. The automated exterior and interior lighting systems cost $500,000; the chandeliers are hand-carved, the floors are all solid marble or limestone (both indoor and outdoor) with radiant heating -- a rarity in Dallas where the temperature seldom dips below 40 degrees.

"This house was basically a creative outlet," says Mr. Power, who says his inspirations were the Los Angeles and Miami boutique hotels designed by Ian Schrager.

But last year, Mr. Power decided the home was too big for a bachelor and he put it up for sale, unfinished. With a price tag of $13 million, it attracted a flurry of local press.

Despite being located on three-quarters of an acre on picturesque Turtle Creek, the home didn't sell and now Mr. Power has relisted the house for $9.8 million with Doris Jacobs, of Allie Beth Allman & Associates.

Although Mr. Power acknowledges that he may not recoup his building and carrying costs, he says the home will become a good investment if fans of the design purchase his architectural plans and custom molds.

He has no regrets about building the house. "Honestly, this house is a dream to me," says Mr. Power, who also plans to list the home for rent. "I think it's the most perfect place that I've ever been in in my life."