Rich People Know Better

Posted by: Maya Roney on June 18, 2007

I’m being a bit ironic with the headline here— but a recent survey of luxury homeowners tells us that when it comes to real estate, the affluent have more realistic expectations. They don’t freak out about temporary market fluctuations. Housing slump, shmousing shlump, they say.

The 2007 Coldwell Banker Previews International Luxury Survey polled 301 U.S. homeowners whose primary residence is valued at over $1 million ($2 million for California residents) and who have investable assets of more than $1 million. The big trend: a full 56% of respondents expect the value of their home to increase “at least somewhat” in the next year, though only 10% expect it to increase “significantly.” Looking at the next five years, 36% think their home value will increase significantly, while 58% believe it will increase “at least somewhat.”

“These responses tell us that the affluent truly understand the value in owning real estate,” said Coldwell Banker pres. Jim Gillespie in a press release. “It is important to remember that in addition to being a home, real estate is a long-term investment, one that can withstand periodic changes in the market.”

Of course rich people understand value—that’s how they got rich, right? ;) It is true that if more people had looked at homes as a long-term investment, we wouldn’t be in as much of a pickle today. But as we’ve pointed out in the past, homeowners in the exclusive enclaves at the top of the market have the added benefit of steady demand that continues to push prices up (See Peter Coy’s story on this phenomenon).

Another interesting finding from this survey: well-heeled ladies are more optimistic then well-off fellas, with 61% of women expecting their home value to increase somewhat in the next 12 months versus 50% of men. Gillespie suggests that affluent women’s confidence in real estate, along with the fact that 22% of all homes sold last year were to single women, could be “the driver that ultimately helps the market turn the corner.” I suspect Oprah is behind this…
OPRAH.jpg

Reader Comments

David A. Porter

June 18, 2007 11:03 AM

Maya, Nice article. A different take on this issue might be to understand that one should be cautious of the herd. Generally speaking, herd mentality it what creates extreme push-ups in values. Be it the recent real estate bubble or the stock market bubble in the 90's. When the herd marches in, it is generally time to look for the exits, or at the very least get your "pool floatie" a martguerita and sit back and watch.

I would like to point out however that at the end of the day, demographics it going to win the day. Real estate investing, not unlike stock market investing, must consider the long term.

In the real estate market, there are tens of millions of baby boomers that are going to be looking at their retirement locations. Baring a major catastrophe of some sort, that trend will not be stopped.

In this man's humble opinion, there are incredible opportunities in real estate in the next decade. The top wave of the baby boomers are hitting sixty. There are still a LOT of 50 year old baby boomers to go through the cycle.

This last real estate bubble was a bit premature as a result of the incredibly low mortgage rates. There is still a lot of fire in the belly of this real estate market in the right areas. Think...if I were a baby boomer, where would I want to retire. Buy real estate there.

I am in North Scottsdale (bought here right after 9/11) and this area has faired pretty well through this blood bath. Why? This area is primarily retired or semi-retired people. There wasn't a lot of flipping going on here.

A recent trip to the Big Island of Hawaii found a beach full of ship wrecked real estate flippers. There are incredible opportunities in Hawaii right now, for the long term.

I struggle with "the rich" title. I suppose a better word would be the disciplined. Many of the so called "rich" are only that way because they had a disciplined investment system for a long period of time. Anyone can be "rich" if they will save for the future and watch out for the herd when it comes marching through.

I really enjoy reading this blog from day to day! Thanks!

John Schneider

June 18, 2007 1:57 PM

Maya, I too enjoyed the article and found it to be an accurate portrayal of the attitudes that I encounter with wealthy real estate clients. However, what I also find is that my wealthier clients are more likely and eager to buy in a down market than the average joe. They see it as an opportunity, of course it often is, and don't fuss too much about timing the bottom. They're happy to make a good deal, rather than go for a grand slam.

Wes

June 18, 2007 9:55 PM

The problem with your article Maya is the extremely limited market of uber-luxury buyers. I'm sure the rich are a lot smarter at managing their money and are probably not as concerned with housing being a store of value.

Mr Porter, IIRC, you have been a housing proponent for a while. What I disagree with you on is the basis of your assessment - that "there is a lot of fire left in the housing market". There is always going to be a market for primary residences, but in the environment we are seeing, investment and second home properties are not so desirable, and as housing continues to sour it will revert to the previous expectation as a place to live, not an ATM or get-rich-quick scheme. I also forsee a lot of boomers just staying in their current homes or even downsizing. This move to Florida trend has pretty much burned itself out. If there is any trend, it will probably be a Tennessee-Georgia-Carolina's growth belt.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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