In 2003, just 2.6 percent of all the affluent families surveyed
were concerned about their homes retaining value; given the environment, this
sentiment is not surprising. That number jumped to 29.8 percent in 2007. The
least wealthy segment expresses more anxiety, with more than half worried about
the value of their homes. Roughly one in five families with a net worth in the
$10 million to $20 million range convey similar concerns. The richest group
clearly hold the bulk of the assets elsewhere, as none of them expressed concern
regarding the value of their homes in 2003 or 2007 (Exhibit 3).
All segments of wealthy homeowners share at least one trait:
The equity in their homes has increased markedly from 2003 to the present
(Exhibit 4). For all but the wealthiest, this increase comes as they no longer
view their homes as investments. Instead, many of the wealthy now see their real
estate as a domicile and want to decrease their overall debt. Still, in the
context of overall wealth, the most affluent have not increased the amount of
equity in their homes by a meaningful degree.
In 2003, the affluent families surveyed spent an average of
$88,000 (in 2007 dollars) on home improvements. That number rose to $92,000 in
2007. While the lower end of our sample has dramatically scaled back spending in
this area since 2003, families with a net worth in excess of $10 million spent
the same or more than they did four years ago (Exhibit 5).
In 2003, when housing prices were still following an upward
trend, roughly 40 percent of all the wealthy families surveyed expected to
acquire an additional home worth at least $750,000 during the next three years.
Today only 10.7 percent are expecting to purchase another property. But, once
again, we find virtually no difference in the plans of the wealthiest segment.
Those in the midtier showed a meaningful proportional drop from approximately 35
percent to roughly 20 percent. Interestingly, the idea of purchasing additional
real estate is a nonstarter for the least wealthy families.
Despite the pronounced changes in the real estate market,
little has changed among the wealthiest survey respondents when it comes to
their perspectives on home ownership. The survey findings clearly demonstrate
that families in this segment do not alter their plans or actions based on
short-term market factors. Their position enables them to make purchasing
decisions regardless of the macroeconomic situation. This includes the ability
to buy homes that suit their preferences without having to consider current or
future market conditions—behavior that is consistent in other areas of their
lives as well.
Families with a worth between $10 million and $20 million are
more attentive to the overall market. Their perspectives and responses have
become more moderate, but the degree of their personal wealth provides them with
a comfortable cushion that helps to insulate them from unfavorable economic
trends.
The group most impacted by the reversal in the real estate
market is the working wealthy. Among this group we see an overall decrease in
the amount of real estate owned, less emphasis on their properties as
investments, less spending on home improvement and fewer plans to purchase more
high-priced homes. On the flip side, the working wealthy are more concerned
about maintaining the value of their homes and are steadily decreasing their
mortgages to avoid the threat of turning upside down if housing prices plummet.
Russ Alan Prince is president of Prince & Associates, a market
research and consulting firm for the affluent, and the author of more than 35
books on related topics. Hannah Shaw Grove, an author and columnist, is an
expert on the behavior, concerns and finances of affluent
consumers.
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