- Three female fugitives wanted in New Jersey restaurant theft arrested in Illinois
- Man guilty in 2012 crash into home that injured 8-year-old
- McDonald’s: Federal complaint says company is joint employer
- T-Mobile settlement: $90M for cell phone bill cramming
- Shelter Care Ministries gets $30,000 grant
- Even more dead bees?
- Holiday travel: 98.6 million plan getaway, most on record
- Scam artists posing as utility reps, demanding payment
- Holiday mailing deadlines approach, Rockford Post Office warns
- Hispanics more than half of all renters, yet most are uninsured
Rich buying homes, poor going broke
You should have it so tough. Recent data on the economy shows Americas affluent are putting their money in real estate as the stock market continues to skid downward.
Bloomberg News reports sales of homes priced at $1 million or more were up 25 percent in July of last year compared to the previous year. There were 1,702 such mansions sold.
Data Quick Information Systems reported the rise followed a 48 percent increase in such sales during the first half of the year, amounting to a total of 5,447 homes. The biggest percentage gains in both periods were for homes costing in excess of $10 million. (Get two, theyre a bit small!)
Real estate brokers say rich Americans see property as a secure place to put their money in the face of a plunging market. Economists claim housing is a key reason why the economy hasnt gone into a complete recession.
John Burns, president of Burns Real Estate Consulting, Inc., Irvine, Calif., said: The stock market has been a foe to some, but its been a friend to real estate. Wealthy Americans, he said, are moving a greater part of their net worth into luxury housing.
After dropping 10 percent in 2000 and 13 percent in 2001, the Standard & Poor 500, the most widely monitored gauge of the market, was down another 23 percent in 2002.
By comparison, home prices gained 7.4 percent in the second quarter from a year ago, and home resales are expected to top last years record 5.3 million, according to the National Association of Realtors.
While things still may look fairly rosy for the well-to-do and Federal Reserve Chairman Alan Greenspan urges homeowners to extract all the cash they can from rising home prices by refinancing, Comstock Partners, Inc., managers of several investment funds, issued a warning to consumers.
All the refinancing is accomplishing, they said, is putting homeowners deeper in debt and less able to make their mortgage payments.
Comstock said recent data on second quarter flow-of-funds shows the ratio of household debt to net worth has reached record levels. Additionally, despite the rapid increase in home prices, homeowners equity as a percent of price has sunk to 56.3 percent, barely above the historic low of 1999.
The Mortgage Bankers Association recently said foreclosures hit a record high since 1972, and mortgage delinquencies are the highest since 1985. At the same time, household net worth dropped 3.4 percent, bringing the cumulative drop to 7.7 percent since the markets peak early in 2000. The MBA said its the first time household net worth has ever declined in a postwar period.
Personal bankruptcy filings also have reached record highs. Economists keep claiming consumers are in great shape and that they will support the economy until business spending picks up again. The preceding facts dont support that theory.
If that isnt discouraging enough, initial unemployment figures remained at a very high level while industrial production and housing starts dropped in the midst of downward revised corporate earnings projections.
Comstock said corporations are likely to continue to seek cost-cutting methods, including labor. They said the so-called recovery, which is pathetic at best, is in grave danger of sliding into another deep recession. The situation ahead, they said, looks very dangerous.
But, brokers report, sales of million dollar housing arent slowing up.
Diane Saatchi, whose firm handles luxury housing in the Hamptons, at the eastern end of Long Island, said she sold $30 million worth of real estate last August, three times what she sold a year earlier.
People who buy a $15 million beach house, she said, tend to have enough wealth to weather stock market reversals without having to change their lifestyle, although thats caused them to believe real estate is the only safe haven.