millionaires moving in keeping prices flat in high-end markets?

[lu]

Hi everyone — my friend today told about the following article:

http://www.signonsandiego.com/uniontrib/20070325/news_1b25dean.html

What do you think about this idea? Can some high-priced “enclaves” retain their extremely high values in perpetuity because of this purported influx of super-rich?

[Anonymous]

I saw this article Sunday, he made a few interesting points but overall it was pretty much BS. When housing markets go down, it affects EVERY price range. Just look at prices from 1996 for any “Enclave” of San Diego and compare it to todays prices.

[gn]

Mr. Calbreath failed to mention that, for every millionaire household moving into SD, there will be 5 households:
– Barred from entry into the market b/c of the sub-prime meltdown.
– Or, lose their primary residences to foreclosure b/c of ballooning mortgage payment.
– Or, lose their investments properties b/c of ballooning mortgage payment.

[Bugs]

I find it perfectly amazing that the author of that piece was able to talk about San Diego millionaires and not connect any of them to the RE market. Unless my understanding of it is in error, “net worth” would include RE equity, and between 2003-2006 a lot of people “earned” a lot of RE equity.

That doesn’t even count the individuals in SD County who work in the RE business.

He has no data to suggest all or most of those new millionaires moved into town.

At any rate, the initial assertion – prices won’t go down in those neighborhoods because there are plenty of buyers to isolate them even as everything else crumbles also displays a dazzling lack of of understanding of how the RE markets work. Rancho Santa Fe homes don’t sell for $3mm plus because they’re intrinsically worth that much; they sell for those prices because they are that much better than the $2mm homes, which in turn are percieved to be that much better than the $1mm homes, and so on.

When the $2mm home declines back down to $1.2mm, the more expensive $3mm home will also decline to reflect that still-present premium for the differences between them.

If anything, the last RE recession demonstrated price compression, wherein the gaps between the different price ranges narrowed. This basically means that on a percentage basis the expensive homes lost even more than the cheaper homes.

Here’s a little factoid that belies the assertion made by the author of that piece. In the wannabe areas surrounding Rancho Santa Fe (92130 and 92128 zip areas) the MLS shows 6 sales in excess of $3,500,000 in the last year. Of the 6, there were 2 sales above $5,500,000.

There are currently 37 active listings in $3,5mm+ price range; of which 15 are listed for $5.5mm and above. At this pace that indicates to a 6-year supply of homes in the $3.5mm ranges and a 7.5 year supply for the $5.5mm and up range. That doesn’t count the other homes in these price ranges that the specuvestors are still building, of which there are quite a few.

Apparently we’ve been adding McMansions a lot faster than we’ve added Millionaires. So tell me one more time how the upper price ranges are isolated from the laws of supply and demand.

[LookoutBelow]

I would say (just a guess) that 8 out of every 10 "millionaires" today derive most of their wealth from their real estate holdings….which, as we know, does not make them millionaires….really

[bob007]

I feel areas like La Jolla, Del Mar, Newport Beach, Laguna Beach will always be unaffordable for middle class or upper middle class folks. There is too much money floating around. A lot of them seem to congregrate in coastal California. La Jolla home falling from $3 million to $1.5 million is an non-event for me and probably most folks on this forum.

[Bugs]

If their money came from RE then I think it’s fair to say that it isn’t how much they made that counts, but how much of it they can keep.

[Happy renter]

Yes, but I need to add 1 more. 9 out of 10! People own a few million houses does not mean they have a few million dollars. They may only put 0 to 5% downpayment. I know someone bought a $3 mil house, but only put 5% down, $150K. I am sure a lot of people here have $150K or more.

After the real estate crashes, 9 out of 10 will become negative millionaires sicne their houses will be under the water. Imagine some houses in RSF are up to $40 mil. Not to mention about 50% drop, 10% drop will be $4 million. A lot of people live in RSF are in real estate business.

Good Luck to those bubble Millionaires!

http://www.realtor.com/FindHome/HomeListing.asp?snum=22&locallnk=yes&frm=bymap&mnbed=0&mnbath=0&mnprice=10000000&mxprice=99999999&js=off&fid=so&stype=&mnsqft=&mls=xmls&areaid=29334&poe=realtor&ct=Rancho+Santa+Fe&st=CA&sbint=&vtsort=&sorttype=&typ=1&typ=2&typ=4&x=47&y=9&sid=0848FB8B6460C&pgnum=3&snumxlid=1056428370&lnksrc=00001

[lindismith]

such good stuff here!

Bugs, you consistently offer the best analysis and insight! (I think it’s time you did a powayseller, and got your own site!)

[CAwireman]

NOOOoooooooo!

We don’t need any more good posters to leave Piggington.

Bugs should stay!

[CAwireman]

However….

The Dean “Cowbreath” article reads like a nakedly self serving piece to help con people into believing that the market is still sound if you are but lucky enough to be able to afford a $1MM plus property.

Journalists like this (and I could be wrong) sound like writers bought and paid for by special interest/good ole boy/RE Cronies.

All other accurate news coverage is pointed in exactly the opposite direction.

Also, I heard a radio spot on NPR tonight. Some investment advisors are worried that people are taking the RE downturn serious enough. Basically, people are trying to quickly shake this off and move on. But the radio post, as has been stated in posts here often, went on to paint a possible scenario where the housing downturn pulls the country into recession.

Writing a contrarian article like this serves no positive purpose.

I’ll stop now. I didn’t get enough sleep for the last few nights, so maybe I’m rambling……

[Cow_tipping]

Millionaires are smarter than the average sheeple … I mean true millionaires, not people who go, my home is worth a million bucks so I am a millionaire. They know not to touch this market with a 10 foot pole, and they were selling in 2004 and 05 not buying and they can really afford to wait the meltdown out 10 ways from sunday and buy at the true bottom, when interst rates are at 15% and they have had their money in gold and shorting mortgage companies till then, with cash.
Millionaires dont drive Hummers and ferraris, million bucks in debtors do, millionaires drive ford trucks and hybrid honda cars. Drive around your nearest McMansion and see how many of those you find. Compare that to the number of H2’s and you’d know.
Cool.
Cow_tipping.

[PerryChase]

Yes, Bugs has some of the best commentary. I can tell that he’s someone who’s grown wise from living the Real Estate market.

I’m not in the profession but I’ve watched from the sidelines since the late 80s. When bugs describes housing conditions, it’s exactly as I remember them. He sounds very fair and balanced — a first rate appraiser in my opinion.

[no_such_reality]

Can I climb on a momentary soapbox.

Millionaires aren’t what they used to be. People think of millionaire and they envision Paris Hilton’s lifestyle, or maybe Donald Trump. Possibly Oprah or some Hollywood Megastar. In essence, these are the right model, no different than the millionaire status from the gilded era at the turn of the century.

Sadly, that really requires $25-$100 million or more to really obtain.

What’s the cold reality? Unless you want a pretty good chance of being broke in the next twenty years or so, you can’t count on your million to give you more than $50,000 a year adjusting for inflation. If you’re younger and want to live 30 or more years, that ability to withdraw is even lower, $40K or less.

Of course, $40,000 is just about what a mortgage, HOA and taxes will run you on a median SD condo with pristine credit and minimum down.

Woohoo! Let’s hear it for the millionaires. Someone let the UTC condo conversion people know they’ve got a new target market. Ah, financially independent living at it’s finest.

[Duck]

It’s funny to see all the posters say this columnist is a shill, yet the week before he interviewed a long time permabear who offered noting but doom and gloom. You can get an “expert” to give you any opinion you want. If it’s bearish everyone here will applaud. If it’s bullish everyone will boo and shout down the author. This forum is no different than Fox News. Everyone has the same viewpoint and there is no exchange of ideas.

[Author]

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