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Wednesday, July 31, 2013

Why the fact that there are no decent 3 million dollar apartments in NYC should concern you...


The current state of the real estate market has been quite the topic for awhile.  Some things you may have heard or read...

 "The inventory is the lowest in NYC ever!", "People are forgoing appraisals and bidding $300K over ask!", "It is a sellers market." and my favorite "The economy is back!".

It is one big crazy free for all out there and it appears people are so wealthy they are printing money, clamoring to buy real estate and sock their cash before the interest rates go up and up.

Except they are not.

Having bought in a sellers market and sold in a buyers market - a few times - I have seen this before but something is different.  In 2007/08 it was a sellers market and inventory was low because everyone had money and could buy.  Today there is no inventory because people cannot afford to sell and buy up - so there are fewer apartments for sale.  Big difference.

Why does this concern you or me?

I am with you - these are rich people's problems - not being able to find a 3 million dollar home is a problem we should all have.  Except it is our problem.

And here is why -

The person looking for a $3MM home is selling their home they bought for $1.8MM.  But the $3MM homes available are the same size or smaller than their $1.8MM home now.  So they can't buy up and they can't buy more.  And if they do find one - there are super wealthy people and real estate hedge funds willing to pay $300K above ask and all in cash and forgo appraisals - as the bank would never give a mortgage.

So they stay, do not sell and do not advance past go - to Park Place or Park Ave. in some cases.

Again why should you care?  

These are wealthy people and if they are not advancing - this means they really aren't that wealthy in the scheme of things and the gap between the haves and have nots is not getting smaller it is getting much, much bigger.

Per Wiki -
In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%. Financial inequality was greater than inequality in total wealth, with the top 1% of the population owning 42.7%, the next 19% of Americans owning 50.3%, and the bottom 80% owning 7%.[9] 

It gets better -
However, after the Great Recession which started in 2007, the share of total wealth owned by the top 1% of the population grew from 34.6% to 37.1%, and that owned by the top 20% of Americans grew from 85% to 87.7%. The Great Recession also caused a drop of 36.1% in median household wealth but a drop of only 11.1% for the top 1%, further widening the gap between the top 1% and the bottom 99%.[1][9][10]

 But the clincher is - 
Today - 80% of the country's wealth is owned by 20%.  1% of those 20% own half of that wealth.  That dot above on the map just got even smaller.  That person looking for a $3MM apartment is joining that group in the dot.

So how does this become your problem?  

A rising tide should lift all boats - except our rising tide is limited to the uber wealthy - we are talking billionaires.  Your boat is sinking or trying to stay afloat,  as is 80% of Americans.  The other 20% are on gigantic yachts with 100 guest rooms - but only 10 people using them.

I am certainly no financial analyst or expert - let me clarify that.  My observations come from living life in NYC as a small business owner.  A year before the recession hit,  I could feel it in sales.  I started preparing and tightening my purse strings well in advance.  I took a few hits, however it was no surprise to me that it was coming.  And this current inequality of wealth is starting to feel the same way.

Many laws - such as Dodd/Frank were created to protect us, however they are also hurting us.  No I do not think a person with $50K in assests should be able to buy a $500K house.  However I do think someone with $1MM in the bank, should be able to get a mortgage on a $300K property if they don't have a job - but they can't.  Asset lending is frozen.

There hasn't been a loan to a small business owner for over 4 years.  At least I don't know any.  The banks are holding on to billions of dollars and are only giving loans against actual cash you have in the bank.  So if you give the bank $200K, they will loan it back to you at 4% interest.  This country was founded on risk takers and inventors.  If you shut the pipeline down completely - which is what Obama did - you will not nurture the next Ben and Jerry's,  Mrs. Field's or Starbuck's - all who had humble beginnings like my own. 

Money is only exchanging hands amongst 20% of the population and they are getting wealthier every day - with real estate holdings and stocks and bonds that are NOT creating jobs and not fostering growth.

People are spending a bit more - this is true - but it will not be sustainable unless the government makes serious moves to open up the flood gates again to the average American.  In the form of small business loans, increased minimum wage, low interest college loans and mortgages.  Tell me why is it a student fresh out of college working their first job is saddled with an 8% loan - when the guy making $500K a year gets a $900K mortgage at 3.5%???

Summer is a time when everyone does feel carefree and happier in general, however I do hope Washington starts to follow their campaign promise of "Change" and not turn out to be even friendlier to the uber wealthy than the previous administration was.  At least back then we could all buy up. 

Take some chances on the American public you serve Mr. Obama and let them have the chance again at the American dream.   Or better yet - maybe instead of talking about where you came from - you should start spending some your time with people still living there and get to know "real people" problems instead of waxing philosophical about them.





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  2. In real Estate Anything Could happen...