THE GREAT REARRANGEMENT Continues...

Well-heeled consumers are rethinking lifestyles, occupations, employers and geographies.

By Robin Lasure

As wealth accumulation escalates at a dramatic pace, consumers will find that money cannot buy everything - especially a swanky house - simply at the snap of their fingers.

That realization in year three of the COVID-19 coronavirus pandemic comes amidst rising inflation in the United States, geopolitical turmoil along Russia and China’s borders, continued pressure on available prime housing inventory and fears of a bubble. But Marci Rossell, chief economist of Leading Real Estate Companies of the World, is not much perturbed.

“Bubbles require that people are buying not because they need or want to buy, but because the collective consciousness believes that prices can only go up,” Ms. Rossell says. “I don’t think that’s where we are.

“People may think they are overpaying, but they don’t care,” she says. “They need a bigger house with more space, so they are okay with that.”

In this interview, Ms. Rossell discusses trends in the affluent market, high-net-worth consumer behavior, wealth growth, impact of rising interest rates and fears of a housing market bubble. Please read on.

Q. What overall trends have you seen for the affluent market and the luxury buyer?

One of the things I have homed in on is the fact that global wealth increased by nearly $60 trillion over the last two years. So, in the middle of the biggest disturbance to the global economy that any of us have seen in our lifetime, the value of wealth, or the sum total of stocks, bonds, real estate and assets, increased by $28.7 trillion in 2020 and nearly $30 trillion in 2021.

While half of this growth is in Europe and the U.S., the other half is spread throughout the globe. That translates to incredible buying power in many markets worldwide.

Q. Do you expect this trend to continue in 2022 and what will happen to that money?

If you believe purchases and spending are grounded in how wealthy people are, yes. They got wealthier in 2020 and even more so in 2021. That is a remarkable statistic that we shouldn’t lose sight of in terms of where the world is headed. People want to spend money on luxury assets like real estate, and the growth of those assets, at that rate and pace, is unprecedented.

Q. Should we be concerned about a housing bubble?

No. First, bubbles require that people are buying not because they need or want to buy, but because the collective consciousness believes that prices can only go up. I don’t think that’s where we are.

People may think they are overpaying, but they don’t care. They need a bigger house with more space, so they are okay with that.

Secondly, a bubble requires a lot of leverage. When people are leveraging too much, insolvency problems develop. People are not leveraged like they were in 2005, 2006 or 2007, which created a boom that turned into a bust. Those numbers are not here this time around. People have already made their money.

Q. What is the affluent consumer mindset as we head into year three of the pandemic?

One of the shockers for the luxury buyer has been that, for the first time in their recent memory, maybe in their entire lives, they have the money and still cannot buy something. This is particularly true of the American consumer.

The U.S. mindset is, if I have the checkbook, it does not matter what it costs. If I want that Subzero refrigerator, I can get it. If I want that house in Palm Springs, I can get it. Because of supply chain issues and the demand for housing, that is not necessarily the case.

Luxury buyers don’t feel in control of their destiny in a way that they are accustomed, and to a certain degree this will continue in 2022.

Q. What do you expect for the housing market?

Prices may not go up like they did last year, but I don’t expect a big decline. We will continue to have inventory issues, partly because new home building is not keeping up with demand.

Large builders have been consolidating for years, and smaller ones are retiring very quickly as that population ages. These challenges are compounded by supply chain issues impacting the availability of building materials.

Q. What about the potential for rising interest rates?

Keep in mind that just because the Federal Reserve may raise rates on the short end, it does not necessarily translate to a comparable increase in the long-term.

I do not think the interest rate picture will change dramatically over the next 12 months.

Q. What about the luxury vacation home market?

One of the surprising developments of 2020 was the escalation of retirements for baby boomers. Normally, just like you can predict births and deaths, you can predict retirements consistently.

In the U.S., there were 1.3 million retirements more than what we would typically expect. People didn’t want to figure out a new way of working. They had the money, and the value of their house was up. They thought, “Why don’t I retire early?” This trend continued in 2021 and is likely to continue in 2022. The escalation of second-home purchases should continue as the rate of retirement increases.

Q. Any closing insights?

One of the unexpected consequences of the pandemic is the great rearrangement of people in terms of occupations, employers or geographies.

For example, before the pandemic, the millennial generation was slowly moving out of high-density areas as they formed families and needed space. The pandemic heightened that dramatically, and we are suddenly seeing the impact on outer-ring suburbs, where prices are escalating.

Dr. Marci Rossell, chief economist of Leading Real Estate Companies of the World (Leading RE)