ASPEN—Wealth expert Jim Taylor of the Harrison Group had some words of wisdom for an audience chock full of real estate and development professionals at the 2012 Aspen/Snowmass State of the Real Estate and Tourism Economy Symposium on Thursday afternoon. Actually, he had a lot of them.
Armed with a dizzying array of statistics from his firm’s research into the thoughts, habits, and spending patterns of affluent Americans, Taylor discussed how things have changed for the 1 percent since the recession and how people who sell to the wealthy need to adjust their habits in order to succeed in this new world.
It all boils down to this, Taylor explained: A coming real estate boom ought to benefit “enclaves” like Aspen, but the upper crust—tired of the class warfare that is being exacerbated by election year politics and will get worse before it gets better—are increasingly withdrawing from people not of their stature and may be a whole lot harder to sell to for a number of reasons.
“We don’t look like France in 1795, but there appears to be a really significant shift in the way middle-class Americans view upper-class Americans with deep suspicion,” Taylor said at the outset of his presentation.
There’s not much good news in the current state of the economy, according to Taylor, whose firm considers the recession to have begun in 2006. It’s been the longest economic decline in American history, and those with the wherewithal to spend and hire don’t feel like we’re out of the woods. About 80 percent of affluent Americans (those with incomes in the $150,000 to $450,000 range) and wealthy Americans (incomes above $450,000) believe the economy is still in recession; 60 percent think it will last at least another year.
To come out of the recession, Taylor said, unemployment needs to get back down below 7 percent. It’s currently above 8 percent, but in actuality much higher if you count the underemployed and those who have given up on the job search.
On average, affluent and wealthy people are spending about the same this year as they did in 2011, but their confidence in the future has slipped significantly from 2009 (during the depths of the recession), with 44 percent of them less confident in the future now than three years ago. Eighty-two percent said that having more confidence in the future would make them spend more.
So the affluent and wealthy are not spending, and they’re not hiring, summarized Taylor. But they are making money—which means they’re saving. Taylor presented a number of statistics showing that personal savings rates have more than doubled since 2007, to the point that he predicts $7 trillion in “cash under the mattress,” so to speak, by the end of next year—the vast majority of it by the top few percent.
And the good news is that real estate, particularly second homes in resort communities like Aspen, is an increasingly attractive way to spend those savings. Two-thirds of affluent households see real estate as an opportunity, many who left the second-home market during the downturn now want to get back in, and 26 percent of people worth more than $2 million are looking for vacation homes in resort communities.
“We’ve got a rocket ship taking place,” said Taylor.
To understand how Aspen can both benefit and suffer from this phenomenon, one must understand the current issue of “success under siege,” said Taylor. The gap between the top wage earners and everyone else has widened enormously since 1995, and income is continuing to accrue mostly for the 1 percent. The recession, banks bailout, Occupy Wall Street movement, and current economic stagnation have all contributed to the current us-versus-them attitude among the middle class.
Yet today’s affluent largely come from middle-class backgrounds and consider themselves to have middle-class values—85 percent of today’s 1 percenters earned their wealth themselves. So they don’t understand what they’ve done wrong. Many are retreating from volunteerism and charity because they’re afraid of being called out for their means. And the issue has been spotlighted and exacerbated by presidential politics—the attacks on Republican candidate Mitt Romney center on whether he accumulated his wealth fairly and whether he’s paying his fair share of income taxes.
So here’s a growing group of cash-wealthy Americans who are contemplating second homes as a place where they can retreat and be anonymous, increasingly in mountain resorts like Aspen.
“For them it’s a place of refuge, a place they go to escape this mess of class warfare,” said Taylor, who also studied what type of affluent people have visited Aspen in the last few years and may buy real estate—he calls them “Aspen intenders.”
Nearly one-third of Aspen intenders are CEOs or C-level executives, with an average of $6 million in assets. Three-quarters of them are very happy, very successful in their careers, and optimistic about their futures. More importantly, 91 percent of them rank vacations as very important, 83 percent are willing to pay more for true luxury, 81 percent say they like being treated like VIPs, and 42 percent of them want adventure in their vacation experience.
What’s drawing them to Aspen are the amenities of the community—hiking, biking, culture—and the ability to pursue personal passions with their family. “Aspen intenders come for a fuller and richer life,” said Taylor. “It’s not the home; it’s the life.”
But how the wealthy are pursuing their dream home in Aspen has changed quite a bit, said Taylor. Because they’re more gun shy about interactions with the middle class, and because of their confidence in their own abilities, they tend to do their own property research before going to a broker. They might even contact the listing broker themselves—after all, 77 percent of 1 percenters trust their own research on second homes above their agents’.
“They’re coming into the process knowing they can afford what you’ve got and that you’re going to represent them to the market, not represent the market to them,” said Taylor.
Worth is starting to preside over value, added Taylor. While everything was bought at a discount over the last four years, now many wealthy people are looking at buying things that are “worth it” to them. And it’s these “worth-based” people that are an even greater potential customer base for Aspen—25 percent of them are likely to buy in an enclave community in the next three years.
Taylor and his colleagues believe the economy is going to improve in the third or fourth quarter of 2013, with real estate leading the charge. But things are going back to the way he used to be, he demonstrated in his presentation. And while things will get better on the surface, the class issue could get worse before it gets better.
Things have a way of working themselves out in America, Taylor concluded. But, “it’s going to take some goodwill” and cooperation.
http://www.aspenbusinessjournal.com/article.php?id=1659
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