Profiting From The Wealth Divide

The rich get richer and the poor get poorer. It’s an old saying, but it may be one to invest by given today’s housing data and recent corporate earnings.

The National Association of Realtors said today that existing home sales slipped 0.8% in April from the prior month, and are down nearly 13% from the prior year. The news was taken as bearish for the housing industry and the larger economy as a whole. But, buried in the data were signs that housing is recovering – at least for higher-end homes.

Homes over $750,000 actually saw an increase in sales. Homes in the $750,000 to $1 million range saw a sales increase of 4.2%. Homes above $1 million saw an 11% increase. Sales of homes in the $100,000 to $500,000 range, for comparison, were down more than 20%.

“The upper-end is moving in the opposite direction of the mid-segment of the housing market,” said NAR chief economist Lawrence Yun in a telephone interview.

“Wealthier households have larger wealth tied to the stock market and, given that the stock market has recovered quite nicely in the past two years, some people are feeling comfortable financially and are re-entering the housing market.”

Also driving the rise in higher-end homes, said Yun, are looser standards for so-called jumbo mortgages – the term given to mortgages of more than $500K.

Because jumbo mortgages are not backed by the government, they fell off sharply at the height of the financial crisis when banks were unwilling to grant large loans not guaranteed by Fannie Mae or Freddie Mac. But, as the economy has slowly recovered, banks have been more willing to lend large amounts to customers with solid credit, said Yun.

The housing data is important because not only are the rich feeling wealthier because of the stock market, they’re also not suffering the same wealth-drag from their home as the middle class.

The result, wealthier consumers will be even more likely to spend more – on homes, retail, and discretionary items.

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