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As the middle class gets squeezed he top end is making out |
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Monday, 07 January 2008 |
Home values are falling. Jobless rates and gas prices are climbing. The whiff of recession hovers over the economy.
But for the fortunate few in the if-you-have-to-ask-how-much-it-costs-don't-bother crowd, times couldn't be better. Mansion prices are soaring. The art market is in the grips of a buying frenzy. Sales of private jets and megayachts are brisk.
The record-breaking numbers in the mansion market - where $100 million asking prices have become almost commonplace - and in the art world - where $30 million sales are run-of-the-mill - come in sharp contrast to the economic jitters that are shaking up the middle class.
"When you get to a certain level of wealth, you don't have to retrench when the economy takes a turn," said Jo Ann Engelhardt, managing director at Bessemer Trust, a private bank where the minimum to open an account is $10 million.
Indeed, there's little reason for the rich to cut back. The stock market, though choppy, remains near historic highs. Executive compensation follows an ever-upward trajectory. The Bush administration has cut taxes for the affluent.
And the ranks of the super-wealthy keep growing. A 2007 report by Merrill Lynch and Capgemini said the number of people worth more than $30 million grew by 11 percent from 2005 to 2006.
And 2007 was the first year that making Forbes magazine's list of 400 richest Americans required more than $1 billion. (The cutoff was $1.3 billion.)
"There's more billionaires than ever before," said Jeanine Recckio, a fashion consultant and futurist who also runs a Worth Avenue boutique. "I mean, we're running out of places to park the yachts."
There's nothing new about the rich getting richer, economic historians note.
"Throughout history, there's always been an elite group that has had high income and high savings and can afford to do whatever they want," said independent economist David Goldenberg of Boynton Beach.
But the contrast between the moribund middle-class economy and the soaring luxury economy is especially notable now, and especially here, where the rich fly in on their private jets to enjoy their oceanfront estates and megayachts.
During the five-year housing boom, middle-class climbers felt wealthy as their homes posted double-digit gains in value. That feeling of instant wealth has subsided as the region's housing bust puts a crimp in spending.
Still, not every part of the housing market is hurting. Palm Beach County home prices, down 18 percent from their 2005 peak, are mired in a slump.
But on the island of Palm Beach, home prices rose 24 percent in the first nine months of 2007, according to a closely watched report by real estate attorney Les Evans.
In one sign of the buoyant mansion market in Palm Beach, real estate mogul Donald Trump is asking $125 million for the oceanfront estate at 515 N. County Road. The property includes 475 feet of oceanfront and a 48-car garage.
"The market's been very strong," Trump said in a recent interview. "I'm not saying that it's going to last forever, but it seems to be lasting."
Trump is confident enough in the mansion market that he reportedly turned down a $90 million offer from Stephen Schwarzman, the billionaire head of Blackstone Group.
Trump declined to comment on Schwarzman's offer, but he said he's holding firm on his asking price. He pointed to the limited supply of oceanfront mansions in Palm Beach.
"There's very little land," Trump said. "It's an island. You can't keep going out."
As if to underscore the ongoing mansion boom, lore magazine recently ranked the nation's 50 top-selling real estate agents for 2006 and found two from Palm Beach County, in spite of a plummeting housing market that sent many Realtors here looking for second jobs.
Carol Sollak of Illustrated Properties Real Estate in Wellington handled deals totaling $123.7 million, ranking her 16th among the nation's agents.
"The high-end market is still strong," she said.
And Jim McCann of The Corcoran Group in Palm Beach tallied sales worth $93.5 million, ranking him 32nd nationally. McCann agrees with Trump's assertion that the supply-and-demand equation favors sellers. After all, he said, parroting Trump, there are only so many oceanfront estates on the island.
"If you're a big fish and you want to make a statement and you want to be on direct ocean, there's not much to choose from," McCann said. "There has been a lot of wealth created in the United States over the past 10 years. And those people who have made that money obviously are not shy about spending it. If you go to buy a luxury yacht or a jet today, you're going to have to get in line."
Hard to believe, but he's right. Demand for $30 million planes far outstrips the supply. Aero Toy Store, a dealership in Fort Lauderdale, caters to wealthy buyers who don't want to wait four years for a made-to-order jet.
Aero Toy Store's inventory ranges from $6 million Learjets to $75 million Boeings and Falcons.
"Our business is booming," said Gary Anzalone, marketing director for Aero Toy Store. "I don't want to say we're recession-proof. But the story here is the weak dollar."
With American products on sale because of the strong euro and pound, foreign buyers are flocking to Fort Lauderdale to buy jets, Anzalone said. Proving his point, a group of shoppers chatted in French with an Aero Toy Store saleswoman at the dealer's showroom one day last week.
And while Joe Lunchbucket struggles to afford gas for his bass boat, the market for megayachts is booming, too. For instance, Trinity Yachts of Gulfport, Miss., builds floating palaces that sell for as much as $250 million.
The art market likewise is seeing a surge of demand. In two of 2007's big-dollar sales, an Andy Warhol painting sold for $71 million and a Matisse fetched $33.6 million in November.
Ask Timothy Eaton, owner of Eaton Fine Art in downtown West Palm Beach, how his gallery is faring, and he answers, "Great."
"I'd like to attribute it to my discerning eye and great business acumen," Eaton said. "But we're just moving at the same rate as other businesses of this ilk."
Those who cater to the luxury market are cashing in on the boom, but not everyone sees the burgeoning upper class' wealth as healthy for the economy. Economists such as Edward Wolff, a professor at New York University, note that wealth increasingly is being concentrated in the hands of the fortunate few.
During the past two decades, middle-class incomes have been stagnant, while much of the wage and income growth accrues to the wealthiest 1 percent of American society, Wolff said.
"As the middle class gets squeezed," Wolff said, "the top end is making out like bandits."
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Last Updated ( Monday, 07 January 2008 )
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