As analysts ponder the real estate bubble’s possible collapse, new data suggest that the mass affluent — those with investable assets between $100,000 and $1 million — are at significant risk.
This large, mass affluent group has 37 percent of total assets tied up in real estate, with 23 percent in principal residences and 14 percent in investment real estate, according to a new report from Spectrem Group released today. This compares with a much lower total real estate exposure of 21 percent (13 percent principal residence, 8 percent investment real estate) for those with investable assets of $1 million or more.
Real estate is the largest asset class for mass affluent households.
Their exposure in principal residences alone is larger than the next biggest class, investable assets (22 percent), which include managed accounts, stocks and bonds, IRAs, deposits, mutual funds and alternative investments.
“Mass affluent investors have heavily tied their financial futures to the real estate market, which has been so hot for so long that many believe it has virtually no place to go but down. The most striking fact is that the mass affluent have 76 percent greater exposure to real estate than millionaires, who because of their wealth should have a more substantial financial cushion. If the real estate market begins to crack, it is the mass affluent who will likely feel the effects both faster and with greater force. The fact that these assets often carry outstanding mortgages increases the risk further still,” said Catherine S. McBreen, managing director of Spectrem Group.
There are about 33 million mass affluent households in the United States today, controlling approximately 37 percent of the nation’s investable assets.
The report, “2005 Mass Affluent Investor,” is based on data gathered through mail and online surveys of 542 qualified respondents from September 2005 to November 2005. The margin of error is plus or minus 4.2 percentage points.
Spectrem Group is a consulting firm specializing in the affluent and retirement markets.
Distribution of total assets – mass affluent:
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