January 2016 - Out of the Woods

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TH E M R EP O RT | 57 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T THE LATEST ANALYTICS Mapping the Millionaires The nation's wealthiest citizens tend to congregate in the same 12 cities, report finds. R eal estate data firm Zillow estimates the median home value in the city of San Fran - cisco hovers somewhere around $1.1 million, making it one of the most unaffordable housing markets in America. Coincidentally, it's also home to some of the wealthiest Americans, according to Capgemini's new "U.S. Wealth Report" for 2015, released in December. When it comes to housing the nation's millionaires, the unafford - able San Francisco area ranks No. 5 on the wealth report, outranked only by New York, Los Angeles, Chicago and the nation's Capitol. What Capgemini found seems like a fun survey if you're the type of person shopping for a wealthy friend to buy you a Bentley. But if affordable housing is your goal, there is a strange corollary between what cities are considered costly and which real estate mar - kets house the nation's wealthy. As Capgemini notes, high-net- worth individuals—classified as citizens with investable assets val - ued up to $1 million—most often reside in the same 12 U.S. cities. In fact, two-thirds of these individu- als live in New York (No. 1 on the list); Los Angeles (No. 2); Chicago (No. 3); Washington, D.C., (No. 4); San Francisco (No. 5); Boston (No. 6); Houston (No. 7); Philadelphia (No. 8); San Jose (No. 9); Dallas (No. 10); Detroit (No. 11); and Seattle (No. 12). With the exception of Houston, Dallas, and Detroit, most of the cities on the list remain unaf - fordable from the perspective of working-class and middle-class Americans. For instance, Zillow places New York's median home value at nearly $600,000, while Los Angeles residents are dealing with a median home price of roughly $554,000. Only Houston and the Dallas-Fort Worth area offer af - fordability across differing income levels with the median prices in those cities hovering around $141,300 and $174,400, respectively, according to Zillow data. And it seems high-net-worth individuals may continue to influ - ence these top real estate markets, with their net wealth continuing to soar. Capgemini noted that the nation now has 4.4 million individuals classified as having a high net worth. In fact, the percentage of those reaching this economic status increased 8.6 percent between 2013 and 2014, the report said. As these "high-financial-status individuals" dominate different real estate markets and prices rise, it's hard to argue against their growing influence. "Distressed sales (REO and short sales) typically sell at a price discount, with REO selling at the steeper discount," CoreLogic Chief Economist Frank Nothaft said. "The discounts are attractive to investors, who can buy with less cash than if the house sold at full/market price, as would generally be the case with a resale or new construction. Thus, the drop in REO sales is a primary cause of the declining cash share." Investors typically make up the largest share of all-cash buyers, but their share of all home sales is also declining. "It's also true that investors are buying a smaller share of all homes, but that may be related to the decline in REO inventory on the for-sale market," Nothaft said. Despite the consistently declin - ing cash sales share nationwide, the share remains high in some states—in the case of Alabama, the cash sales share was higher than the nationwide January 2011 peak with 47.6 percent in August 2015. Florida was next (45.2 percent), with New York (42.4 percent), West Virginia (39.5 percent), and Missouri (39.5 percent) rounding out the top five. In some of the nation's largest metro areas, the cash sales share was more than half: Miami (51.7 percent) had the highest, followed by Philadelphia (51 percent), West Palm Beach (50.8 percent), North Port-Sarasota-Bradenton, Florida (48.5 percent), and Fort Lauderdale (47.7 percent). Investors typically make up the largest share of all-cash buyers, but their share of all home sales is also declining.

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