Wednesday, September 09, 2009

Wealthy Trading Down While I Look to Trade Up

I've discussed in the past how some wealthy people I've met have expressed distaste for my non-privileged background. That's why articles like this one make me sit up and take notice:

Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.
(snip)

Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Chicago bankruptcy attorney Joseph Baldi.
(snip)

“Real-estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of ongoing expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.


The nation's real estate explosion is not limited to subprime borrowers who bit off more McMansion than they could chew. It now touches the real mansions of bona fide multimillionaires who never thought they'd have to trade down. I'm guessing that these distressed properties will start to hurt the loan books of luxury lenders like First Republic pretty soon . . . which in that case means more trouble for Bank of America and Merrill Lynch (First Republic's parent).

I don't engage in schadenfreude because I wouldn't want it done to me. Watching people get poorer is no fun. That's why this is a reminder for me to live within my means and stay out of debt. My net worth at this moment is somewhat higher than it was at the beginning of this year, thanks to my frugality, investing discipline, avoidance of debt, and some really good luck. That luck is sometimes what separates a downwardly-mobile wealthy dude from an upwardly-mobile striver like yours truly.

On the other hand, some foreclosed mansions will soon be on the market. There's always hope that I could pick up something nice in San Francisco on the cheap.