Remember When A $Million Was A Lot Of Money?

There is a lot of money flowing around this world. Might not always flow fast enough in the right place (like in your bank account and mine) but, trust me, there is plenty to go around today, and on many shores. Where is it going? Where it usually goes: to those fortunate individuals who already have loads of the stuff. Yes, the rich are getting richer. Now, don’t be too envious if you have been forgotten so far. Your turn may come. In the meantime, chances are you already benefit from the ripple effect of a growing wave of wealth around the world.

As mentioned in the August issue of Fortune (study from the Boston Consulting Group), global private financial wealth jumped 5.3% last year, to a record $166.5 trillion. 45% of that is held by 18 million millionaire households worldwide. Asia’s share of the pie, according to the study, is growing fast but the US still has a firm grip on the lead with more than 7M such households (vs. 2.1M in China).

Wealth is spread wide on our national map, but large coastal metropolis control much of it. The New York City area alone counts over 81,000 households with at least $5M in wealth, followed by the LA area with 43,000+ households (“Phoenix Marketing International” data reported by Fortune). As I said earlier, there is a lot of money around and it is not in the hands of a few anymore, it is in the hands of millions. 

Good thing actually when you consider how prohibitively expensive real estate has become. It now takes more than a six-figure paycheck to qualify for a home loan in a host of cities, from one coast to the other. The picture is particularly bleak and worrisome in much of the North-East and the West Coast, where prices are outpacing income opportunities.

Take California as an example, where today’s buyers need twice the income than 5 years ago to buy a home. In the context of a seemingly continuous shrinking inventory of listings and the corollary increase in home prices, the percentage of buyers who can afford a median-priced single family home stands now at a low of 29% (California Association of Realtors’ housing affordability index for Q2). FYI, the median home price in the Bay Area is $895,000. At that price, buyers have to show a minimum annual income of $180,000 to qualify.

As bad as it may look, that sticker price is a heck of a deal compared to what prices are like in many markets around the Silicon Valley. In San Francisco County, the median price is $1.5M, and if you find a place you like at that price, you better put your running shoes on and get ready for the race if you want to win the bidding war. It is less of a fight at the $3M to $5M price point but it is still competitive. Remember when a million dollar was a lot of money?

Wealth is relative, as Fortune reminds us in their August issue, using a MagnifyMoney analysis to prove the point. They looked at the cost of living in 381 metropolitan areas in the US to see how a family of three would fare on a $100,000 income. We are not talking about buying a house here, just merely routine lifestyle expenses. Well, as you might have guessed, that kind of salary will buy you a nice life in many parts of the country while barely (if at all) covering basic expenses in others.

The data shows that a $100k salary will take you the farthest in Johnson City, Tennessee, where routine expenses would consume “only” 62% of that income. Morristown, Cleveland and Jackson, also in Tennessee, come next. Other “best cities” in terms of how far money goes before melting include several towns in Missouri (Hattiesburg, Jackson) and Texas (McAllen, Brownsville).

On the other side of the spectrum, the bottom third cities where the cost of living can be painfully high, we find the usual suspects. You know the states and even the towns/metro areas. Washington D.C. is top of list, followed by the Bridgeport-Stamford-Norwalk cluster in Connecticut. Number 5 on this famous (or infamous) list, we have of course the Big Apple. Further in position 6 and 9 respectively, we have California-Lexington Park in Maryland and Boston, Mass.

Now, let’s go West to find some of the other very pricey cities in the land. No surprise there either. The third most expensive area in the US is San Jose, the “capital” of the Silicon Valley. Big incomes but hefty prices. The sun is for free though. Next comes the City-By-The-Bay, at number 4. The other cities from the bottom third include Kahului, Hawaii (#7), Honolulu (#8) and Santa Cruz (#10).

OK, now you have it… depending on what falls into your bank account every month (if you have to work for a living), you can choose your pad on the map and hopefully enjoy it for a long time. That’s my Labor Day wish for you.