This is an article from Bowden’s Market Barometer featuring AARC insights based on our Spring 2011 survey. (http://www.bowdensmarketbarometer.com/)
By Judith She
Published June 20, 2011
The spring 2011 Affluent Market Tracking Study conducted by the American Affluence Research Center (AARC) provides an optimistic perception of increased confidence and purchasing activity at the upper tier of the market. The 19th in a continuing series of twice-yearly surveys focuses on the 11.4 million US households that represent the wealthiest 10% of US households, as determined by The Federal Reserve Board, based on net worth. These households account for about half of all consumer spending and a third of gross domestic product (GDP).
The 405 survey respondents represent households with a minimum net worth of $800,000 in 28 states and the District of Columbia. At the time of survey, 88% of respondents were married, and the average age was 56.7 years. A full 75% of respondents were over the age of 50.
Nearly 11% of respondents exhibited a net worth in excess of $6 million, and 6.7% reported average investable assets in excess of $6 million. Overall, the average annual income was $333,000; net worth averaged $3.1 million and investable assets averaged $1.8 million.
The AARC surveys measure and track how luxury and affluent consumers assess current business conditions and their 12-month outlook for the economy, the stock market and their personal household earnings. Highlights of the survey findings include:
The composite Affluent Consumer Expectations (ACE) Index rose 21 points from the Fall 2010 survey and moved into positive territory. All three components of the composite ACE Index were well above the Fall 2010 survey results.
The index for future business conditions rose 23% points
The index for change in the stock market rose 26 points
The index relative to change in after-tax personal income rose 13 points
The assessment of current business conditions is at its best level since the fall 2007 survey. Capital appreciation has again become the primary investment objective, up 14 percentage points, while preservation of capital remains the top priority for those over the age of 60.
Spending plans for all 17 products and services tracked by the AARC surveys were much stronger in the spring compared to the fall 2010 survey. Items of interest include:
Twenty-six (26%) percent of respondents are planning more domestic travel over the next year while 20% are planning increased international travel. The travel index of 114 is at its highest level since the spring 2007 survey and domestic vacation travel, which rose 15 points from the fall survey, continues to be the strongest category.
The future spending indices relative to recreational activities – golf, skiing, etc. – rose 13 points since the fall survey, to 95, comparable to the spring 2007 survey.
Approximately 10% of respondents plan to purchase an existing vacation home or build a new one. This level of interest is essentially at 2007 levels.
Approximately 5% of respondents plan to purchase an existing home as a primary residence or build a new one.
Given the 11.4 million households represented by the survey, it is estimated that this wealthy market segment represents the potential purchases of 422,000 vacation homes and 536,000 primary residences over the next 12 months.
While familiarity with fractional ownership continues to lag (59% of the affluent say they are not familiar with the concepts of private residence or destination clubs) the incidence of Private Residence Club (PRC) ownership and Destination Club membership has increased significantly. A full 2.0% of respondents now have interest in a Destination Club membership compared to 0.7% in spring 2007 and PRC ownership interest has more than tripled since spring 2007, from 0.5% to 1.6% of wealthy respondents.
Familiarity with the PRC and Destination Club concepts increases with age, income and net worth: Men more than women; those between the ages of 50 and 59 years; those earning in excess of $200,000 annually; and those with a net worth of more than $6 million are more cognizant of the concept.
The question that comes to mind is how to market this product more effectively. Based on the AARC findings, social media is not the answer.
With all the hype about social media — Facebook, LinkedIn, Twitter — a large percentage of wealthy households do not participate in this activity. The spring 2011 AARC study shows that half of the affluent that do have a mobile device or a computer do not participate in social media. Among those that do participate, only 25% use it to receive communications from vendors. Said another way, just 12.5% of affluent households are using social media as a resource for purchases.
The AARC study goes on to note that as age and income increase, participation in social media decreases. For instance, just 23% of those over the age of 60 participate in social media compared to 57% of those under the age of 50. This condition is similar with regard to increased wealth; just 24% of respondents with a net worth of $6M+ use social media compared to 47% of those with a net worth of $800,000 to $1.49 million.
So while the National Association of Realtors (NAR) and the National Association of Homebuilders (NAHB) report that nearly 99% of buyers use the Internet to initiate their search for a new primary or secondary home, that number may not have much application to the upper crust. The affluent are buying again – not only because they’ve grown tired of frugal-mania but they recognize that lower prices will lead to greater capital appreciation. Targeting them may best be accomplished by an old fashioned method – the Zip Code. If one lives in a $1M+ neighborhood, one is presumably qualified to purchase a second home, or bigger and better primary home. Let Zip Codes show you where the money is!