- A “wealthy recession'' (a recession that disproportionately affects the wealthy) is not anticipated.
- Experts say the richest people are actually even wealthier and spending more than they were before the pandemic.
- The boom in the luxury goods market can be attributed to rising stock prices and YOLO consumer culture.
The so-called “rich session” — the idea that the super-rich are currently feeling more financial pain than other groups — isn't working in reality. In fact, the wealthy have never been richer and are spending more than ever before. Experts told Insider they predate the pandemic.
“The wealthy are much better off now than they were before the pandemic. They have low leverage. They have very little debt, they have 30-year fixed-rate loans, and they are locked in at very low interest rates,” Moody's head said. ” he said. Economist Mark Zandi. “When people say 'rich session,' I don't get it.”
The concept of opulence, a term recently coined by the Wall Street Journal to describe economic downturns that disproportionately affect wealth, has gained attention this year. But Zandi said this idea is largely a misinterpretation of some economic data, such as the wealthiest consumers holding back on Rolex and other luxury goods purchases.
It's not because they're too poor to afford a Rolex. Zandi estimates that high-income households have saved more than $1 trillion, and Fed data shows the top 1% hold about 30% of the nation's wealth. In fact, he is the first time since 1989 that the top 1% have been this wealthy.
Instead, consumers' focus has largely shifted to services, such as experiences like expensive Taylor Swift tickets, rather than products that have exploded in demand during the pandemic. Most Americans are now “exhausted” from demand for goods, Zandi said, but there is still pent-up demand for services.
“It's just a change in taste,” he added. “They're out there, so that's where the money is. They're going to see Taylor Swift for $2,000 apiece. They're not going to buy a Rolex watch.”
And while a Rolex may be a coveted item for young, newly wealthy people like crypto bros and Tesla billionaires, the ultra-wealthy have more money to spend on Patek Philippe and other ultra-luxury brands. likely to be spent. end brand.
YOLO spendthrift
Claudia D'Alpizio, a partner at consulting firm Bain & Company, says wealthy people are actually spending more now than they were before the pandemic. In her experience, luxury spending is highly correlated with the stock market, and investors have enjoyed substantial returns so far this year as the S&P 500 recovers from its 2022 lows. There is.
“There are also psychological reasons, such as feeling like you only live once,” Dalpizio told Insider. “Fear of coronavirus has created a kind of selfish attitude, people are more focused on feeling good than other topics, so to be honest, I don't think consumption will go down. I haven’t.”
Bain & Company estimates that sales in the global luxury goods and services market rose 20% last year to $1.5 trillion, about 10% higher than 2019 profits.
The luxury service sector received particular attention. Luxury hospitality industry revenue more than doubled to $211 billion, driven in part by strong travel demand.
Scott Dunn, a luxury travel planner and travel tour operator, said luxury travel bookings have increased 34% in the past six months compared to the same period last year.
Bridget Lackey, general manager of Scott Dunn North America, told Insider that the average vacation booking price is about $35,000, but planned vacations can cost more than $400,000. Told. Luxury vacations include wealthy consumers splurging on bucket-list trips, including expeditions to the North Pole, after-hours private reservations in the Vatican, and locations only accessible by helicopter, Lackey said. This includes travel to.
“The pandemic has changed the way our guests approach travel. The majority of our guests feel like they've lost time and want to make up for the years when everything was shut down,” Lackey added. Ta.
Demand for luxury real estate also remains high, with Redfin estimating that luxury real estate prices are up 5% year over year. High mortgage rates have frozen much of the housing market, but wealthy buyers are willing to take on higher borrowing costs if it means getting the best quality of life. It seems so.
Jennifer Stillman, a New York-based agent with Douglas Elliman, a luxury real estate group, says some “affordable properties” are priced around $4 million or more and come with luxury amenities such as built-in tennis. He says interest remains healthy, even for properties in Courts, pools, restaurants exclusive to tenants, etc.
“Summer is usually slow for us, but we've been very busy,” Stillman said.
Zandi expects consumers to move away from purchasing goods, but wealthy people continued to buy big-ticket items last year. Luxury car sales set a new record in 2022, increasing by 6% to $627 billion. Sales of private yachts and jets as well increased by 18% to $28 billion.
“If this is the interest of the wealthy, then the wealthy are probably telling you to do it,” Zandi said. “It doesn’t seem like a lot of money to me.”
