Owners of Million-Dollar Homes Are Not Who You'd Think

Baby boomers who work for a corporation, many of whom have household incomes of less than $500,000, make up the majority of people living in the country's luxury houses, according to a Coldwell Banker Previews International study. But their lifestyles aren't as lavish as you might think.
By: Amy Hoak: The Wall Street Journal Online
Younger baby boomers who work for a corporation - many of whom have household incomes of less than $500,000 - make up the majority of people living in the country's million-dollar homes, according to a Coldwell Banker Previews International study released on Monday.

But these homeowners are not living an "ultra-lavish lifestyle," characterized by amenities that might include heated floors, tennis courts and backyard putting greens, said Jim Gillespie, president and CEO of Coldwell Banker Real Estate Corp.

"In reality, the million-dollar homeowner lifestyle is not what you see in the movies," Gillespie said in a news release. Of those surveyed, only 5% had a personal assistant, 4% had a live-in housekeeper and 1% had a driver.

On the other hand, 35% of the 300 surveyed owned second homes, and another 35% are considering buying a second residence. And Gillespie said he doesn't see that penchant for owning real estate changing anytime soon, despite rising interest rates.

In fact, the study found that 70% of respondents won't change their planned luxury purchases if rates keep rising.

"The nice thing about real estate is you can buy it for an investment or buy it to enjoy it -- but it's still an investment," Gillespie said during a phone interview. Real estate also offers "tax write-offs you can't get if you invest in stocks or bonds," he added.

Forty-one percent of luxury homeowners surveyed earned between $200,000 and $500,000 per year, and 19% said the majority of their retirement holdings were in real estate, according to the report. The respondents all had primary residences valued at more than $1 million.

Respondents who lived in California had homes valued at more than $2 million. According to the First Republic Bank's Prestige Home Index survey, the average luxury home in Los Angeles was $2.29 million in the first quarter of 2006, the average luxury home in San Diego was $2.1 million, and the average luxury home in San Francisco was $2.92 million.

Looking like a million

Popular features of homes in the survey were designer kitchens, found in 65% of the residences, and original artwork, which 54% of respondents owned or planned to buy. Wine cellars are in or may soon be installed in 37% of the homes, and 89% percent have home entertainment rooms that can accommodate more than six people.

Other popular features included:

    • Security systems, in 86% of homes
    • Professional landscaping, in 67% of homes
    • Wet bar, in 57% of homes
    • Movie-theater-style seating in entertainment rooms, in 24% of homes
    • In-ground swimming pool, in 37% of homes
    • Hot tub, in 35% of homes
    • More than half of second homes were in recreation locations, with 32% on the
      beach or oceanfront, 11% on the lakefront and 11% in ski resorts or mountain
      areas.

But many baby boomers don't plan on retiring to their second homes in the near future: 32% don't plan to retire until they are 65 or older, and 14% plan on retiring between the ages of 60 and 64. When they do retire, 42% plan on traveling domestically and 46% plan on traveling internationally.

The survey also asked luxury homeowners where they kept the majority of their retirement holdings. The results:

    • Individual stocks: 29%
    • Mutual funds: 23%
    • Real estate: 19%
    • Mixed portfolio (including real estate): 14%
    • Bonds: 11%
    • Mixed portfolio (excluding real estate): 11%
    • 401k: 7%
    • CDs: 2%
    • Annuities: 2%
    • IRA: 2%
    • Pension funds: 1%