A burst property bubble could spell trouble for the sub-millionaire wealthy. A sharp downturn in the real-estate market would hit “mass affluent” investors with particular ferocity, according to the Sprectrem Group’s latest report on U.S. investors with between $100,000 and $1 million in assets.

The fate of the “mass-affluent,” more familiarly if less precisely known as the upper-middle class, is important to the economy as a whole. Chicago-based Spectrem reckons there are about 33 million mass-affluent households in the U.S., controlling a good 37% of the country’s investable assets.

|image1|

No place but down 

“Mass-affluent investors have heavily tied their financial futures to the real-estate market, which has been so hot for so long that many believe it has virtually no place to go but down,” says Spectrem managing director Catherine McBreen.

In fact, the study shows that the mass-affluent have 76% more exposed to real estate than millionaires. “If the real estate market begins to crack, it is the mass affluent who will likely feel the effects both faster and with greater force,” adds McBreen. 

The average mass-affluent household has 37% of its total assets invested in real estate, with 23% in their principal residence and 14% in investment real estate, according to Spectrem’s 2005 Mass Affluent Investor. “Investable assets” – managed accounts, stocks, bonds, individual retirement accounts, mutual funds, deposits and alternative investments – come next with a 22% share of the average mass-affluent portfolio.

Some real-estate market watchers say it’s imprecise to speak of a general real-estate bubble. They say unsustainable price-inflation is restricted to residential real estate in particular geographic markets.

Be that as it may, well-to-do baby boomers have altogether too much of their money in real estate, warns Michael Bischoff, COO of Minnesota-based Webb Financial Group .

“Remember that real estate is a market and is subject to the ups and downs that can affect any market,” says Bischoff. “Baby boomers should realize that a sound retirement plan depends on several sources of income-generating investments and this can best be achieved by a diversified portfolio that also includes stocks, bonds, and cash.”

Spectrem’s 2005 Mass Affluent Investor is based on data gleaned from mail and online surveys of 542 qualified respondents who took part in September 2005 through November 2005. –FWR

.