Are You Overpaying for Where You Live?
Families in Bloomfield Township, Mich., on average, spend twice as much as other Michigan households on gas and other transportation costs, mortgage payments, utilities and clothing, health care, education, food, and other everyday purchases. Bloomfield Township is a pretty affluent suburb of Detroit, but even here, with the triple-whammy of the declining housing and credit markets, rising prices, and the woes of major local employers such as Ford (F), General Motors (GM), and Chrysler, many residents may be beginning to feel pinched by common expenditures that never bothered them in the past.
"Spending is being hit just like in other parts of country," says Melanie Lovati, a real estate agent who specializes in the Detroit area. "You used to be able to drive past the Starbucks in Bloomfield and people were lined up out the door; now you're not seeing it. Everybody's tightening up."
To find out where even affluent Americans are being hurt by the troubles afflicting the economy, Businessweek.com set out to determine those suburbs in the U.S. where it cost the most to live. We worked with national real estate researcher OnBoard in New York City to select the most expensive suburb in each state based on cost of living, mortgage and utility payments, median home price, and property taxes.
Some residents of the suburbs on the list, which include exclusive communities such as Atherton, Calif., Darien, Conn., Highland Park, Texas, Scarsdale, N.Y., and Wellesley, Mass., have flush bank accounts and enough income streaming in to continue spending on luxury watches, $20,000 vacations, and daily $4 mochaccinos. Other suburbs, however, such as Edgewood, Ky., are decidedly more middle-class, but their relative costs put them higher than swankier areas such as Mockingbird Valley, Ky., which has the highest per capita income in the state.
Regardless of where they live, there are likely few Americans who feel better off financially this year than last. The problem is that, unlike those borrowers who took out adjustable-rate mortgages that have now reset higher, there are even many affluent homeowners who are locked into 30-year fixed rates, have good jobs and good credit, but whose stock portfolios, home values, and bonuses have all headed south in the past year. These people who are beginning to find that even their nondiscretionary expenditures, such as property taxes and heating bills, are suddenly a burden.
The "Middle-Class Millionaire"
Of course, the housing downturn has hit the middle class more severely than the rich, who generally have a financial cushion in bad economic times. But in a time of uncertainty, even residents of million-dollar homes are thinking twice about remodeling their kitchens or replacing their late-model BMW, which is bad news for local contractors and car dealers. And some folks were stretching to begin with to live in expensive suburbs because they wanted their children to attend first-rate public schools.
Lewis Schiff, who co-authored the new book The Middle-Class Millionaire: The Rise of The New Rich and How They Are Changing America (Currency/Doubleday), says wealthy homeowners have been holding back on luxury purchases because they're concerned about the economy. Schiff and co-author Russ Alan Prince surveyed hundreds of so-called middle-class millionaires who have a net worth of between $1 million and $10 million.
The survey indicated that the millionaires expected to return to spending on luxury purchases once the economy improves, but for the time being they're being cautious. "They're all very sensitive to the economic downturn," Schiff says. "They're anticipating decreasing or staying the same in their expenditures, especially for luxury goods."
Paying A Premium
Some communities, such as Atherton, Calif., have not suffered as badly as less affluent suburbs facing the fallout of the subprime mortgage mess. The San Francisco suburb, which has no sidewalks and no businesses, is covered with mansions ranging from less than $1 million to more than $20 million. Many are occupied by the who's who of Silicon Valley—among the residents are Eric Schmidt, chairman and CEO of Google (GOOG), Charles Schwab, the founder of brokerage Charles Schwab (SCHW), and Meg Whitman, CEO of eBay (EBAY).
"This is not the kind of place where people would have subprime mortgages," Atherton Mayor James Janz says. "If there's been any adjustment here, it's been minor."
In Highland Park, Tex., where wealth has been passed down for generations, residents are willing to pay a premium for good schools and dedicated firefighters and police. It might be pricey to fill up your tank in downtown Highland Park, but cheaper gas is only a couple miles away, says Meredith McKee, an agent with Briggs-Freeman Real Estate Brokerage, a boutique firm that specializes in the Highland Park area.
"Not everybody is incredibly wealthy," McKee says. "People will make major sacrifices to have children in the [Highland Park] schools. They might not be able to afford a house here, but they can make a lease payment."
The Employment Factor
Some residents of upscale Leawood, Kan., have been hurt by layoffs at Sprint (S), one of the area's largest employers, says Jonathan Rich, executive pastor of Christ Community Church in Leawood. But residents could easily save money by moving to a neighboring town, where homes are less expensive and schools are still decent, he says. "People aren't really squeaking by in Leawood," Rich says with a laugh. "It's one of those things, if you have to ask the price, you shouldn't be living there."
In Bloomfield Township, Mich., however, some wealthy residents, particularly those who have lost high-paying jobs, are being forced to look elsewhere, Lovati, the Detroit area agent, says. Executives have not been immune to recent carmaker and financial sector layoffs, which have had rippled through the economy, she says.
One of her listings is a brand-new, 9,000-square-foot, foreclosed home that was never lived in (the approval stickers are still on the windows). It was assessed at $3.1 million; it's listed at $2 million, and she's gotten a cash offer for a fraction of that amount. The former owner was a financial executive who built the home but could no longer afford to make the payments on his $2 million mortgage, she says.
Having a Bloomfield zip code is "no longer a requirement," Lovati says. "People know they can move to the township next door for half the prices."
Click here to find a state-by-state listing of the most expensive suburbs to live now.