Mortgage Loans, Finance, Economy, Appraisal

There are now 8.7 million rich folks in the world, exciting news if it did not exclude massive real estate holdings.

According to the 2006 World Wealth Report by Merrill Lynch/Capgemini, we now have 8.7 million "high net worth individuals (HNWIs)" worldwide -- including 2.9 million lucky wealth-holders in North America -- folks with financial assets of at least $1 million. Together, the holdings of the fortunate few totaled some $33.3 trillion in 2005.

Even more remarkable, there are the rich and then there are the RICH. The study shows that 85,400 people worldwide now have a personal worth of at least $30 million.

The big-money story in the U.S. is that our rich are not keeping up. "For the first time in three years," says the report, "the United States' HNWI population growth failed to exceed gains posted in the previous year, decelerating from 9.9 percent in 2004 to 6.8 percent in 2005 -- a rate slower than that of many other markets around the world. Looking back, HNWI growth here seems to have peaked -- along with the nation's economic recovery -- in 2003 and 2004."

As happens each year, I disagree with the fundamental basis of the Merrill Lynch/Capgemini report. Why? The financial asset wealth measure "includes the values of private equity holdings stated at book value as well as all forms of publicly quoted equities, bonds, funds and cash deposits. It excludes collectibles, consumables, consumer durables and real estate used for primary residences."

No personal residences?

Why is the real estate you rent an asset but not the real estate where you sleep? Are the bricks and mortar different? According to the Federal Reserve, the value of personal real estate in the first quarter of 2006 amounted to $22.2 trillion. Other assets included corporate equities ($5.7 billion), mutual funds ($4.5 trillion) and money market assets ($957 billion)

Unfortunately, our U.S. real estate is not owned free and clear. In total, mortgage debt amounted to $8.9 trillion -- meaning the net worth of personal real estate in the U.S. is a "mere" $13.3 trillion.

Why does it make sense to look at individual wealth and exclude the value of personal real estate? That $13.3 trillion is a big number -- bigger by far than stock, mutual funds or money market accounts -- and it's certainly important when people refinance their homes or sign-up for home equity lines of credit. It's important when people sell a home and need to show if any profit is taxable. And it may be significant when an individual dies and estates are valued.

If we looked at the value of personal real estate there's no doubt that the number of millionaire households would swell. I can't say if a count of the wealthy elite would double, triple or whatever, but how can we ignore $13.3 trillion?

If we assume for a moment that the world has roughly 6.4 billion people and that 8.7 million qualify for millionaire status, then the odds of material success worldwide are 736 to one. The odds of gaining financial wealth are far greater in North America than most other places: In the U.S. and Canada we have about 330 million people and some 2.9 million millionaires -- that means the odds of financial achievement in North America are 114 to one.

Actually the odds are vastly better -- but only if we count the roof over your head.

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