June 27, 2025 | People with High Incomes Tend to Have the Highest Leverage

Many people believe that “rich people always have money.” What is typically overlooked is that people with higher incomes tend to have higher overhead and debt levels, and any savings they have are often invested in risky asset markets. This magnifies vulnerability to downturns in the economy, income, and stock market, eventually intensifying liquidation cycles.

Most people borrow heavily to buy their real estate. Even those with multi-million-dollar homes tend to have mortgages and other kinds of debt, believe it or not.

Erisk Sykes, of Sykes Property, explains it well in the segment below:

“I work Manhattan, the Hamptons, Palm Beach, Miami, entry levels below $2 million, that stayed strong. Those people expect to have a mortgage. They’ve already factored it in. We’ve seen prices adjust accordingly. Now in the 2 to $10 million, which I call the keeping up with the Joneses sector in those particular markets. And granted, those numbers change depending on a your portion of the country, but the keeping up with the Joneses are the ones who have been hit with the one two punch. Not only are they beholden to elevated mortgage rates, but they’ve also seen some challenge on, you know, either their stock portfolio or in terms of the job market. They have seen this lifestyle creep where they have been exposed to ultra low rates and borrowing potential over the last decade. Now, they’ve gotten used to a certain comfortability, and it’s just not in their wheelhouse anymore in terms of affordability.”

Here is a direct video link.

US new home sales were off 13.7% month over month in May, double the 6.7% drop forecast. At the same time, the new home supply, at 9.8 months in June, is the highest since 2006, with the number of new US homes for sale the highest since October 2007 (as shown below since 1990).

In the first quarter, the median new US home price of $403,600 (approximately five times the median household income) was down approximately 7.5% from its peak in late 2022.

Not reflected in this figure are the concessions that new home builders have made in ‘free’ upgrades, giveaways and mortgage rate buydowns to entice people to buy at current prices. This hurts homebuilder profits.

The iShares US Home Construction ETF (XHB) is currently down approximately 20.5% from its peak earlier this year. During the 2007-2009 housing downturn, US home builder shares declined by 81.6% (a 47.7% drop in 2007 and an additional 36.8% in 2008).

The median US home price fell from an average of $305,800 in 2007 to $272,900 in 2009 — a drop of nearly 14%. More inclusive measures, such as the S&P/Case-Shiller index, indicate a 30% fall from the mid‑2006 peak to the depth of the crisis (2008–2009).

There is no evidence that the current housing cycle is bottoming anytime soon.

Danielle Park June 27th, 2025

Posted In: Juggling Dynamite

Next: Black Swans: What If Mexico Nationalizes Silver? »