Wealthy: Most Likely to Walk Away from Underwater RE

No surprise here:

“The well-off are losing their master suites and saying goodbye to their wine cellars. The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley. Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent. (emphasis added)

My best guess is, this is likely due to a more business-like, less emotional approach to home ownership by the top 10% of earners. Amongst the rich, any single home is probably not their biggest single asset — the way  it is for most Americans. Hence, any buy or sell decision is more likely to be more rational and less sentimental. CoreLogic suggested that “many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.” That would be consistent with a more rational approach.

It is not a coincidence that Bloomberg reported:

“Demand for U.S. luxury vacation properties may be fading along with prospects for faster economic growth, after an early 2010 rebound. The government last week reported slower growth in private-sector jobs and manufacturing and a decline in factory orders. While rates on jumbo mortgages used for many expensive homes have dropped, it’s harder to qualify . . .

There’s no official sales gauge for vacation homes, or a set price range that defines a luxury property. Such purchases often are financed with jumbo mortgages, which are used when borrowing exceeds the $417,000 to $729,750 caps set by the government for loans bought by Fannie Mae and Freddie Mac, the nation’s largest mortgage-finance companies.”

This is more ammo for my longstanding thesis that we are looking at another leg down in Housing . . .


click for larger chart

courtesy of NYT


Biggest Defaulters on Mortgages Are the Rich
NYT, July 8, 2010

Luxury Vacation-Home Sales Fade With Pace of Economic Recovery
Kathleen M. Howley
Bloomberg, July 8 2010  

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