Rich Defaulters? Hot off the New York Times presses this morning is a report that there are five homes in Los Altos - my primary market - are coming up for foreclosure. Furthermore, this town, one of the most expensive in the country, is an indicator that the wealthy are walking away from their loans.
Very Few Actually Do: The article states that Los Altos had 16 defaults for the first five months in 2010 versus the same period in 2009. However, those are NOT translating into foreclosures. Of the 141 homes sold in 2010 so far, the MLS data only shows 7 homes sold as short sales and 2 as REOs. The defaults may be happening but owners are mostly selling them as short sales, just like everybody else. The picture painted in the article is that one in seven high-end homeowners are defaulting on loans over $1 million but the numbers for Los Altos tell a different story.
Why Default? Because these "wealthy" folks are mostly dual-income families of people in middle or senior management, engineers, etc who lose their jobs just like everyone else. They may live in a $1.5 million house but they're also working 50 hours a week earning the $300-400K household income needed to cover the bills. If one person loses their job, they don't have millions in reserve to keep going. Again, the article has made our town look like we're all rich and a default is just another financial decision. I sold three homes in Los Altos and Los Altos Hills in June and none fit the bill of "rich" painted in the article.
Here's a link to the original article to compare my opinion.