Just Walk Away, Renee

The Times has an entertaining article on how the rich are walking away from their homes at a much faster pace than the middle class. It displays a Capra-esque disdain for the moralss of the wealthy in contrast to the more ethically-sound middle class.

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. 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.

The reporter does not shy away from inferring the underlying motive:

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. “The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist...

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The article concentrates on Silicon Valley, but also points to Chicago.

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe...“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

Which reminds me of Steve Sailer's description of Obama's financial plan:

1. Borrow against home equity and consume.
2.
3. Get rich!

Of course for the Obama's it all worked out - he got himself appointed to a State Senate committe overseeing hospitals followed by Michele's $200k promotion from the hospital she worked for, and then of course he got a big advance on his book.

But all that aside, this is one big reason why any upward growth in housing prices needs to be taken with a grain of salt - as more-and-more high priced homes are the targets of distressed sales, the average sale price will go up, even though the overall health of the real-estate market is not improving.