The sub-prime crisis has turned into the super-prime crisis.
Homeowners with mortgages of more than $1 million are now defaulting at nearly three times last year’s rate, according to a Bloomberg article.
Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, up from 4.7% a year ago and well over the 7.4% default rate for U.S. mortgages as a whole. There are 114,000 home loans of more than $1 million.
“The rich aren’t as rich as they used to be,” Alex Rodriguez, a Miami real estate agent, was quoted as saying. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”
Or maybe the people who got $1 million mortgages weren’t rich to begin with and shouldn’t have gotten $1 million loans. Either way, short sales of pricey homes are becoming more common as more mansions go underwater.
“You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Arizona. “A lot of wealthy people are upside down in their mortgages, and they just can’t afford the second or third vacation home anymore.”
The statistics suggest that for all the talk of stock-market rebounds and green shoots since early summer, the rich are still facing a cash crunch. And it shows that the wealthy - or aspirational wealthy — engaged in the same kind of leveraged-up, overbuilt lifestyle as the rest of the country.
Most importantly, it means that hopes that the rich will lead the country out of the real-estate crisis may be ill-founded. The wealthy will start buying real-estate when they stop defaulting.
Why do you think the wealthy are defaulting at such a high rate? Or are they?
The wealthy will only buy a property that they considered it a big discount, a real 'BARGAIN' to them.