Notices of default (NOD) are up for high-end real estate compared to 2008 levels. By the same comparison, the rate of delinquency, while high, continues to decrease for homeowners in lower priced real estate. Unlike homes in the low end, a disproportionate number of homeowners acquired high-priced homes using adjustable rate mortgages (ARMs). Thus, a wave of foreclosures is still to come as the nontraditional mortgage products used to purchase expensive homes are due to reset between 2011 and 2012.

ft take: As ARMs reset, homeowners will face the full consequences of the mortgages they’ve taken out. Next, high-priced neighborhoods will experience the increased pace of defaults and foreclosures.  The rate of high-tier homeowners shouldering negative equity will climb in tandem with the increases in defaults and foreclosures. In the aftermath of the widespread price correction in real estate’s upper tier, look for a return to square foot pricing (our prediction from February of 2009) as the main means for setting value in the high-end properties since comparables cannot be found in most places.  [For information regarding square foot pricing, see the February 2009 first tuesday article, The Return of Square Foot Pricing.]

Re: “Default notices rising in upper echelon ZIPs” from the San Francisco Chronicle