Yes, PS, that’s the point. Even if the borrower could afford to keep on making payments on that $1.1 million note, he most likely wouldn’t if the house is then worth only $500k.
My prediction is that well-to-do people are smart. They’ll get emotionally “detached” very quickly when they realize that their homes are only worth 1/2. That that reason, I don’t think that upscale neighborhoods will be insulated from the downturn.
The borrower’s job should not be affected and he can simply relocate in the same neighborhood (for 1/2 the cost) so his kids stay at the same school.
