Who over-reached?

With the benefit of hindsight we can see that many home buyers 5 to 10 years ago guessed wrong on their home purchase. They bought homes assuming the value would continue rising, but that didn’t happen. N.C. State University economist Mike Walden profiles some of those who had their homes go into foreclosure.

“I think it has something to do with policy and whether we need some programs designed to address this issue in the future. … The Federal Reserve now has been able to go through data and find out the typical profile of buyers who got into problems, who bought a home.

“Perhaps it was more expensive than they could afford, but they hoped that the value would go up. And … perhaps the profile is not what people would have thought. For example, the typical buyer in that situation was actually a young buyer who had good income and had good education.

“They were more likely to be a single person, and they had not experienced foreclosure in the past. They’d not experienced credit problems in the past. They’d also been in the house a relatively short period of time.

“And this is very important: They typically lived in a state where home values had been booming for the recent years.

“And so this I think is a profile of someone who, perhaps would be given they’re young, wanted to take a little more risk. They thought they were making a good investment in a home because the track record had been there.

“Unfortunately they guessed wrong, and … the home market in those states went down.

“So, I think this is, this is pause for concern for the future — that when you have a booming investment market, and perhaps if you’re young and you want to take advantage of that, you might want to think twice and learn from past experiences.”