The collapse of the housing market and high rate of foreclosures could be mistakenly attributed at face value from low income, or poor people, buying homes they could not afford. However, the reality is that individuals in the middle class and even upper middle class income brackets were the ones who fueled the housing market and ultimately caused its collapse. Over the last few years a feeding frenzy, not unlike the one that fueled the dot-com bubble in the 90s, created a mentality where people felt they had to own a home at any cost in order to keep up with everyone else. Unfortunately, greed in the mortgage sector resulted in a failure to keep this frenzy in check and individuals were permitted to take advantage of credit being thrown at them.
The housing fiasco though wasn't simply a matter of individuals being able to purchase homes through the easy availability of credit. Middle class families were not content with simply buying a three bedroom, two bathroom house with a white picket fence. They wanted a McMansion. The upper middle class, well they couldn't be caught dead in the same type of home that the middle class were buying into, they had to own a better residence. This mentality created a situation where people were willing to pay top dollar for any home which doubled and even tripled the values of many homes across the country.
Banks and financial institutions were more than willing to dole out mortgages to practically anyone who asked. Adjustable rate mortgages and other 'creative' finance tools were utilized to manipulate numbers on paper to make it appear applicants qualified for mortgages that in reality they could barely afford; although there were many cases where the applicants couldn't afford the monthly mortgage payment at all. The subprime market exploded during this period, as did the real estate investor market. Many individuals, seeing how easy they could obtain a mortgage, quickly ran out to buy two or three other homes in order to make a quick buck as the housing market became superheated.
But, as with any bubble, it burst. Two income households that could barely pay the mortgage began to default. A typical reason was couples divorcing, with neither alone being able to afford the home. Another primary factor was the credit mentality had taken over people's entire lives. It wasn't just homes being purchases en masse: large flat-screens televisions, brand new cars, and complete remodels of existing homes through equity lines of credit slowly eroded people's income all in the name of showing off to the neighbors. No one was paying cash for any purchases. A few dollar monthly payments slowly ballooned to unmanageable levels for many people; countless households were living paycheck to paycheck. Over a period of time the foreclosure rate crept up as people fell further behind in their mortgage payments.
Then the creative adjustable rate mortgages came calling back. People who were now scrapping by trying to pay their mortgage and the monthly payments on all their new toys saw their house payments jump from $700 - $800 a month to $1,200 - $1,500 as their new interest rate reset to a higher amount. Investors hoping to sell their numerous properties before they even had to pay the first mortgage began defaulting as the housing market's skyrocketing prices began locking more people out from real estate.
This whole vicious cycle was fueled not by low income people, but by middle class America. A middle class that thought they could live a better quality of lifestyle than what they could truly afford. The idea of wealth and luxury became an obsession to them and for a time they were able to live that dream through access to credit. If you drive through both a low income and middle income neighborhood in any city, chances are you will find a lot more foreclosures signs in the middle income areas. Now that individuals have been forced to live within their means because the credit market has dried up has accelerated the collapse to a nationwide epidemic.