How Foreclosures Are Affecting Renters

As if the number of home foreclosures wasn’t bad enough news, now we hear they are affecting people who rent as well! You may think that renting real estate, whether it be a home or an apartment, is the safest thing to do right now, but you might be wrong. With the influx of former homeowners in the rental market and the housing market being what it is, the competition for low-rent housing has gone through the roof. Add to that the fact that renters are facing eviction due to the properties they’re living in being foreclosed, and you have a sticky situation.

 

Moreover, because many of the high-risk home-purchase and home-refinance loans now in default are concentrated in low-income and minority communities, the fallout from foreclosures is hitting the same neighborhoods where many of the nation’s most economically vulnerable renters live. So now there are homes sitting vacant because the former homeowners walked away or were forced out in the same housing market as the rental properties these displaced people were forced to move to. How frustrating it must be to see the real estate you once owned outside your apartment window…even worse, you may get kicked out of there as well because the apartment owner can’t pay his mortgage either.

 

Just to give you an idea of how much rental real estate is affected, the number of renter households rose by nearly one million last year, which is more than four times the pace of renter growth between 2003 and 2006, according to the center’s report, “America’s Rental Housing: The Key to a Balanced National Policy.” The U.S. median monthly gross rent reached a record high of $775 last year. Add to that the mess the credit market is in because of the shady practices of some mortgage lenders, and you can see how the housing market got into the mess it is in.

 

Another problem facing the rental real estate market is the fact that those low-interest and creative financing deal mortgage lenders were offering enticed companies to build much faster than they had before. Assuming they would get a quick return on their investment, these builders kept taking out more and more loans to build more and more housing, and of course they now find themselves in the same predicament as the single-family homeowners.

 

In short, the demand for affordable rental housing is increasing while the supply of low-cost units is declining; it’s a simple matter of supply and demand. That’s why it’s so important to add rental properties in the debate, with regards to the housing market. Homeowners weren’t the only ones devastated when the housing bubble burst. The silver lining in all this may be the fact that it is now becoming a buyer’s market, so people who can’t find affordable rental units may want to consider purchasing a home. Of course this only works for the people who didn’t end up in foreclosure and have the credit to get approved by a mortgage lender. So what can everybody else do?

 

The current conditions provide an opportunity to transform the inventory of foreclosed and vacant properties into affordable rental housing. With all these houses going into foreclosure, banks, mortgage companies and homeowner are desperate to get rid of them, which means the price of real estate is going down. These deals in the housing market aren’t just for the homeowners, real estate investors who have a mind to can buy them up cheap and use them to subsidize affordable rental properties for the plethora of people on the market right now. This solution doesn’t have to be considered charity, because any investor who does this will still make a huge profit, again because real estate is starting to get cheaper and cheaper.

 

Currently adding to the rental inventory on the higher end of the rental market are the vacant condos and houses that owners are renting out due to weak home-buying conditions. However, many renters don’t have the income required for those rentals, which is why the housing market needs more diversity.

 

The real estate industry will survive and even thrive again, it always does. But will these former homeowner, renters and investors of affordable housing come out of it ok? That’s the question will all need to be asking ourselves.

 

If you are thinking about buying a home, selling a home, refinancing a home or simply want to know what your home is currently worth, please contact us at Mahler & Associates.


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