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Foreclosure crisis hits rental housing

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It's no secret that the nation's subprime mortgage meltdown, spike in foreclosures and fall in home prices have affected legions of homebuyers, home sellers and homeowners. But what may be surprising is that the turmoil in today's U.S. housing markets has important implications for renters as well.

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"There is some pickup in demand, but there is also a pickup in supply -- both new apartments that are being built and also units shifting from owner to renter," says Mark Obrinsky, chief economist of the National Multi Housing Council, or NMHC, an apartment industry trade group.

Renters lose urgency to buy a home
Normally, much of the new demand for rental housing comes from young people who typically enter the housing market as renters, Obrinsky explains. But today, foreclosures have added new demand among credit-impaired former homeowners. Some of these people will double up with roommates while others will try to rent an apartment, condominium or house.

Renter trends

Until last year, many renters felt tremendous pressure to buy a home because prices were on the rise and financing was seemingly affordable. But now that pressure has subsided and many renters have decided to put off this major investment due to fear of falling home prices or an inability to obtain financing on what they consider to be attractive terms, according to Mark Verge, owner of Westside Rentals, an online rental listing service in Southern California.

That the exodus of renters from apartments to homeownership has slowed was apparent in a quarterly NMHC survey of apartment company executives. In July 2007, 55 percent of the executives surveyed said the subprime mortgage meltdown and tightening of mortgage credit had decreased the number of renters who'd left apartments to become homeowners. Six months later, in January 2008, that figure had climbed to 79 percent, a significant jump.

Yet the impact of actual foreclosures may be less important than the influx of new first-time renters and the psychological impact of foreclosures. Even 2 million foreclosures, a figure predicted by some analysts, would be a relatively small number compared with the nation's 35 million renters, Obrinsky notes.

Meanwhile, though, "horror stories" about today's housing markets have caused "more fear of buying" and have "turned a lot more potential buyers into long-term renters," Verge says.

Moreover, some former homeowners may not be able to rent until their financial situation improves. For these folks, the immediate aftermath of a foreclosure or short sale may be a roommate situation, rather than a rental. They "are looking to crash somewhere, to move back in with their parents or a brother or sister, or to move in with a friend," Obrinsky says.

 
 
Next: Landlords typically refuse to rent to people who have poor credit
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