Foreclosure crisis hits rental housing
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Roommates help homeowners pay mortgage
The trend toward roommates may or may not help homeowners who can't afford their mortgage payments.

"A lot more people are taking in roommates who never would have (done so before). We get calls from people who say, 'I want to rent out a room in my house.' They're looking to supplement their income, so they can pay their mortgage," Verge says.

Other homeowners have opted to rent out their entire home because they've relocated, but can't sell the home for enough money to pay off their debts, which might include a home equity loan or line of credit in addition to a first mortgage. This trend increases the supply of rental housing.

Many cities experienced a boom in conversions of apartments into condos, but now, due to lower condo prices, some builders and owners have opted to rent out units they'd intended to sell. This trend also adds to the supply of rentals.

The rent-it-out strategy doesn't always work that well. A lot of first-time condo buyers are "shocked" and "upset" when they realize their unit can't be rent for enough money to pay the mortgage and other costs of ownership, Verge says.

Rent increases may be modest
Despite these increases in the supply, renters should be prepared for competition in hot markets, Verge warns. Rentals that are priced right are "rented immediately" in markets where demand is high, he says.

Current market conditions might mean only modest rent increases, perhaps approximating the overall rate of inflation this year, however, Obrinsky says. The general feeling among apartment executives at an NMHC conference earlier this year was that if the economy avoided a recession, rent increases would be smaller in 2008 than they were in 2007, he notes.

Tough situation? A rental resume may help
Former homeowners who've experienced a foreclosure or short sale face special challenges in the rental market.

Special challenges for homeowners turned renters

• Landlords typically refuse to rent to people who have poor credit, which can result from a late mortgage payment, short sale, foreclosure or bankruptcy. • Families who've become accustomed to large homes with multiple bedrooms and bathrooms may not be able to find such spacious living quarters to rent because most apartments and many condominiums are smaller and have only one or two bedrooms. • Families with pets may not be able to find rental housing where pets are allowed, or may be required to pay an extra deposit or pet rent.

A foreclosure typically can hurt a former homeowner's credit score for a number of years, though the exact duration is a matter of dispute because credit companies don't disclose that information. Foreclosure is among several derogatory items that "are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts," says a brochure published by Fair Isaac Corp., which generates the FICO credit score.

Renters who need to find an apartment in a competitive market should "put together a nice rental resume" that explains why they experienced a foreclosure or other credit problems, Verge says.

"Show the owner why you want the place and where your job is. Write up the real story because it's going to be tough," he says. "You're really going to have to sell them. Remember, when you are going (to rent an apartment), it's almost like a job interview."

Marcie Geffner is a freelance real estate reporter in Los Angeles.