Boomer’s Blog

The mortgage meltdown has permeated U.S. home rental markets, according to America’s Rental Housing- The Key to a Balanced National Policy, a recent report on rental housing market dynamics from Harvard University’s Joint Center for Housing Studies.

For a growing number of Americans, rising costs of living, mounting debt and poor credit plague many renters in their search for affordable housing. In today’s rental markets, competition is fierce for low-cost rentals and the threat of sudden eviction imperils droves of renters who are unwittingly living in distressed properties. To make matters worse for renters, high foreclosure rates are adding to the number of rentals held off the market because the banks don’t want to be landlords. Current and aspiring landlords can learn a great deal about tenants and emerging market opportunities by casting a gaze on the facts contained in this report.

Mortgage Crisis Impact on Rental Markets

• In 2004, some 240,000 subprime home mortgages were seriously delinquent or entering foreclosure, by 2007, that number rose to 750,000.
• Over 12 percent of all subprime loans were delinquent by the end of 2007, compared to 1.7 percent of prime loans.
• Serious mortgage delinquencies and foreclosures have been rising in Ohio, Michigan and Indiana for more than a decade.
• In 2007, nearly 20 percent of all foreclosures were on loans made to non-resident owners.
• While the weak home buying market is expanding the supply of higher-priced rentals, most renters can’t afford them and the market has limited ability to absorb the current excess supply.
• After averaging just 0.7 percent annual growth from 2003 to 2006, the number of renter households jumped by nearly 3 percent, or one million, in 2007.
• Between 2003 and 2005, nearly 2 million homeowners became renters.
• The mean debt of renters in the lowest income quartile surged 62 percent from $3,200 in 1995 to $5,200 in 2004.

Rental Production and Supply

• In 2007, completions of multifamily units for rent fell to 169,000 units—just two-thirds of the 2002 figure and only one-third of the 1986 record high.
• From 1996 through 2005, 1.2 million of the 3.2 million rentals completed were in structures with 20 or more units, and another million were in buildings with 5–19 units.
• Meanwhile, completions of rentals in structures with two to four apartments totaled only about 200,000, while site-built and manufactured single-family homes added another 733, 000 to the market.
• The median rent for newly built apartments in buildings with five or more units stood at a record high of $1,057 in 2006—well above the $766 median gross rent for all units and up more than 30 percent from mid-1990s levels. As a result, only 20,000 new unfurnished apartments renting for less than $750 were completed in 2006, despite being the types of units in greatest demand.
• The combination of record-low interest rates, rising occupancy rates, and attractive yields helped to lift sales and prices of apartment complexes starting in 2003. Hefty increases in net operating income brought in even more investors, with property prices advancing 50 percent from 2003 to 2007.
• The number of units in large multifamily properties that were converted from rentals to condos rose from a few thousand in 2003 to 235,000 in 2005—more than the total new multifamily rental completions in that year. However, conversions fell to only 60,000 units in 2006 and had virtually disappeared by 2007.

Rental Affordability

• The national median gross rent rose 2.7 percent in real terms from 2001 to 2006 while the median renter income fell by 8.4 percent.
• Nearly half of all renters paid more than 30 percent of their incomes for housing in 2006, and about a quarter spent more than 50 percent. Full-time employment is no guarantee that a household can afford rental housing. In 2006, 42.6 percent of all working families did not earn enough afford an appropriately sized housing unit.
• Seniors and others unable to work who have basic Supplemental Security Income (SSI) are especially likely to face high housing-cost burdens. Nearly 2.5 million senior renters (53 percent) pay more than 30 percent of their incomes for rent, while 1.4 million pay more than 50 percent.
• From 1995 to 2005, nearly 2.2 million (or 6 percent) of all rental units were demolished or otherwise permanently removed from the inventory, including 1.4 million units with inflation-adjusted rents of $600 or less in 1995. Loss rates of single-family and small multifamily rentals are more than three times those of units in large multifamily buildings.
• Between 1995 and 2005, two rental units were permanently removed from the inventory for every three units built. Inventory losses were highest in the Northeast, where two rental units were lost for every one built.

Tags: , absentee owner, affordable housing, eviction, foreclosure, Harvard University, landlord, mortgane meltdown, rental housing, rental housing market, subprime mortgage

This entry was posted on Friday, May 2nd, 2008 at 5:12 pm and is filed under Market News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.