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What's Your Story Idea July 17, 2009, 9:14PM EST

After the Foreclosure: Downsizing and Doubling Up

Moving in with roommates and family: It's what happens to folks who lose their homes, and it ain't pretty

By Greg T. Spielberg

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The idea for "After the Foreclosure: Downsizing and Doubling Up" came from BusinessWeek readers Pres Winslow (left), a career counselor in Winslow, Ariz., and Adam Dawson, a second-year MBA student at the University of Michigan.

Downsizing their living spaces and doubling up with roommates and relatives: The housing collapse has left many victims of foreclosure looking for a place to call home. For many investors, the once-solid decision to invest in real estate has turned into a financial blunder, leaving the market awash with extra inventory and further depressing prices.

In 2006, 4 out of every 10 homes sold were investments or second homes, according to Alex Charfen, CEO of the Distressed Property Institute, an Austin (Tex.) company that teaches real estate agents how to deal with foreclosed properties. In the ensuing crash, that 40% now represents a wave of foreclosures by lenders.

Chris Henning, 66, actually lived in her investment property, a $150,000 South Palm Beach (Fla.) condo overlooking the Atlantic. Despite a solid job and good pay in the 1990s, Henning has refinanced her condo three times since 2002. During the boom, Henning subscribed to the conventional wisdom that housing prices couldn't slide. "Looking back, I thought, 'How naive could I have been?' " she says. Now, after her boyfriend's death and a lack of revenue from a cookbook she co-authored, Henning is unemployed and her condo is on the short-sale block. In the case of short sales, lenders shave money off the loan balance in order to more quickly sell the house and recoup debt money.

Sliding Down the Ladder

"So, here I am, after having a successful career making a six-figure income," Henning says on the telephone from her smaller, cheaper condo in Cocoa Beach. To cover costs, Henning is renting out the Palm Beach property until a buyer materializes. Still, she hasn't found a job—and if she can't secure one soon, she plans to move in with her son and his family to cut costs. "I would much rather help people, vs. them helping me!" she says.

Henning is part of a larger trend of moving in with others that has softened the rental market, which was once expected to strengthen during the wave of foreclosures. According to a survey by Rent.com, an eBay (EBAY) unit that lists apartment rentals, at 40 large property owners representing more than 850,000 units across the country, almost half the vacancies are the result of people doubling up to save money. Bridge Property & Asset Management, a division of Salt Lake City-based Bridge Investment Group, manages more than 9,000 units across nine states and has seen one-bedroom vacancies skyrocket as more renters seek two- and three-bedroom apartments. "I certainly believe that many people are now moving in with someone else, whether a family member or not, and that this is having a significant effect on the demand for apartment residences," Mark Obrinsky, chief economist and vice-president of research at the National Multi Housing Council, said in a news release. The NMHC is a Washington-based rental advocacy group.

Henning would have a few additional months of rent money if she had gotten the few thousand dollars she expected to bring in from selling off her belongings. In the end, she pulled in $355 for two vanloads of furniture and collectibles, accumulated over the past 40 years. Downsizing to the condo meant divesting herself of a lot of her possessions, including a cane rocking chair from the '20s and a signed Steuben art glass, a popular antique decoration. Henning says she sold her belongings to an estate liquidator but isn't sure she was compensated fairly. "I didn't ask enough questions because I was overwhelmed," she said.

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