One million houses have become rentals

Posted by: Prashant Gopal on July 9, 2008

With the housing market in the tank, demand for rental units is increasing. But it looks like the supply of apartments also is rising quickly despite little new apartment construction.

According to a new report from Goldman Sachs’ U.S. Economic Research Group, about 1 million for-sale units were converted to rentals during the past two years (These are existing for-sale properties that are now being rented out, not new rental units). The new supply of rentals has so far kept rent inflation in check.

But the apartments could easily be put back on the for-sale market when home prices stabilize and that could slow the recovery, the report said.

The shift of houses toward rental uses also points to another problem for the real estate market: a large amount of “shadow” housing supply that could come back into the market at signs of improvement. Just as housing converted to rental, it can be converted back if demand shifts. Signs of price stabilization, or improvement, would be greeted by owners as an opportunity to bring homes back onto the for-purchase market. In addition to rental conversions, over the past two years there have been sharp increases in the number of homes either “held off the market for other reasons” or “seasonally vacant”; the combined increases in the two compared to the start of 2006 is nearly a million homes. These sources of shadow supply make a robust “V” shaped housing market recovery unlikely.

Reader Comments

ming

July 10, 2008 2:31 PM

When will babyboomer's begin to to retire? When will they start to sell their big house for retirement cash? That's another shadow supply, isn't it?

Gerwin

January 7, 2009 8:47 AM

HometownRenter.com has the questions to ask yourself if it is better to rent or buy in your situation. Do you need the flexibility of renting? or can you afford to stay in your home for at least 5 years or longer?

* Can you afford a 20% down payment?
* Can you afford a monthly payment on a 30-year fixed mortgage?
* ask your CPA ... Does the tax benefit of home ownership offset a potential decline in home value?
* Have you reduced other real estate debt before you add more on this home purchase?
* Does a fixed monthly mortgage payment for the next 15 years outweigh the likely inflation of rents during that same time (called an inflation hedge)

These are broad questions that can have many variations for each individual situation. However, it is a good foundation from which to start your home buying process.

If you are in the market for a rental, visit www.HometownRenter.com to find your next rental home!

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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