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Posted by on Feb 17, 2012 in Bailout, Psycho-babble, Real Estate Investing | 13 comments | Print Print

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From HW:

The government’s program to turn foreclosed Fannie Mae, Freddie Mac and FHA properties into rentals “is here to stay,” according to housing analysts at Morgan Stanley.

One of the greatest effects of it, the bank’s analysts say, is job creation, with the possibility of creating more than 1 million jobs in the hard-hit construction and real estate industries. The jobs could be created by private capital without the use of taxpayer dollars.

The program’s purpose is to clear the national backlog of distressed housing.  “On a macro level, (the REO rental program) could not have come at a better time,” the analysts say.

According to the Bureau of Labor Statistics, the economy lost million 2.5 million housing-related jobs over the past five years. Of those, 2.16 million were in construction and 240,000 were in real estate.

Employment in construction increased by 21,000 in January, following a gain of 31,000 in the previous month.

Analysts estimate about eight million properties will be sold in some form of distressed sale over the next five years. 

“Even if only half can be turned into rentals, which would represent only a 20% increase in the total number of single-family rental properties available today, that could result in the creation of one million one-time construction-oriented jobs plus a possible additional 800,000 in permanent jobs, mostly in some of the hardest-hit sectors and the hardest-hit economic areas of the country,” they say.

The 800,000 jobs would comprise the cottage industry for servicing REO rental units, from cleaning properties to collecting the rent.

The chart below shows Morgan Stanley’s full-time job-creation numbers per distressed property turned into rental by each category and for total jobs. The calculation is based on anecdotal labor-usage feedback the firm received from current single-family operators.

Capital Economics called the program to move REO properties to rentals the “best housing fix so far” and “possibly more significant” than President Brack Obama’s refinancing proposals announced late last month.

Support for a government-led program was the most popular disposition strategy among panelists at January’s American Securitization Forum.

But when Federal Reserve Chairman Ben Bernanke sent a letter in January to Congress proposing the REO rental program, it highlighted the deep political divide on how to repair housing.

Private investors, with the government’s support, are gearing up for what they perceived as a massive and long-term investment opportunity.

“With the added benefit of the potential for significant private sector-led job creation, potentially in the hardest-hit sectors in the hardest-hit regions, we are increasingly confident that (the program) can have a positive impact on housing and the macro economy as a whole,” the analysts say.

13 Comments

  1. Did they consider how the program would impact the existing rental market?

  2. “1.Did they consider how the program would impact the existing rental market?”

    The only thing ‘they’ consider is re-electing a failed President that polls show is doomed this November.

    ‘They’ (the Edward Bernays-Joeseph Goebbels crowd) must make Gomer and Joe Nascar think ‘things are getting better’, and soon the unicorns will appear after Barkey Soetoro rides the Silver Plane back to DC for another four. Look for a lot more of the same.

    Hey,did you see that garage?

    Suzanne researched it.

  3. I think a lot of homes will become rentals. It will be interesting to see what happens to the neighborhoods. Especially in subdivisions with HOAs.

    Will HOAs rise up to stop owner occupied homes from becoming rentals? Can they do that in California? Will renters keep up the homes? Will investors put pressure on property management companies to get “anyone” in the house?

  4. Moves REO’s, creates jobs, increases rentals/reduces rents – hey give it a shot!

  5. Foreclosing on properties and selling them at a discount to investors and buyers that could then be rented out would provide the exact same result and would cost nothing to implement.

    Only difference is the banks/feds would lose money.

  6. Your government at work: Paving the road to economic recovery with laminate countertops, vinyl flooring and builder grade carpet.

  7. Aren’t investors already buying rental applicable REO’s? does not the marketplace take care of itself???

    Government intervention in the market is what caused the problem and is not what is needed to solve the problem.

    When will the public wise up to this BS?

    To quote John Galt: “Get the hell out of my way!” Bernake et al

  8. Will this reduce inventory for people looking to buy a house? Is it going to happen in San Diego or only in places that have a higher foreclosure rate?

  9. Interestingly a historic district in Fort Wayne In, where my grandparents lived, now has a state approved deed restriction that forbids non family rentals. I wonder how many areas have such restrictions? It was seen as a way to protect the neighborhood. (The district was built in the 1920s).

  10. Lyle, try enforcing that deed restriction in court these days. Try to Define “family” and watch the sparks fly by fringe groups on all sides…

  11. Kwaping hit the nail on the head.

  12. It turns out Indiana courts have agreed with the restriction. Family in this case means basically kids, parents and siblings. It turns out that the Indiana Supreme court has oked similar restrictions in elsewhere in In. Since these regulations require 90% of the property owners in the district to approve them in the first place, not set up directly by the local government.

  13. All those folks who bought rental houses in those areas are going to be real happy when the rents collapse due to saturation. That’s already happening in Vegas without any assistance from Uncle Sugar.

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