The millions of homeowners facing default on their mortgages will likely become renters once their home is foreclosed. Investment bank Morgan Stanley crunched the numbers and said that the multifamily segment, that arm of commercial real estate that includes apartment buildings, will most likely see a multibillion-dollar boost from the looming migration.
Oliver Chang, a housing and securitized products analyst at Morgan Stanley, the lead author of a report released this week, detailed the migration of ownership to rentals. He expects a drop in the U.S. homeownership rate to 60% in the coming years from 69% at its peak.
The rate tumbled to 65% from a decade ago, the Census Bureau reported this month. It’s the largest drop in 70 years.
According to RealtyTrac, there have been 8.9 million homes lost to foreclosure since 2007, the height of the credit crisis. And there is more to come in the fallout.
Chang said there are roughly 7.5 million households either in foreclosure or delinquent on the mortgage. With the majority of these borrowers forced to pay rent over the next five years as their credit heals, this would equal $72.7 billion in incremental rent payments instead of mortgage payments.
The government is moving ahead to take advantage of the increase in demand. It’s currently developing strategies to rent more of the thousands of government-owned foreclosure properties.
“Burned by the worst housing downturn in history, more households are choosing to rent instead of owning a home,” Chang wrote.
He went on to describe a shift in the focal point of the economy from manufacturing to services. In the latter, Chang said, workers value mobility, and renting provides the opportunity to pursue employment more so than owning a home.
“While traditional drivers like job growth and rent-buy dynamic clearly explain part of the resurgence in demand — the vibrant snap-back in apartment fundamentals in the past year has been augmented by the shifting attitudes in consumers towards renting,” Chang said.
The mortgage industry refutes this idea and is at work tackling its plethora of problems and shortcomings. They range from what some call overly restrictive lending standards on the origination side, a dormant private-label secondary market, and ongoing issues in servicing.
At the Mortgage Bankers Association conference in Chicago earlier this month, the trade group’s new CEO David Stevens refuted the claim that the desire to own a home in the U.S. was dead.
“We have first and foremost an obligation to restore trust with the consumer and ensure that when they buy a home the products they are qualified for will be built on safe and sound standards over the long term,” Stevens said.
Blah Blah Blah Blah Blah.
Get government out of housing and the market will fix itself.
To all those poor people out there that want government housing, wait until that very same government starts to impose restrictions on how you live.
Sorry Other Daniel, but for guys like me looking for investment opportunities, the report makes a pretty good case to be a landlord.
I would rather see someone like you, MB Mike, own and rent the property and not the government. If the government gets involved, there will more government managing the new program and political motivations will control the program. A perfect opportunity for graft, fraud and other forms of corruption.
Generally speaking, the number of owners/renters out there as well as the total SFR stock remains the same. Should more owners shift to renters the SFR stock mix should shift to match, rendering any price imbalances temporary.
OTOH, there’s a whole lot less money out there to pay mortgages/rent for the same number of people. That means either lower prices or (in more desirable or lower inventory areas) higher densities.
The only thing we can count on is even greater market bifurcation between the haves and have nots.
The story is incorrect when it states “The rate tumbled to 65% from a decade ago”.
The long term average home ownership rate in the US is 64%. Thus we over shot the average by less than 10% and we appear to be correcting less than 10% below the long run average.
Doesn’t seem too drastic to me.
The article is also a bit late to the party. Apartment values have been lifted (or maintained) to peak values for quite some time due to this shift. Institutional money shifted fast and furious to apts years ago.
In 1991 when I worked for an apartment REIT housing was in the tank (as was the economy) and we built apartments at lightning speed because “housing was never coming back”.
Fast forward to now and it is the same old song and dance. Pendulum swings out and it swings back.
Pretty sad that so many lives were affected, so many sleepless nights spent by people worrying about pending eviction. And especially sad for the children caught up in it all through no fault of their own.
I know, it is the opinion of many on here that folks had it coming because they bought more than they could afford. That is true, but we need to remember there are many in this country without the mental skills to do much math. And many times, it is not that they haven’t been taught, it is that they don’t have the mental capacity to be taught.
it’s a tough call how much govt should protect people, but there has to be a happy medium somewhere.
#6, You’re joking right? Are you one of the “many” without the mental skills?
Like MB Mike, I am also looking at buying property to rent out. It would be nice if the government would get out of the way and let things work themselves out.
don’t feed the trolls.
Got it… But I’m just shocked at the craziness of the statement. He just said most Americans “don’t have the capacity to be taught.” Never thought I’d hear the most elitest statement ever on bubbleinfo.
Sorry to high jack the thread. Now back to the regularly scheduled stuff… Big government get out of the way!
Not sure #6 can be labelled an ” elitist” from that simple statement. lcv -you do know that 70% of our population doesn’t graduate college right? I dislike govt involvement as much as the next guy but some areas do benefit from govt involvement. The same people that complain about govt also start to whine about Medicare cuts the day they turn 65. Oh the hypocrisy. The fact is: you are alive because the govt regulated your food quality (FDA), set speed limits (nhtsa), researches cancer cures(NIH), and told you when the next hurricane was going to hit (nws). If you want to complain about govt to “get on the band wagon”, go live in a country that serves tainted food, lets everyone drive 200 mph, lets everyone die of cancer, while you are sitting in your house with no supplies because you didn’t know hurricane Katrina was coming. Let’s get real. You need govt in moderation. Housing should be no different. The markets are so smart they really took care of us during the bubble years didn’t they? Newsflash! Markets are imperfect too.
L U K E …………….I A M Y O U R L A N D L O R D ! (Sorry clearfund, I couldnt resist it)
So is it ok to have your government be your landlord? Isn’t there a conflict of interest?
Oh no… 70%? We should probably give them free money to fix that! BTW, I’m not alive thanks to the government. I’m alive thanks to my Mom and Dad 🙂