Renters Hit Hard As Prices Climb

You’ve got to admit, renters have had a hard time. After being squeezed out of the homeownership market for years they now face getting squeezed out of the rental market as well.

But more to my point…ever notice that plane crashes come in three’s? Do they, or does the media just report them that way? Ever notice after a plane does crash you hear nothing but planes crashing all day. Are planes suddenly dropping out of the sky in some fit of protest? Hardly.Puzzled

I’ve also noticed a distinct pattern to the San Francisco Chronicle’s Sunday Real Estate section. Each week they organize this section into a theme. Last week’s “theme” was the bad news for renters with headings such as these: “Bay Area rents still rising”, (James Temple, Chronicle Staff Writer, Friday, April 18, 2008), “Apartment rents throughout West still rising”, (MICHAEL LIEDTKE, AP Business Writer, Thursday, April 17, 2008), “A look at apartment rents in western United States”, (The Associated Press, Thursday, April 17, 2008).

The San Francisco Chronicle’s recent reports on the rental market have been rather telling in regards to the overall housing picture. With more buyers unable or unwilling to buy, competing with homeowners thrust back into the rental market due to either voluntarily or involuntarily leaving homeownership, it will be just a matter of time before rising rents and lower home values make owning vs. renting a no brainer. I’ve seen it before and I’m sure I’ll see it again.

But then I read what appeared to be an op-ed piece by Marcie Lewis of Bankrate.com. That headline read “Rental Market Hit by Mortgage Crisis”. I thought I was going to read more of the same—doom and gloom for renters. But the piece ended by stating the opposite of what all the other articles had to offer about the dwindling supply of rental units by saying:

“Other homeowners have opted to rent out their entire home because they’ve relocated, but can’t sell the home for enough money to pay off their debts, which might include a home equity loan or line of credit in addition to a first mortgage. This trend increases the supply of rental housing.” (Lewis 4/2008, p K11)

And…

”Many cities experienced a boom in conversions of apartments into condos, but now, due to lower condo prices, some builders and owners have opted to rent out units they’d intended to sell. This trend also adds to the supply of rentals.” (Lewis 4/2008 , p K11)

So wait a minute; do we have more available rental units or less? I guess they’ll follow up next week with the answer.

IF WE AREN’T ALREADY IN A RECESSION, WE COULD BE SOON

Bad_news A front page article in the Sunday edition of the San Francisco Chronicle titled "Lenders Retreat as Market Plummets" (Sam Zukerman-staff writer April 6, 2008) may frighten some people into cashing their home equity line checks fast.

The article states that many banks such as Bank of America, Country Wide Financial and Washington Mutual are freezing homeowner’s equity lines in fear of losing more money to foreclosures. Let’s hope Wells Fargo continues to believe in the Bay Area like Bank of America used to.

This could spell a downward spiral as lenders cut back on honoring equity lines that might just be the thing which could keep some folks from losing their homes. The opportunity to tap into existing equity to forestall a foreclosure, even just pay the bills may be just the shot in the arm credit worthy people might need yet now many banks appear poised to pull the plug.

Of course bank don’t want people spending their equity line of credit like they used to-especially if home values in their area have dropped significantly; but cutting them off may just send many more of their customers to the front of the foreclosure line.

IF WE AREN’T ALREADY IN A RECESSION, WE COULD BE SOON

This could spell more doom and gloom in the economy as less available cash for spending-or simply knowing that emergency cash flow could be cut, will likely be the nail in the coffin for economic growth this year.

It’s a calculated risk on the part of the banks-at least we hope they have calculated it. They don’t want to throw good money after bad but by freezing equity lines when people need them most they could mean they end up taking back more property than if they left these loans in place.