hundreds of thousands of foreclosed properties are selling, with four
times as many potential foreclosures behind them.
The Journal writes today that one idea gaining support in
Washington is an effort to pull some of those properties off the market and rent
them out, either on homes owned by federal agencies or loan giants Fannie Mae
and Freddie Mac.
The big time firms and U.S. banks currently own more than 500,000 foreclosed homes,
with another 2 million loans in some stage of the foreclosure process. The high share
of distressed sales in many struggling markets is contributing to continued
declines in home prices.
“Can we find a way to try and reduce that overhang or to try to provide
incentives for investors to covert them?” said Federal Reserve Chairman Ben
Bernanke in testimony to Congress last week.
Secptics worry about a risk of the government as the landlord. One solution:
sell federally backed foreclosures to investors who would have to agree to rent
them out for a to-be-determined period of time. Investors would rehab the
properties, fill them with tenants, and hire a national property management firm
to oversee the day-to-day landlord needs.
Supporters say while the government isn’t set up to be a landlord, neither is
it any better prepared to sell thousands of foreclosed properties — something
it’s already doing anyway. “Putting these homes in the hands of people who can
take care of them and rent them out” would save taxpayer money, says John Burns,
who runs a home-building consulting firm in Irvine, Calif.
So far, the Fannie and Freddie have disappointed institutional investors by
resisting selling homes in bulk at deep discounts. Instead, foreclosures are
either sold through regular retail listings or in public auctions, known as
trustee or sheriff sales. Those auctions have attracted primarily mom-and-pop
investors but also include hedge fund-backed debt buyers.
Over the last two years, investors increasingly have scooped up cheap properties at auctions
in the hopes of rehabbing and quickly reselling them for a profit. But declining
home values — and increased competition from investors — has made the process difficult.
Meanwhile, the discounts for foreclosed properties in some markets are so
attractive “that it looks like the cash flow investors are getting [on rentals]
is awfully good,” says Thomas Lawler, an independent housing economist in
Leesburg, Va.
One sign that investor demand has picked up for cheap properties that can be
rented: in Phoenix, the number of homes selling below $100,000 was up 41% from
one year ago in May, while all other sales were down 11.3%, according to
DataQuick, a real-estate data firm.
“It doesn’t take too long as an investor to recognize the opportunity: home
prices are less, but rents are more,” says Eric Peterson, a former homebuilder
and co-founder of Praxis Capital, which has launched a $10 million fund focused
on renting out foreclosures. Once prices stabilize and begin rising in a few
years, “we’ll be holding a fair amount of inventory, and we’ll be ready to
sell.”
This idea has won backing from a number of influential private company’s.
Creating rental programs could “solve a couple of policy problems with one solution” by
also extending qualified tenants an option to one day purchase the homes, said
mortgage-bond pioneer Lewis Ranieri in a recent paper with Kenneth Rosen, a
housing economist at the University of California at Berkeley.
People are now finding it is better to Short sale their homes, and to get out from under water in thier current house. Choosing to rent for a few years while fixing your credit will give you a better chance at finding the right home for your income and family needs in the future. giving you a possitive experience when you caome back to the buying market.
What are your thought on Renting compared to home buying?
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