How will the troubles in the subprime market affect renters?

How will the meltdown in the sub-prime mortgage market affect renters like me?

While I believe the housing market is basically sound–obviously most folks don’t have sub-prime mortgages and aren’t going to default–I can’t help wondering if this means that a lot of former owners are now going to become renters over the coming year or two, thereby driving up rents. Then again, maybe it will mean that housing is available so cheaply that a lot of renters with good credit will be tempted into trying home ownership.

I don’t know the first thing about real estate or mortgages. I’ve had the usual Economics 201 course in college and I’ve read a few popular books and articles about economics, but I’m hardly anything like an expert on the subject.

So I’m asking Dopers who do have a handle on what’s going down how all this will affect renters like me in both the short and long terms.

(I’ve put this in Great Debates because I figure there’s going to be some extreme disagreement over the subject. If the mods don’t agree and move the thread, my feelings won’t be hurt.)

A good number of those foreclosed homes will be converted to rental units. Otherwise, they’ll wind up sitting empty. So there may be little net change in the ratio of renters to rental properties as a result of foreclosures.

A bigger factor is that banks have tightened lending standards. Young people are entering the housing market every year. Whereas before, a young couple might have been able to easily qualify for a home, now they may be forced to rent for a while as they pay off credit cards and save up for a downpayment. And by that mechanism (moreso than by foreclosure) the mortgage meltdown will result in a larger market of renters.

At least that’s my take on it.

So yeah, I would expect rents to go up, but it should be a gradual process, happening as young people come into the rental market and fill up available rental units.

The housing bubble of the past few years resulted in a huge increase in the number of houses built, which should reduce both the price of renting and of owning in the near future. There are many houses that were purchased as “investment” second properties, which will likely get put on the rental market as the owners realize they can’t flip for a profit. In addition, the foreclosed houses and some of the new-built but unsold houses will be rented out. It will probably be cheaper to rent for the next few years than it was before.

yeah, but there is a large market of empty houses, too. There may be as many new, reluctant landlords as there are new,reluctant renters.

It has already resulted in a lot of McMansions on the rental market that the owners seem to believe will rent for enough to pay their inflated mortgage payments.A three bedroom house is not worth $3,000 per month, and I don’t care if it has solid cherry cabinets and granite counters in the kitchen. Anyone who can afford $3,000 a month is not going to be renting.

I may not have made my point clearly. There are two groups of people who wil be thrown into the rental market: 1) people who have lost their homes through foreclosure, and 2) young people now coming into the housing market who formerly might have qualified for a loan, but now will have to rent instead.

The people who lose their homes through foreclosure more or less cancel out the foreclosed homes coming onto the market as rental units. (So no net gain in the number of rental units.) It’s the young people coming into the housing market and (in today’s market) unable to get financing who are going to increase competition for vacant rental units, ultimately driving up rent prices.

IMHO, anyway.

Fear Itself, your link doesn’t work. Where is the home you’re talking about?

It is in rural East Kingston, New Hampshire.

First time poster, long time reader, please be gentle! Or at least kiss me after!

I currently pay $3,100 in rent simply because I don’t wish to own in the area I’m currently employed. That said I already own two houses in other areas and if I thought it was good ‘business’ to buy here I would…

I guess my point is that there are situations where people do pay big amounts of rent when they could just as easily buy.

Anyway back to lurking, hope I didn’t make too big a dork of myself …


Welcome, Oliveritaly.

I always wondered why folks would pay the money to rent a whole house instead of just buying. Your explanation makes sense.

I pay about $4900 a year (plus some labor like yardwork) to rent a small (I don’t think it’s much more than 1000 sq ft at best) two-bedroom house. It’s worth it because I’m in grad school and hoped to be gone in a few years when I started renting two years ago, making it unreasonable to try to find, buy, and then later sell a house, even if I could get the financing to do it (and would’ve had to use one of those exotic mortgages.) Finding an apartment around here would probably cost about as much. I could cut the cost down with a roommate, of course, but I like having a bit of space. And the location is great, as I’m only a few minutes walk from campus (and, even better the chemistry building.) So I walk there every day and save money overall in gas and parking permits and those sorts of things I would have to pay for if I lived further away, as well as being able to go home easily for lunch. Plus, I already knew my landlady before I moved in, and there’s something to be said for being able to deal directly with the owner of the property and not some big management company.

Living on campus would be competitively priced with the utilities taken into account, but I don’t qualify for the family housing (which are generally little houses) and don’t really want to live in an apartment (which is basically the other option on-campus.) There’s something to be said for living in a house with a yard and everything, even if I rarely use it, except for grilling on the back porch.

Here’s a timely article from ABC News about the sort of people who are going to be forced into the rental market while they wait to qualify for a loan:

Unless you meant to type “month” instead of “year,” that’s exceedingly cheap for rent on a house ($400+ a month, right?). I’d rent a house for that much in a heartbeat.

Comparison, NY: $650/mo on a bedroom and kitchen in a basement.

Yep. Base rent is $485, I get a $75 a month deduction for doing the yardwork and basic maintainance (like setting up or shutting down the swamp coolers), so I pay $410 a month plus utilities except water/sewer/solid waste. Of course, cost of living is generally lower in this area of the country and the university means that there is a ton of rental property available overall (even more if all those Californians that decided to buy houses here and now can’t sell them decide to rent.)

You’re not factoring in the huge increase in vacant rental units there are likely to be because a significant number of houses were built in the last few years. Many of those houses were purchased by people who never intended to live in them. Some are still standing vacant. This excess of housing supply should cause prices for buyers and renters to drop in the near future.

I rent a whole house (with some friends). There are lots of reasons I made that decision. Here are some (mostly financial):

[ul][li]I have increased housing flexibility. If I decide I want to move away, or to a larger or smaller place, or whatever, I can do that easily.[/li][li]Transaction costs for purchasing a house are substantial. I have no idea if I’ll still be living here in 5 years, and buying and then selling a house.[/li][li]I avoid the risks of owning. If the roof needs replacing, or the water heater dies, or there’s a fire or an earthquake, I can just go rent another place. If the plumbing or electrical systems need work, I don’t have to pay anything extra for it.[/li]But, mostly, because rents and purchase prices are completely out of whack. The place we rent for $2025/mo (2 bed, 2.5 bath) has an “appraised value” of 1.1 million. I tend to believe it’s at least 80%, since the (nicer) house next door just sold for 1.3+. Just the interest on a loan to buy this place would be more than twice that. Add insurance, PMI (like hell I can come up with a $200K down payment), property tax, and maintenance costs, and you’re looking at 3x our monthly cost, easily. Until purchase prices fall, I’m financially better off renting forever than paying that.[/ul]

Valid point. There is some surplus housing inventory out there which may be converted to rental property. That may keep rental prices down for a while.