This week’s Apartment Rental News Roundup will focus on The State of the Nation’s Housing 2008, an annual report composed by the Harvard Joint Center for Housing Studies and give an update on the federal housing rescue plan that we have been following. Both have implications for the multifamily industry and apartments for rent nationwide.
The annual report, which was released last week, characterizes the current housing market as the worst in a generation and predicts continued troubles in the short term.
The report specifically emphasizes three areas: the oversupply of unsold homes, the unprecedented foreclosure rate, and the affordability of for sale homes. The most indicative facts are:
- Foreclosures doubled last year to 1.3 million
- Vacant homes for sale rose 46 percent over two years to 2.12 million
- Home prices have dropped 18 percent since they peaked in October 2005, but stricter underwriting and the failure of repeated rate cuts by the Fed to encourage banks to lower mortgage rates still place homeownership out of reach for many.
Historically, the current housing slump is much more severe than other notable downturns in the past few decades. Housing prices dropped 18 percent from their peak 2.5 years ago in October 2005, compared to a 4 percent and 8 percent decreases after prices peaked in 1989 and 1979, respectively. Even during those housing troubles, there was never a decrease in the nominal median home price.
To combat the surplus of vacant homes and address uncertainty about when and where home prices will finally hit bottom, Congress is attempting to pass legislation that is designed to bring stability to the housing market by trying to establish a price floor with incentives designed to attract lenders who would rather write down their mortgages than risk having their borrowers go into foreclosure.
On June 24th, the Senate held a cloture vote on H.R. 3221, which limits general debate on a bill and blocks filibustering. Since the bill is comprised of three separate measures, however, it may require 2 more cloture votes before final vote.
Senator Dodd, who had worked out a compromise with Senator Shelby, was confident that the bill would be passed with all due haste. However, the addition of a renewable energy amendment by Senator Ensign has pushed the final Senate vote to July 7th at 3:45 PM, when the Senate comes back from recess.
It is a tough time now for home buyers and many people are returning to the rental market, for either apartments or homes for rent. As we have discussed previously, the shadow market is adding inventory to home rentals, forcing apartment owners to compete for renters. Home vacancies are not only putting people back into apartment rentals and rental homes, but many lenders are now being thrust into the rental market, in an attempt to recoup some of their losses.
With everything so uncertain in the housing market, it bears going over some rent vs buy fundamentals. In our apartment guide, we feature an article about the myths of homeownership. Be sure to check it out before you go from renting apartments to buying homes.
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