Single-Family Rental Boom to Take Toll on Neighborhoods?

home-for-rentMany former home owners displaced by foreclosure are being left with no other option but to rent. They’re increasingly turning to renting single-family homes, which is the fastest growing segment of the rental market from 2005 to 2010, according to Fannie Mae research.

Three million former home owners from the foreclosure crisis will likely rent single-family homes between 2010 and 2015, according to estimates by John Burns Real Estate Consulting.

"In the next five to 10 years, you’ll see tens of billions, if not hundreds of billions, of dollars of private equity" pouring into the single-family rental business, Justin Chang, principal of investment firm Colony Capital, told USA Today.

But some home owners are concerned about what the surge in renters will bring to their neighborhoods. Some home owners say that renters don’t tend to take care of the yards or home maintenance as well as home owners, they have more parked cars lining the streets, and they are more disconnected from their neighborhoods. Some home owners fear that more rentals coming into their neighborhoods will hurt home values too.

They may have reason for their concern: A study completed 10 years ago showed that a 10 percent increase in a neighborhood’s home ownership rate led to about a 3.6 percent increase to home values, according to a study by Edward Coulson, a Penn State University economist. Coulson’s preliminary data on newer research suggests that an increase in rentals to a neighborhood may slightly decrease home values. 

Some cities have taken steps to limit the number of the rentals. West St. Paul, Minn., and some other Minnesota communities, for example, have adopted laws to limit single-family home rentals to 10 percent of homes on a neighborhood block.

However, some critics argue that investor-owned rentals could help give some neighborhoods a much-needed lift. Some renters may do a better job at upkeeping homes than a distressed home owner, let alone a home that just sits vacant, they argue.

Source: “Home Rentals: The New American Dream?” USA Today

Rising rental costs may drive home sales up

Homes-For-RentHome sales could turn out sunnier than expected this spring based on data coming out of the rental market, according to economists at the Mortgage Bankers Association.

Jay Brinkmann, the trade group’s chief economist, said Thursday that apartment owners have raised their rates, in particular large investment trust Equity Residential ($58.05 0.45%). That’s coupled with fewer people, roughly 60%, who intend to renew a lease, according to a study by Kingsley Associates.

"This means we might see a spring season better than the numbers are predicting," Brinkmann said at the MBA’s mortgage servicing conference in Orlando, Fla. The trade group forecasts 4.39 million single-family homes sold in the second quarter, already an increase from the seasonally adjusted 4.17 million a year earlier.

Many Americans ran to rentals during the worst of the housing crisis, pushing homeownership to a 14-year low, and more tenants elected to stay put.

"The question is not how did (homeownership) fall, but how it got so high in the first place," Brinkmann said.

The MBA adjusted its forecast for mortgage originations in 2012 to just more than $1 trillion with more refinances than initially expected, according to Mike Fratantoni, vice president of economics and research. That’s still below 2011 levels and would be the lowest since 1997.

Fratantoni expects home sales to grow 10% in 2013, though he predicted refinances will drop off considerably as MBA projects interest rates to slowly move off the lowest levels in 40 years.

Positive employment news, including a continued decline in jobless claims, could impact housing soon, but Brinkmann said uncertainty over business taxes in an election year and European debt could keep growth at bay.

"Everything is going to be based overall where the economy goes," Brinkmann said. "This is going to be a slow year. There are a number of headwinds we’re facing in terms of economic growth."

Source: “MBA: Rising Rental Costs May Drive Home Sales Up,” HousingWire (Feb. 23, 2012)

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