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lendingbubblecontinues.
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August 19, 2007 at 7:03 AM #77947August 19, 2007 at 7:40 AM #77808
stansd
ParticipantToots,
You bring up an interesting point. I wonder if the market gets segmented a bit with two kinds of landlords: The first is the desperate landlord whose property is sitting on the market because they don’t want to lower it to market price. I’m seeing a lot of this right now on craigslist. That person is desperate to pay the mortgage and is more interested in the bird in the hand (decent rent) than the risk of a poor credit tenant.
Then I think you have the other side-landlords who are very concerned about what happens to their house, or the risk of not getting paid. These folks wil likely be very wary of low credit customers and willing to rent for less to find a high quality tenant (I rent from one of these right now).
My hope is that this is how it plays out-so that rents on the responsible (e.g. the Piggington renter) don’t wind up escalating with a bunch of new renters chasing properties.
Stan
August 19, 2007 at 7:40 AM #77956stansd
ParticipantToots,
You bring up an interesting point. I wonder if the market gets segmented a bit with two kinds of landlords: The first is the desperate landlord whose property is sitting on the market because they don’t want to lower it to market price. I’m seeing a lot of this right now on craigslist. That person is desperate to pay the mortgage and is more interested in the bird in the hand (decent rent) than the risk of a poor credit tenant.
Then I think you have the other side-landlords who are very concerned about what happens to their house, or the risk of not getting paid. These folks wil likely be very wary of low credit customers and willing to rent for less to find a high quality tenant (I rent from one of these right now).
My hope is that this is how it plays out-so that rents on the responsible (e.g. the Piggington renter) don’t wind up escalating with a bunch of new renters chasing properties.
Stan
August 19, 2007 at 7:40 AM #77931stansd
ParticipantToots,
You bring up an interesting point. I wonder if the market gets segmented a bit with two kinds of landlords: The first is the desperate landlord whose property is sitting on the market because they don’t want to lower it to market price. I’m seeing a lot of this right now on craigslist. That person is desperate to pay the mortgage and is more interested in the bird in the hand (decent rent) than the risk of a poor credit tenant.
Then I think you have the other side-landlords who are very concerned about what happens to their house, or the risk of not getting paid. These folks wil likely be very wary of low credit customers and willing to rent for less to find a high quality tenant (I rent from one of these right now).
My hope is that this is how it plays out-so that rents on the responsible (e.g. the Piggington renter) don’t wind up escalating with a bunch of new renters chasing properties.
Stan
August 19, 2007 at 9:07 AM #77829bsrsharma
ParticipantSD,
I agree credit will be difficult for investors to buy and rent. I am imagining the situation may force a new kind of business – The REO-Landlord. What choice do they have? There is a carrying cost; Homes may get vandalized/become vice-dens attracting city nuisance laws, further depress neighboring property values that will have a snowballing affect.
This article in NYT puts a human face on the ex-owner now-renter population. As you can see, this is not the traditional politically weak poor/homeless. There is a political consequence to having a million faces like these losing their home.
August 19, 2007 at 9:07 AM #77976bsrsharma
ParticipantSD,
I agree credit will be difficult for investors to buy and rent. I am imagining the situation may force a new kind of business – The REO-Landlord. What choice do they have? There is a carrying cost; Homes may get vandalized/become vice-dens attracting city nuisance laws, further depress neighboring property values that will have a snowballing affect.
This article in NYT puts a human face on the ex-owner now-renter population. As you can see, this is not the traditional politically weak poor/homeless. There is a political consequence to having a million faces like these losing their home.
August 19, 2007 at 9:07 AM #77952bsrsharma
ParticipantSD,
I agree credit will be difficult for investors to buy and rent. I am imagining the situation may force a new kind of business – The REO-Landlord. What choice do they have? There is a carrying cost; Homes may get vandalized/become vice-dens attracting city nuisance laws, further depress neighboring property values that will have a snowballing affect.
This article in NYT puts a human face on the ex-owner now-renter population. As you can see, this is not the traditional politically weak poor/homeless. There is a political consequence to having a million faces like these losing their home.
August 19, 2007 at 9:16 AM #77979gn
ParticipantThere are a large number of empty houses, but, b/c they are REOs or their owners are trying to sell, they are not being rented out, creating an “artificial” shortage.
This means that, in the short term, rents can go up. But, I think, when things have “settled”, rent will go down, because, the bottom line is: the number of houses is higher than the number of households.
August 19, 2007 at 9:16 AM #77955gn
ParticipantThere are a large number of empty houses, but, b/c they are REOs or their owners are trying to sell, they are not being rented out, creating an “artificial” shortage.
This means that, in the short term, rents can go up. But, I think, when things have “settled”, rent will go down, because, the bottom line is: the number of houses is higher than the number of households.
August 19, 2007 at 9:16 AM #77832gn
ParticipantThere are a large number of empty houses, but, b/c they are REOs or their owners are trying to sell, they are not being rented out, creating an “artificial” shortage.
This means that, in the short term, rents can go up. But, I think, when things have “settled”, rent will go down, because, the bottom line is: the number of houses is higher than the number of households.
August 19, 2007 at 10:06 AM #77862SD Realtor
ParticipantBSR I very much disagree with that philosophy. This is well beyond the scope of a lender or bank. Being a landlord creates liability. Furthermore, once again, the mortgages, that then became securities, also have terms and conditions attached to them and it would be a violation for the lender to keep the property and become a landlord. Since the property doesn’t pencil out there is no way rent can cover the expected return on the security when it was created.
I believe that scenario has a much lower proabability then lenders just lowering the cost of the home and dumping them. Legally that is what they can do without creating additional liability. The investors are left holding a bag of poop.
SD Realtor
August 19, 2007 at 10:06 AM #77987SD Realtor
ParticipantBSR I very much disagree with that philosophy. This is well beyond the scope of a lender or bank. Being a landlord creates liability. Furthermore, once again, the mortgages, that then became securities, also have terms and conditions attached to them and it would be a violation for the lender to keep the property and become a landlord. Since the property doesn’t pencil out there is no way rent can cover the expected return on the security when it was created.
I believe that scenario has a much lower proabability then lenders just lowering the cost of the home and dumping them. Legally that is what they can do without creating additional liability. The investors are left holding a bag of poop.
SD Realtor
August 19, 2007 at 10:06 AM #78010SD Realtor
ParticipantBSR I very much disagree with that philosophy. This is well beyond the scope of a lender or bank. Being a landlord creates liability. Furthermore, once again, the mortgages, that then became securities, also have terms and conditions attached to them and it would be a violation for the lender to keep the property and become a landlord. Since the property doesn’t pencil out there is no way rent can cover the expected return on the security when it was created.
I believe that scenario has a much lower proabability then lenders just lowering the cost of the home and dumping them. Legally that is what they can do without creating additional liability. The investors are left holding a bag of poop.
SD Realtor
August 19, 2007 at 11:10 AM #77896surveyor
ParticipantSDR:
I’ve remained silent on this issue for awhile because for one thing I didn’t want to make an uninformed statement. However, it did puzzle me that people were thinking that a huge amount of foreclosures, REO’s, and the bubble bursting would lead to a huge amount of rentals available and that rent would go down.
It would seem more reasonable to me that there would be an increased demand for rentals and that would increase rent prices up. With all these former homeowners now becoming renters, they would put pressure onto the existing rental inventory and they would increase rents.
The best scenario I can think of that would support a decrease of rent is that as the banks finally give up and start dumping their REO’s at a good enough discount, investors and flippers would gradually start bringing these properties into rental shape. Because of the new focus on credit and lending, many investors are being required to put in about 25% down. With this environment, this in my view is a process that would take years longer than the “bottom” of the San Diego real estate cycle.
August 19, 2007 at 11:10 AM #78020surveyor
ParticipantSDR:
I’ve remained silent on this issue for awhile because for one thing I didn’t want to make an uninformed statement. However, it did puzzle me that people were thinking that a huge amount of foreclosures, REO’s, and the bubble bursting would lead to a huge amount of rentals available and that rent would go down.
It would seem more reasonable to me that there would be an increased demand for rentals and that would increase rent prices up. With all these former homeowners now becoming renters, they would put pressure onto the existing rental inventory and they would increase rents.
The best scenario I can think of that would support a decrease of rent is that as the banks finally give up and start dumping their REO’s at a good enough discount, investors and flippers would gradually start bringing these properties into rental shape. Because of the new focus on credit and lending, many investors are being required to put in about 25% down. With this environment, this in my view is a process that would take years longer than the “bottom” of the San Diego real estate cycle.
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