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Uncle Sam wants you… to rent his house

August 11, 2011 by in Apartments, Foreclosures, Housing Market Trends, Rental Market Info
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Too many houses for sale due to foreclosureOn Wednesday the Obama administration said that it was looking for ways to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private businesses or sold in bulk.  In a desperate attempt to clear the nation’s balance sheet of foreclosed homes, the government may now become the nation’s largest landlord.

The Federal Housing Finance Agency, the Department of Housing and Urban Development and the Treasury Department are jointly requesting ideas for sales, partnership ventures or other strategies that would help to unload approximately 250,000 properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Those properties account for only half of all properties that have been foreclosed upon and are still awaiting resale nationwide.

With so many foreclosed homes on the market, the sale price of occupied homes continues to be plummet.  In some condo buildings in Florida as many as 1 in 3 units are in foreclosure. When an owner goes to sell their condo for $100,000, buyers can find dozens of foreclosures for $75,000 or less. As a result, the owner must either lower their price, stay put for another decade until prices rebound or stop paying their mortgage (which they are likely upside down in) and allow the bank to foreclose on them. It’s this vicious cycle in the hardest hit parts of the country which are causing  apocalyptic real estate markets.

By taking federally owned foreclosures off the market and renting them out, the administration hopes to stabilize neighborhoods where large supplies of empty, foreclosed properties have crushed property values. In effect, the government is saying that they own a quarter million homes they can’t sell.  If they did, it would contribute to a more severe and prolonged housing price collapse.  This is unprecedented in US history.

Nominal House Prices March 2011

The party’s over – time to clean up the mess

To give perspective to the impact that Fannie Mae, Freddie Mac foreclosures could have on home prices, consider the fact that only 70,000 of their 250,000 homes are currently on the market for sale. We’ve all seen what’s happened to home prices in the past three years. Now picture three times more foreclosures in the market, and continued erosion of America’s employment base. The result, not pretty.

One thing is for sure – someone is going to make a killing when the government decides what action to take.  Unfortunatly, I can garantee you that it will be massive investors that can afford to buy thousands of homes at a time. It will likely even be the same corporations responsible  for millions of Americans losing their homes. Small business owners, property management companies and individual landlords will be left with the scraps of this deal… if that.

It’s going to be a very interesting 2012. Perhaps the Mayans weren’t predicting the end of the world, but rather, the end of an era.


Comment »

  • Dan says:

    I thought this was a website for real estate searches, not for political commentary. But finding innovative ways to restore motion to the real estate market and to the economy is actually a great idea. That may involve trying to spur various parties to restructure bad / underwater / zombie loans, or to rent out properties that are just sitting there, stimulate purchases and sales, or even to bulldoze a few houses that were built solely for reckless speculation.

    The housing market is in these dire straits in the first place because the government was paying absolutely no attention. There was a total lack of oversight both of the real estate industry and of the financial derivatives tied to the real estate industry. The Fed also contributed with its usual, happy-go-lucky, bubble-spawning influx of easy money. But now that we are here, we need to recognize that a major housing crisis can cripple an economy for many years beyond the initial crisis. So what is important is to unfreeze the situation and to create some motion again.

    Even if there is some temporary pain for a few parties, it is critical that real estate be unstuck so the wheels of the economy can turn freely again. Most of this has already taken course naturally, and a lot of the bubble has burst via natural market forces. The government and the Fed actually intervened earlier to prevent a far greater plummet, so you can be grateful for what they have done already (well, some of it anyway). But there is no reason not to further stimulate and speed this resurrection of our dead markets from the top down. Obama is a pragmatist, and a very smart one at that, and he is battling with a bunch of closed-minded ideologues — both in the Tea Party and on the far left. It’s an uphill fight, and you can see the frustration on the guy’s face with the shrill debates they have. But there are elegant methods that can be used to grease the wheels of markets that are both cheap and and carefully weighed for their economic benefits. With the economy having been through such a jolt, they would be irresponsible not to be using all the tools at their disposal. And of all the ways they’ve attempted to stimulate the economy in recent decades, this is far from the worst.

    Let’s be clear. Once the economy is trashed as badly as it was in 2008, there are no wonderful solutions. But some of these make sense.

    September 5, 2011 @ 7:48 pm

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