Homes For Rent In California

Seven Questions on Foreclosure-to-Rental Conversions

The Obama administration published a “ Request for Information ” on Wednesday soliciting ideas to deal with rising volumes of foreclosed properties that federal entities are emptying onto the housing market in growing quantities.

As today’s Journal story notes , the administration is exploring ways to accelerate the housing recovery by moving homes out of the government’s hands and into private hands faster. But it wants to make sure that unloading foreclosures won’t simply saturate markets, dropping prices sharply.

Consequently, the idea of converting foreclosures into rental homes is gaining traction. Here are seven questions:

How do foreclosures affect home prices?

Foreclosures tend to sell for less than traditional homes for a few reasons: banks are more willing to cut prices to sell quickly; the homes sometimes are in shabbier condition and need more repairs; and investors are getting discounts by offering all-cash deals. The upshot is this: the higher the share of homes that sell out of foreclosure, the more prices fall.

Isn’t that just the market taking care of things?

Yes. But the process is painful for housing markets. Here’s how: You agree to pay $200,000 for my house. You are making a 20% down payment and are approved for a $160,000 mortgage. But a vacant, shabbier house down the street just sold for $150,000 to an investor in a foreclosure. When an appraiser tells the bank how much my home is worth, they use that foreclosure as a “comparable” sale and tell the bank that my house is only worth $150,000. Now, to sell my house, I’ll either have to lower my price, or you’ll need to double your down payment, since the bank will only make a $120,000 loan. Often, the buyer will walk.

So why is the government exploring options to rent out foreclosures?

Last quarter, Fannie Mae and Freddie Mac sold 100,000 homes, a record high. They owned twice as many at the end of June, representing about half of all foreclosed homes held by lenders.

But that’s just the tip of the iceberg. There are about 700,000 more loans backed by the firms in some stage of foreclosure, which means that Fannie and Freddie are likely to sell more and more homes. If banks and the government entities dump lots of foreclosures all at once, that could send home prices down and create even bigger losses for the industry. The idea is to create an infrastructure that can recycle some of these homes as rentals over the coming years.

Rent vs. buying a house in San Jose ca.? | Investment in Real Estate

I have notice that the rent has gone through the roof in San Jose Ca. and other Bay Area cities. With the rent going up do you think people will start buying a house. My rent is 2000 dollars for a 2 bedroom apartment. I’m considering buying because with the REO market it does not seem to be a big difference between rent and mortgage. How do you guys feel about this. Doesn’t it seem in some areas the rent is comparable to mortgage. Why isn’t anyone talking about the increase in rent like they do the housing crisis.

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