The “New Normal” American Dream Of Renting Is About To Become Very Expensive

Posted on March 15, 2012 by Gekko

Much has been made recently of the government’s renewed efforts to spark the housing market from its dismal slide, however we fear there are yet more unintended consequences lurking just around the corner. The various ideas being posited for a broad REO-to-rental program is one of these steps as BofA points out in accommodating the dramatic shift from ownership to renting (with 4.2mm new renters and 1.2mm fewer homeowners since the end of 2006). Of course removing foreclosures from the for-sale market reduces competition for voluntary sellers – which should help to support prices for non-distressed homes but here is where the crux of the unintended consequence lies.

We have a squatter epidemic. There are millions of ‘homeowners’ currently living mortgage-payment-free (by choice) who will soon be forced (as the foreclosure process ramps up post-settlement) to pay rent (since they will not qualify for a mortgage). This will have the double whammy effect of reducing overall discretionary consumption spending (as rent is greater than ‘free’ – unless the cardboard box is preferable) and driving inflationary forces into rental costs (something we are already seeing). Of course these are the much larger second-order effects and we will only be told of the primary benefits of clearing foreclosure inventory, but at the margin (along with gas prices) the household will have less discretionary iPad-buying ammunition as opposed to more.

Since the end of 2006 there are 4.2 million more renters and 1.2 million fewer homeowners…

Distressed property prices continue to turn down (and re-accelerate) as the foreclosure pipeline starts to unclog…


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