As we all know, the housing market has been taking a beating over the past couple years. The global recession seemed to spark right out of the American housing market, and things have not really been improving too much. With all the homes that are unsold in the country, more and more homeowners have decided to rent instead of sell their properties.As the housing market began to come apart at the seams, home inventories started to swell, and prices started to drop. Everyone has been waiting anxiously to see a point where the lower prices would bring massive buyers back into the market, but that still has not happened yet, and instead of lowering prices even further, homeowners have decided to hold onto properties a little longer and pull in some rental income instead.
On the surface this seems like bad news, but it could be another step in the right direction. Sure, it would be better if people were able to sell their second or third homes and get that debt off their shoulders, but at least by renting instead of selling we will get fewer homes on the market, which should in turn start to stabilize prices. On the other hand, you could also argue that prices should continue to fall in order to bring interest back into the housing market.
While the number of unsold homes has dropped a bit, we are still looking at 3.74 million homes that are on the market. This represents a 10 month supply of homes. A fairly daunting figure if you think about it.
Although renting out that extra property seems like a win-win situation, this is not always the case. In many instances homeowners are not able to recoup all of their expenses when renting out their homes. Sure it is better than having an empty home sitting on a lot, but if you are still only able to pull in 75 or 80% of your costs you will eventually get into a situation that will be hard to get out of.
In many cases people are trying to unload homes that have fallen 30 or 40% below where they were purchased only a couple of years ago. For people finding themselves in this situation, renting their homes out for less than their expenses is just a band-aid on the major problem of being down 30% on their homes. Even if the housing market rebounds strongly over the next couple of years, chances are it is going to take a lot longer than a few years to get back to break even.
How long owners will be able to bear the monthly costs of their homes remains to be seen. It could open up a fresh new wave of foreclosures down the road if home prices do not pick up substantially over the next few years.
Do you currently have a property on the market? How long have you been trying to sell your home, and how long will you hold out before deciding to rent instead of selling? Let us hear what your experiences have been while trying to sell your house.
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Reader Comments (Page 1 of 1)
5-13-2009 @ 1:08PM
Networker said...
Just bought a second home for my mother to live in. Great price, low interest - not much more then a car payment. Cannot beat it.
5-12-2009 @ 9:36PM
william lindblad said...
Mike, you are about one year late on this one as the concept is that old. There is more than falling prices involved in this one.
Most of these second or third homes are in vacation/recreational areas. Let's say you bought in Florida which is one of the worst case states. Well, market went dead and price declined. Well, insurance on property did not, as well as real estate taxes. Florida only gives tax breaks to resident homeowners. This is not bad unless you have a lot of company. Read the real estate for rent ads in the Pennysaver, than read the for sale section. You will quickly get the drift - there are twice as many rentals as opposed to for sales. You are correct in the assumption that this cannot go on forever. If and when the wind blows and insuring these properties takes another substantial hike a new wave of foreclosures is sure to follow.
5-13-2009 @ 8:16AM
Deb said...
OR....you could look at this on the bright side. If your home does not sell at the price you need, you can attempt to rent the home at the price that you need to make your payments. If you are unable to rent the home and you can show proof that you made a strong attempt, you can sell the home at a loss and write that loss off on your taxes. You MUST be able to show proof that you tried to rent the property. May not be the best case senerio but we did it.
5-13-2009 @ 11:09AM
Matt said...
Try finding a renter that won't pay late, I have a rental and know lots of landlords that are not getting paid which further bites the loss of value, Then the do finally get tossed out and you low value home is even worth less becasue the damaged it, Think before you rent it
7-16-2009 @ 10:56AM
moosie said...
Deb - a question please. How do you write-off the property loss on your taxes at sale? I've been told you can write off the rental negative, but not a value loss on the sale of the home.