The Federal Reserve’s new white paper about the U.S. housing market released just yesterday – The U.S. Housing Market: Current Conditions and Policy Considerations (.pdf) – contains the following paragraph and a good deal of supporting rationale for their recommendation to sell GSE-owned foreclosed properties in bulk to investors so that they can be converted in bulk into rentals.
The price signals in the owner-occupied and rental housing markets–that is, the decline in house prices and the rise in rents–suggest that it might be appropriate in some cases to redeploy foreclosed homes as rental properties. In addition, the forces behind the decline in the homeownership rate, such as tight credit conditions, are unlikely to unwind significantly in the immediate future, indicating a longer-term need for an expanded stock of rental housing.
While, on the surface, this makes a good deal of sense after the nation painfully learned a few years ago that home ownership wasn’t what it was cracked up to be and, ever since, home prices have been falling while demand for rental properties has grown, a massive conversion of REO properties into rental properties would also have the convenient side effect of helping the Fed keep inflation low, giving it more leeway to print up another trillion dollars or so for the greater good, should the need arise.
How so?
Recall that, part of the reason that the housing bubble grew so big was that the inflation statistics include rental prices as a proxy for the cost of home ownership, a change that was made all the way back in 1983 and that forever changed how inflation is reported and how high home prices could rise (see this Seeking Alpha article on the subject from a few years back that still ranks quite high on a search of “owners’ equivalent rent”).
After years of being subdued because everyone wanted to own a home (and nearly did), lately, rents have been rising – up about 2 percent over the last year – and, since rents account for 40 percent of the Fed’s “core” inflation rate, you can see why lower rental prices might be in the central bank’s interest.
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Having the hedge funds and REITs buy REO’s are terrible for those of us
tring to buy a sensible home, after being between homes stuck in this nightmare bubble. We’re a cash & close in So Ca and prices are still ridiculous and inventory is awful.
Not to mention, we don’t mind renters (heck, we’ve been a long time) but think of the neighborhoods that will have the fair housing law pitted against them. When we see flames pained on Escalades, and hear ethnic polka music, we don’t even view the house. We rent in downtown Thousand Oaks, it’s been quite an experience. We want to buy OUT of the experience.
Bad idea.
tring s/b trying
One more thing. They have permanently broken the housing business cycle, imho. They should be bringing inventory on the market for sale, and if they want to control the collapse with a fair outcome, do it with a 5 year plan, with everyone made to sign on. No opt outs from hedge funds, “infestors”,banks, homemoaners, etc…
REO conversions to rentals…bad, bad idea.
Oh, and 1099 the people gaming the system. Us 800+ FICO folks who played by the rules are pissed.
Tim, there is no such word as “Alterior”. The correct word is “Ulterior”. I’m not sure what this says about your other stuff.
It doesn’t say anything about my other work. What it does say is that Mozilla spellchecker doesn’t work in the Title form of Wordpress and I was too big a hurry to go skiing today that when I googled “Alterior Motive” there were like 9,000 matches, which, at the time, was good enough. Turns out, most of those matches were the similar incorrect usage of a word that doesn’t exist. My bad.
Related:
http://www.usatoday.com/money/economy/housing/story/2012-01-05/apartment-rents-rising/52397240/1
“The firm, which surveys 20,000 properties a month, expects apartment rents to jump 5.5% in 2012. MPF Research sees a 4.5% increase, while researcher Reis expects a 3% increase, although that forecast may change, says senior economist Ryan Severino.”
[...] News: The Feds are floating another proposal to start renting out some of the foreclosed homes owned by agencies of the government. This is partly to keep rents [...]