There is a large, and growing group of people who are crying foul, that is, renters. It was only a matter of time before the economic tsunami of the “credit crunch” overwhelmed innocent victims, and we give Kelly Evans of the Wall Street Journal kudos for breaking the story.
Our Caution: We are highlighting, and commenting upon, a very well written piece of work by the Journal, however, we maintain that Boston city-center foreclosure rates are extremely low, and that the Boston downtown real estate market is strong, there are statistics to prove this. This piece is more a look at a pan-US situation (major downtown city-center areas excluded), and should not be looked at as speaking specifically to the Boston market itself.
Essentially, we’re dealing with two main threads that combine to be a potent force that is impacting renters in a housing and mortgage market that they chose (or rather attempted) to avoid.
- Many single- and multi-family homes held by investors that were rented out are being foreclosed,
- Homeowners falling behind on their mortgage payments are returning to the rental market, increasing competition for units.
What we end up with is a situation where renters are being evicted because the apartment or homes that they are renting are foreclosed because owner investors cannot keep up with the mortgage payments.
Often, the tenants’ first inkling of trouble occurs when they get a letter from the bank directing them to leave the premises.
“They just don’t know what to do — they leave town, move in with their mothers, end up in shelters,” says Janet Merrill, an attorney with the Massachusetts Justice Project, a Worcester legal-services agency that runs a hotline for low-income people.
Ms. Merrill’s group gets four to five calls a day from renters facing eviction resulting from foreclosure. One caller recently received a letter from a bank saying her six-unit apartment building had gone into foreclosure and ordering her to vacate her unit by October 31st.
In many cases, the homes and apartments entering foreclosure are owned by investors who got low-rate teaser mortgages and intended to hold the buildings for a few years and then sell them at a profit — before their mortgage rates rose. Now, with the housing market badly depressed in many markets, the owners can’t sell the homes or afford the higher mortgage payments. Many are defaulting.
In an ideal world, you’d like to see the market correct the situation on its own, but what we have here is a situation where rents that are needed to sustain a mortgage (one with terms that an owner investor cannot support) cannot economically be absorbed by the renter market. Pure economic supply and demand cannot properly adjust, at least in the short term, for such mistakes caused by the lack of foresight on the owner investor’s part, and the carelessness of a lender to finance such a situation where too much is dependent on the future, which is by nature, uncertain (i.e. the lender, nor the owner investor, could have accurately predicted that markets would soften, days on market would increase, and it would be difficult to sell a home with no loss.).
Much of the recoiling and tightening of mortgage standards, essentially the hoops that you have to jump through in order to get home financing at present, will continue to be adjusted as lenders recognize their carelessness and implement systems and mechanisms that should have been in place from the beginning.
Keith Munsell 
