Apartment Vacancies Reach 7.8%, Highest Point Since 1986

for rentApartment vacancies reached 7.8% nationwide in the 3rd quarter, the highest point since 1986. The rate is expected to continue to rise in the winter months, which have continually seen lower demand for renters, as people are more likely to move during the warmer months. Nationally, effective rents have fallen 2.7% this past year, to around $972. However, this number is deceiving, as some markets have been hit harder than others. In fact, in the third quarter, 26 markets saw their vacancy rates improve, while 11 saw them remain stagnant. 42 markets saw their vacancies increase, the most dramatic being in Omaha, Nebraska, where they went up by 1.1% to 7.4%.

But the increased vacancy rates are not always correlating most strongly to decreases in rent. The biggest rent decreases are being found in San Jose, CA and New York City, with declines of 8.0% and 6.8% respectively. The decreasing rents and increasing vacancies have made it easier for renters to negotiate on prices and to shop around until they find the perfect place (and price). In addition, many former renters have bought homes for the first time taking advantage of the federal tax credit and the low housing prices.

 

The Changing Conception of Ownership vs. Renting

A wonderful article in the Wall Street Journal this week focused on changes in buying vs. renting as outgrowths of the American Dream and supported the position that the Obama Administration should turn to helping renters, rather than putting all of its money into revitalizing the housing market. The idea is an interesting one. Before the Great Depression, homeowners were either very wealthy or people who built the house themselves. The vast majority of Americans rented.

Now, home ownership has become synonymous with the American dream. A noteworthy quote mentioned in the article is, “‘A man is not a whole and complete man unless he owns a house and the ground it stands on.” – Walt Whitman. But this change was only completed as the federal government stepped in to dramatically assist and subsidize lenders with the creation of  government programs such as the Home Owners Loan Corporation and the Federal Housing Administration. I would also argue that the change occurred partly due to class issues, as wartime and the Great Depression led to the ascendancy of the self-made man and decreased the emphasis on Old Money.  Regardless, the change to a society that glorified home ownership was not made until the 1930s, and has still not occured in many European countries, where most rent.

It is true that the Obama Administration has spent a lot of money to try to help stimulate the housing market and keep homeowners that are behind on their mortgages in their homes. The aptly named “Save the Dream” fair in Atlanta this past weekend seems to aptly illustrate this idea that the dream of owning a home is a fleeting one. A report by the National Foundation for Credit Counseling in June found that 1/3 of Americans believe they will never be able to own a home, and 42% of those who owned a home in the past but do not own one currently believe they will never be able to own one again. This is hardly optimistic data for those seeking to restart the home ownership market.

In New York City (and I imagine in other urban areas as well), there are programs in which the government assists low-income families with finding apartments.  I believe there are even cases when rents are subsidized, depending on the circumstance. Assisting landlords and tenants may be the best way to help combat the housing crisis.  Landlords in default or distress can cause problems for tenants, who may find themselves evicted.  In cities where property values are high, many renters can be stuck with rents that amount to more than half their salaries.

Helping renters will help individuals save money, perhaps leading them on the path to home ownership, while, in the meantime, improving their present situation. Although programs such as the reverse mortgage program and the HECM for Purchase program are wonderful ways to help homeowners, the point that renters should be attended to as well (and perhaps instead) of simply focusing on homeowners is a valid one that has been long overdue.

 

Minorities Disproportionately Affected By NY Foreclosures

The NYTimes published a very interesting article this weekend documenting how minorities have been disporportionately affected by foreclosures in NY.  The article points to systematic abuses within the system that appear to be partly responsible for the split along racial lines, and can hopefully be prevented in the future.

85% of the worst hit neighborhoods in the New York Metropolitan Area are predominantly black or hispanic.  These neighborhoods are areas where the foreclosure rate is at least double the regional average.  However, perhaps more surprising and troubling is that the crisis is affecting the African American middle class more than the lower classes. Black households making over $68,000 a year annually are more than five times as likely to hold a subprime mortgage than whites of similar or even lower incomes.  These mortgages are the ones most affected when the housing bubble burst.

Furthermore, the African American lending universe is generally constituted of about a dozen banks and lenders, constituting half the loans given to black middle income borrowers in 2005 and 2006.  The terms of these loans were generally less favorable and more risky, with costs that can vary by thousands of dollars depending on the variability of the interest rate. Furthermore, 33% of the subprime loans given out to borrowers in 2007 went to borrowers with credit scores that should have been high enough to qualify them for a conventional loan. There is normally a three percent interest rate difference between subprime and conventional loans, which can add up to a difference of tens of thousands of dollars for the consumer.  The NYTimes points to a $272,000 difference in the interest on a $350,000 loan.  They also mention well-off African Americans with nine to eleven percent annual interest rates on their mortgages, rates that are surprisingly high for the group. 

Now in NY, whole neighborhoods are under assault. Fears of disinvestment are climbing, as homes once owned are becoming rental properties and vacancies increase.

What strikes me so strongly about this story is that it seems like a strong case of discrimination.  While part of the problem stems from members of the African American community not trusting traditional banks in the wake of decades of discrimination,  pushing them to subprime lenders, part of the problem is that it appears that these populations were particularly targeted with unfavorable terms and loans.  Now, we are seeing the consequences and these are the neighborhoods that will be most affected. There is a direct correlation between the increase in the number of foreclosures and an increase in violent crime, making the situation only more dire.

These lenders need to be held responsible, hopefully many of these borrowers will be able to get their mortgages refinanced, and hopefully the city and the country will take steps to ensure that this kind of racial discrimination in the loan market does not continue.