US Housing Market Will Continue to Crash but Experts Advise Not to Buy – What This Means for Landlords

February 25th, 2010

Although the US housing market prices continue to decline during the last quarter of 2009, many real estate experts are still suggesting that now is not the right time to buy. The reason? Because housing prices will continue to fall in most places. Prices are still dangerously high compared to annual incomes and rental prices. According to Raphael Bostic of the US Department of Housing and Urban Development, “the homeownership rate in the United States used to be somewhere close to 70 percent. We’ve fallen off by several million households now.”

So where have all the home owners gone? The answer, according to Bostic is simple: “a lot have now gone into the rental market.”

US Housing Market Trends

If the global economic recession has taught us one thing, it’s that the real estate market can be a ruthless game. The financial institutes and the US public are waiting to take the plunge into home loans until the housing market settles and there is more than enough in the bank.

Although buyers are now warier about purchasing their own homes, this does not mean that home buying has stopped all together. Coast to coast buyers are still borrowing 6 times their income and only putting down 3% on their new homes. The banks suggest a safe mortgage should be a maximum of 3 times a buyer’s income with a 20% down payment. What this means is that people are still falling short and could be paying the consequences down the road.

Real estate agents have been promising “rock bottom” prices for several months now but the housing market is still not quite there. Furthermore, they suggest that now, when interest rates are low, is the best time to buy. However, this is not necessarily the case. Many people have done their research and discovered that buying when interest rates are low can actually hurt them down the road. After all, interest rates have nowhere to go but up and this will normally happen during the worst times.

Renters Market on the Rise

Until the housing market makes a drastic change, many people will stick to the renters’ market. Renting is a cheaper, less stressful and less constraining option which is something many people need in a still-shaky economy. The US unemployment rate in November 2009 tipped the scales at 9.4%. With more and more people losing their jobs every day, renting simply seems like the safer option. Furthermore, renting comes with only one payment, usually on a monthly basis, while buying a home comes with property tax, maintenance and upkeep expenses.

So what does this mean for landlords across America?

Essentially, it means that landlords are able to afford to be picky in their selection.

With so many people in the rental market, it can be hard to determine who is the right person for a vacancy. Landlords admit that choosing the wrong tenant is one of the biggest problems they face every day. Almost 75% of landlords face renter’s arrears in recent times. Furthermore, the Residential Landlords Association reports that 150,000 tenants will face legal action by the end of 2010 due to problems surrounding rental agreements. The biggest issues include outstanding rent, disturbing neighbors and problems surrounding the deposit check.

“Right now from every 10 applications, we turned down nine,” Yazgul Odekova, a property manager in Alexandria, Virginia admits. Furthermore, of those who are accepted, many turn out to be the wrong person for the place. Pelletaire suggests that “today you need multiple minimum wage jobs to be able to afford a two bedroom apartment.” Many people are simply unable to make the payments each month and create an unstable situation for both themselves and their landlords.

Choosing Wisely in a Flourishing Market

Being thorough during the interviewing process is one way to battle against bad tenants. Another option, as many landlords have discovered, is to perform a tenant background check with every potential applicant. Tenant background checks provide landlords with access to previous evictions, credit reports, social security verification and criminal histories. Although this information will not guarantee that the tenant will behave and pay every month, it does provide assurance that the person has not been evicted in the past, does not have poor credit, has a steady stream of income and does not have numerous sex offender convictions to his name.

Tenant background checks can help assess the tenant before it’s too late. A blooming renters’ market means landlords have more choices, both good and bad. It’s important to sift through the bad in order to profit in this industry. “It’s not just because people are dishonest. Sometimes people have big medical bills, sometimes people have bankruptcy, sometimes they suddenly become sick and don’t have health insurance,” a property manager in Alexandria states. All of these can drastically affect the chance that they will make rent each month.

Until the housing market reaches that promised ‘rock bottom’ and until the economy returns to a steadier reality, people are finding salvation in the renting market. For landlords from coast to coast, this means it’s more important than ever to do the research and choose the right tenant. Tenant background checks can make that happen.

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