Economic Forecast 2011

January 2011 showed 315,716 foreclosure fillings. The rental market received 315,716 additional renters, renters who are there to stay for a number of years due to the blemishes the foreclosures caused on their credit report. These new consumers used to live in a single family home and would care to live in one again even if this means paying rent, instead of a mortgage. They know how to take care of some minor repairs and know what can cause major expenses down the road, such as improper disposals of cooking oil.

In addition, the Bureau of Labor Statistics reported an unemployment rate of 9.7%. If the labor market doesn’t pick up, many more people won't be able to hold on anymore and are going to let their home go into foreclosure. Many homeowners don’t understand the process of short-sales and their lack of knowledge causes them to go into foreclosure hence being forced to rent for years to come.

Real Estate Investors also need to be aware of the new fundamental paradigm shift. Sliding home prices and high unemployment caused behavior among struggling consumers that was once considered unthinkable. Trans Union developed a study and found many consumers are current on their credit cards, but behind on their mortgages. The common belief that homeowners would do everything possible to remain current on their mortgages no longer holds true. This indicates homeowners more and more are becoming comfortable with the idea of renting again.

The “ownership society” is over. After peaking a few years ago, home ownership rates, not surprisingly, have started a long journey downward as foreclosures shake out people who couldn’t afford their homes in the first place. Tough borrowing standards limit new buyers. The home ownership rate peaked in 2004-2005, when about 70 of households were occupied by owners. That percentage could sink to the lows 60s within a decade. A renter’s mentality is extending to other big purchases, like cars, furniture and homes. The rent-to-own option for renters with blemishes on their credit report will become a more value added tool for Real Estate Investors in the years to come.

Click for fair market rent calculator from the department of housing

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