Wednesday, May 8, 2013

Why the Focus Should Be On Renting Homes

Unfortunately, there does not appear to be anything close to a short-term solution to the ongoing real estate crisis, even though there is a major need for one. Perhaps making a large portion of available single family homes and condos available as "Rent To Own" would be the best way to help.

All of this "Home sales are up!" information doesn't help when the increase is due to lower property values which make it difficult for so many others to sell.

The U.S. Census Bureau reports another decline in the percentage of American who own their homes during the first quarter of 2013 when compared with the same period in 2012. This makes the lowest level of Americans who own since 1995. Yet, during the same one-year period, the number of completed forecloses dropped more than 2.5%.

Thus, even with fewer homes in foreclosure, home ownership is down over the same period. Put this together, and it confirms that the reason home sales are "up" is because cash investors continue to swoop up the bargains in hopes of flipping for a future profit. But that doesn't help the current market.

Add to these facts that construction spending was reportedly the largest drop in 2006 during the month of March 2013, which came after a reported increase for February.

My solution to this is to encourage more "Rent To Buy" opportunities. There are plenty of people who cannot get a mortgage, and/or can't afford a huge down payment at the moment. There are plenty of homeowners who want out but, understandably, do not want to take a loss on their home.

The reason that many cities are boasting "less inventory to choose from" is because a large percentage of listed homes are distressed properties. There is little to no incentive for owners to sell since chances are they would not make a profit, let alone break even in most cases.

Yet, if an "owner" can cover the cost of the mortgage and fees, or come close to it, chances are they could use their own funds to rent or buy elsewhere, and perhaps take advantage of an undervalued property available in a location they want to be in.

However, the realty agents I have talked to about this generally are not receptive to this. Therein lies the problem, even though I can understand their hesitation. A "Rent to Buy" deal means the property actually doesn't sell for months or even years. Hence, the agents see this method as putting their commission potential on hold. So they decided they would rather sit on a listing for six months in hopes of getting a sale and a commission sooner rather than later.

What they don't see is the potential to place the "landlord" into another home sooner rather than later, AND setting up for the seller commission down the road when the "Rent to Buy" tenant finally completes the purchase.

Do the math. If fewer people are owning their homes, it has to mean more people are renting. Those realty agents who won't get involved with rentals are missing out on commissions - sooner. That is one short-term solution to this problem.

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