Can REOs Relieve Housing Costs Pressure?

The Center for Housing Policy recently released a study that found that homeownership is increasingly out of the reach of many Americans.  The center’s 2012 Housing Landscape report found that 23.6 percent of households are paying more than half their income in
housing costs.

According to the study, the monthly median income for working homeowners’ fell from $43,570 in 2008 to $41,413 in 2010, which is about a 5 percent decrease. The median number of hours worked per week dropped from 50 to 48 between the two years, which partly explains the decrease in income.

For renters, the monthly median income fell 4 percent from $31,570 to $30,229 between the two years. Housing costs for renters also increased, up by 4 percent over the same period.

The irony of the study is that many of the renters facing a shrinking income are also facing rising rents in some markets.  As more Americans turn to renting and the rental market becomes saturated we could see the renter’s dollar buying much less.  Some analysts are even predicting that we may see a rental bubble. On the other hand, REOs offer renters significantly discounted housing and long term stability.  Renters with decent credit can lock in historically low mortgages and purchase REOs that will appreciate in value over time. But one of the challenges facing renters is qualifying for mortgages.  The mortgage industry is still cautious and the officials in D.C. seem determined to push for an REO rental program which is predicted to lock up 20 percent of the REO market.  While a temporary REO rental program may serve to offer some relief for the foreclosure backlog, the risk is that this program could further delay home purchases for certain demographics.

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