Article Pool

Premium Article Directory!

• Home
• Submit Article
• Recent Articles
• Top Authors
• Top Articles
• Article Distribution Service

How Does a Decrease in Home Ownership Rates Impact Residential Real Estate Markets?

Posted: 26-12-2008 | Views: 195

There is a strong correspondence to the growth of the subprime lending industry and an increase in home ownership rates. This is a direct result of lending money to those borrowers previously excluded from the housing market either because the borrower did not have the downpayment, or they lacked good credit. The collapse of the subprime lending industry in 2007 and the subsequent foreclosures on the millions of subprime loans caused a decrease in home ownership rates.

Foreclosures are associated with bad credit; those with bad credit are eliminated from the buyer pool until their credit improves. Therefore, people who lose their homes to foreclosure move into a rental, and the previously owner-occupied home often enters the rental pool. (A popular misconception is that rents will go up. The number of rentals will increase along with the number of renters).

Prices fall below rental parity in conditions of decreasing home ownership rates because Rent Savers, who are typically owner occupants, are not numerous enough to absorb the foreclosure inventory, hence the decline in home ownership rates. This means a significant number of the houses due to hit the market due to foreclosure will be purchased as rentals. This is the Cashflow Investor support level.

Prices often fall below fundamental valuations at the end of a speculative bubble due to short-term supply and demand imbalances. If this occurs at the bottom of the price cycle of the Great Housing Bubble, the measures of house values may all be lower than the projections and estimates.

Rate this article:

Total Vote: 2, Rating: 3/5

Print | Send | Publish | Feedback Author | Tags

Comments (0)
Post a Comment