Tuesday, September 11, 2012

Lawler: Where has the increase in the number of renters of Single Family homes come from?

by Bill McBride on 9/11/2012 04:04:00 PM

From housing economist Tom Lawler:

One of the big changes in the structure of the US Single Family (SF) housing market has been the sharp increase in the share of SF housing units that are occupied by renters. Obviously, one reason is the substantial increase in the share of SF home purchases by investor attracted by the steep drop in home prices relative to rents, and who plan to rent the purchased properties for “several” years. But ... where has the increase in the number of renters of SF homes come from?

Well, a decent % of the increased number of renters of SF homes has probably come from … yup, folks who “lost” their previously-owned SF home either to foreclosure or through a short sale.

In a Federal Reserve Staff Working Paper published last May entitled “The Post-Foreclosure Experience of U.S. Households,” Fed economists Raven Molloy and Hui Shan used data from the FRB of New York/Equifax “Consumer Credit Panel” dataset to try to identify where households experiencing foreclosure end up moving to, including the type of housing. While there are challenges with using the CCP dataset for this purpose (e.g., the dataset only identifies a foreclosure start, and not a completed foreclosure, and does not explicitly identify a mortgage as backing the borrower’s primary residence), the authors make certain assumptions (ya gotta read the paper) to attempt to identify where “owners” who experienced a foreclosure start and who moved two years later ended up living. They also compare the experience of these householders to a group of “similar” householders who did not experience a foreclosure but who also moved two years later.

While the dataset limitations make it difficult to make crystal-clear conclusions, the data seem to suggest that a fairly large (perhaps as high as 60%) percentage of householders experiencing a foreclosure from 2006 to 2008 subsequently ended up renting a SF home, though a non-trivial (perhaps as high as 23%) ending up renting a unit in a multifamily structure. Not surprisingly, very few of the householders in the dataset who experienced a foreclosure and subsequently moved had a mortgage on the property they had moved into.

When it comes to analyzing the portion of the so-called “shadow inventory” that is currently occupied by owners behind on their mortgages, where these householders may ultimately live is important in assessing the implications for the overall housing market. Some folks who write about the “shadow” inventory where they include properties backing mortgages likely to be foreclosed upon seem to assume that all of the folks living in these properties will either “disappear,” or move in with someone else. That just ain’t so!

Unfortunately, of course, there are to the best of my knowledge no good (or possibly no) data on the percentage of properties backing seriously-delinquent/in foreclosure mortgages that are vacant, occupied by renters, or occupied by owners. There also doesn't appear to be any data on the condition of these properties. I don’t rightly know why government officials haven’t asked the large servicers for such data, though it’s quite possible they don’t have a clue.

There are, of course, reasons to believe that the share of the “shadow” inventory that is either vacant or non-owner-occupied has fallen over the past few years. After all, the share of completed foreclosure sales that were non-owner-occupied has been significantly higher than the non-owner-occupied share of outstanding first-lien mortgages.

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