Economic crisis is good news for renters

Wednesday, October 15, 2008 | 10:00 a.m. CDT; updated 1:07 p.m. CDT, Wednesday, October 15, 2008

The NASDAQ charts are facing down like the corner of my mouth. Retirement funds are liquidated. Crime rates will rise. I have to open a new credit card to get that second bag on an American Airlines flight. But there is good news: Buying a house or apartment will be cheap. Renting will be cheaper. From the coasts, newspapers report:

“Landlords bewail.” (That’s a first)


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“Trophy apartment market might have been wounded.” (No sympathy here)

“Vacancy rates on the rise”  (More choices, less dollars)

Super-zealous developers have been balloon-framing their way to riches over the past half-decade, and Americans have been more than happy to take up banks on their laissez-faire lending. Now, buyers with deep aspirations and short credits can't pay back on that $300,000 property or apartment with Sub-Zero fridges. Houses get repossessed and landlords or mortgage companies are stuck with a lot of land.

In the Big Apple, the vacancy rate is up to 9 percent. Double-digit increases in rent plateaued and are now sliding. The L.A. Times reports that since “distressed properties will soon dominate the market,” prices are going the same way as the stock market. House prices across the country have dropped 20 percent since peaking in ’06, and according to Moody’s, are expected to fall another 10 percent.

The house that homeowners used against their debt is now worth less than the credit line. Another foreclosure leads to another cheap house on the market, brings down the overall value of houses, leads to another foreclosure, brings down the overall value. Landlords who say rent's falling a “little” are playing their cards close. Companies that took over foreclosed homes need to pay their own bills, and landlords who own brand-new apartments and owe investors will also need to cut deals. Richard Green, director of USC's Lusk Center for Real Estate, said to the L.A. Times, “prices are likely to continue to drop even as sales pick up.”

It’s bad news for many — homeowners looking to sell, real estate companies, the Steel Framing Alliance — but good for buyers with solid credit and short-term renters. Columbia’s housing market is less speculative than boom areas like New York, California and Florida and Julie Wesley of House of Brokers Realty says that while sales are down for her, the average and median prices remain the same.

Local ads on Craigslist suggest lower expectations on the part of owners:

“Nice unit … reduced in price to find a good tenant fast :)”

“Price is negotiable … . If this was June, I would ask $750. Make me a hero with my property manager.”

“Would consider short-term lease.”

“$645 Solution to the Economic Woes."

“Take advantage of a one time situation that will not occur again. Time is running out before we put our rents back to market levels and our free month offer is gone forever.”

I’m skeptical of this overambitious pitch, and the free month / $645 kicker is the new market level — otherwise it wouldn’t be offered. Moody’s co-founder Mark Zandi predicts “recovery and price growth” in two years, which may allow for a spate of generous renting opportunities before then.

Cheap living, though: not entirely great. Foreclosures and arid credit also lead to deserted houses, stalled construction projects and abandoned gentrification. No more living above a “cute, little boutique” on the corner of a trendy street. No more pleasant foot traffic and small talk. Instead, I have an increased chance of bumping awkwardly against two people arguing about a missing radio and pointing to the pawn shop downstairs. (“Hi...  uh, excuse me.”)

A New York Times article reveals the chain effect in Harlem where large donations (by, among others, Washington Mutual) are on hold. This support nourished community organizations, the Apollo Theater and the up-market movement in general, and now the givers are being taken over.

It's counterintuitive to think that with rising unemployment rates, crime won’t find more motivation. At least that stolen rent check will be lighter.

Greg T. Spielberg is a graduate student at the Missouri School of Journalism and a former assistant city editor for the Columbia Missourian.

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Emily Sussman October 15, 2008 | 9:21 p.m.

Good column, GTS— there sure are an awful lot of dead-stock, cookie-cutter condos languishing in town. (And a lot of delusional developers crying into their coffee...)

Having said that, though, I do think there's a largely unfulfilled market for high-density "top-of-shop" housing in Columbia's downtown district, and that people would be willing to pay a premium for it—or at the very least, extremely competitive rents. (Me, for instance.) Gas is money, time is money, and living right downtown saves both. The payoff to an individual who works in town would be substantial in the long term.

And just a side note: I'm currently looking for a new place with a couple of real estate agents whose eyes bug out in horror whenever I remind them that I don't need four bedrooms, a smoothly paved cul-de-sac and a safety radius of 50 feet from my nearest neighbor.

(Report Comment)
Greg T. Spielberg October 16, 2008 | 10:44 p.m.

NYT article: "Home Prices Seem Far From Bottom" — Oct. 15.

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