Renting Markets During a Recession
Abby and I, along with several other soon-to-be married couples, have found it difficult to find affordable housing for the next year. As far as I know, of the several places that Abby and I applied to, the apartment that we got was the only one that became available.
The explanation for this is not that Greenville doesn’t have the type of housing that we’re looking for. Rather, the places to which we applied all said that far fewer people are moving out of apartments this year, so they have fewer vacancies.
At first, I thought that explanation was consistent with the recession. People are less financially secure, and so they aren’t buying homes or moving into bigger apartments, or people who have lost their homes are now renting. That explanation views cheap apartments as a substitute good. The demand for substitute goods, unlike the demand for regular goods, rises instead of falls during a recession. Thus, the quantity demanded for cheap apartments should rise, and they should be scarcer.
But I’m puzzled, because I’m not sure that explanation fits the facts. The problem is not just that more people want to rent cheap apartments, but more specifically that fewer people are moving out of apartments. Is that because those people can’t afford to buy a house? That doesn’t seem to fit, because declining prices in the housing market plus low interest rates thanks to the Fed makes this a good time to buy a home. Maybe the problem isn’t that people are finding it more difficult to buy homes but that they are finding it more difficult to find jobs that permit them to buy homes.
Thoughts?
Posted 13 Mar. 2008 at 12:34 am | Permalink
It is because they can’t afford to buy a house because:
1. The loan underwriting requirements have changed drasticaly during the last year. To get a loan, one has to a higher credit score and/or a bigger down payment and/or private mortgage insurance.
2. Have to have a higher qualifying income because there are no more low “teaser” rates that allow a lower income to qualify for a loan (and then ratchet up in a year or two to an unaffordable rate). In addition, no interest and negative amortization (your amount owed is bigger each much) loans, have fallen out of favor also.
3. House prices in the Upstate have probably not dropped all that much because here wasn’t much of a “bubble” here. Prices in my area of town haven’ gone up more than inflation for the past 7 years from what I can tell by looking at neighborhood sales (and property assessments).