There has been a dramatic shift from homeownership to renting over the last decade. Back in the 1950s owning a home was the cornerstone of the American Dream, but has since become part of a nightmare. Between dropping home values and an increase in foreclosures, many families simply find renting less risky and more affordable than owning a home. The question then becomes: did owning a home in a risky market force the increase in renting, or has the increase in renting contributed to the foreclosure crisis?
The Chicken or The Egg?
While there is no doubt that many families have been forced into renting due to mortgage debts and unaffordable home prices, we can’t be sure that a failing market is where it all started. In Long Island, single family homes are considered a thing of the past. Once one of the first American Suburbs, Long Island displayed street after street of small family homes. Now, more Long Island homes are facing foreclosure while condos and apartment buildings are popping up around every corner. Considering the fact that lenders would likely lose money through home foreclosures, why is it that only community properties aimed at renting are getting funding and attention from lenders?
In short, it boils down to federally insured mortgages. Lenders have become less afraid of the foreclosure process when the mortgage they fund is backed by federal guarantees. This means that if the homeowner defaults and the lender pursues foreclosure, they are able to recoup a lot of their lost money through federal insurance. Further, many of these lenders then turn around to sell the property to investors looking to buy up properties for the purposes of turning them into rental units. It seems as though the lender is taking the home only to turn around and sell it to someone who may eventually rent it back to the person who lost it to begin with.