IHB Blog: The right to rent?

[irvinehomeowner]

Great article on the IHB today:
http://www.irvinehousingblog.com/bl...-would-flatten-the-california-housing-market/

He's referring to an article on Housing Wire that talks about new legislation being proposed:
http://www.housingwire.com/2010/09/22/right-to-rent-could-change-the-nations-foreclosure-crisis-cepr

The main excerpt:

The report dissects the benefits of a drafted bill, H.R. 5028, also known as The Right to Rent. Under the legislation, homeowners entering the foreclosure process would be able to occupy their homes for up to five years, while paying rent to a lender. Rent would be based on fair market price as determined by an independent appraiser and adjusted annually.

While I think this will have a hard time going through... the effect it could have creating downward pressure on home prices to be even with rental parity is apparent.

However,  I'm not sure how effective that will be in premium areas like Irvine where high down transactions already put loans (or lack of them) below rental parity thus relying on the low end or outliers to create more pressure. At the same time, this may cause havoc with the first time home buyer market where typically downs are low and mortgage payments are higher than rents in exchange for the "pride" of ownership.

And I would think that the only way a bank would accept such a provision is at their discretion... meaning they have the right to decide to foreclose or rent back.

 

[gaab]

I'm still thinking about this but my first impression is that in theory it could make sense and I also see the downward pressure this could put on pricing in some markets.   

I do wonder what this would do to new purchases and the resulting mortgage limits / down payment requirements.  For example of what I mean, if rent for a 4br/3ba SFR in a market was $X / month would the lender not provide a mortgage if the resulting payment would be greater than $X, would there be an allowance for taxes (like propert tax, special taxes, HOA dues, etc call it $Y) to increase this amount (so the max lending would be a monthly payment of $X + $Y).  This $X amount of course would be greatly influenced by mortgage rates etc.  I'm currently of the opinion that in the short-term this could have 2 impacts (1) increase the requirement for larger downpayments (where would this money come from for the avg buyer?) OR (2) increase the number of days a home is on the market until it fell to rental parity.

If implemented, this would clearly be deflationary, so even all cash buyers may decide to wait for the inevitable drop before buying (creating more downward pressure).

Those that placed a large amount of cash down, would of course, not have any pressure to sell, but, the prices of the homes around them would DROP making their own home cheaper, creating a paper loss UNTIL rents rose enough to return prices to previous levels.

just my 2cents