How The Housing Crisis Is Creating Inadvertent Landlords

So you heard the housing crisis was over. Maybe you read that housing values were climbing back up; maybe you saw on the news that new housing starts are growing; or, maybe a friend told you that selling a house isn’t as tough as it was a few years ago.

As someone who tried – and failed – to sell her home in 2012, I can tell you that blanket statements like those I made above are simply not true. The housing recovery is moving ahead in some locations, but definitely not everywhere, and definitely not where I live.

Case in point: My county just mailed out property tax revaluations to homeowners in my area. My property took a 20% hit; I have a friend whose house was devalued 30%. And we’re not talking about property taxes that hadn’t been adjusted since the housing crisis first appeared more than five years ago; these revaluations replaced numbers the county calculated in the summer of 2009, when the official recession was nearly two years old.

Now I understand why nobody in my neighborhood has had any success selling a house in the past few years. Now I understand why so many of the properties, once occupied by their owners, are now occupied by renters.

The housing crisis turned them into inadvertent landlords… and I may be next.

Does It Make Sense To Sell?

The average house in my neighborhood is worth about $145,000; most of us bought our homes between 2004-2007, the peak of the housing bubble. In other words, most of us owe more on our homes than they are now worth – under these new property valuations, that is – even though we’ve been paying down the principal on our loans for up to nine years. We’re officially “underwater,” one of the worst words you can hear in the housing market these days.

We were responsible. We thought the housing crisis was over. We thought things were getting better. And now… well, things seem to be getting worse.

My husband and I can still afford to sell our house, if only because we have the liquid assets to pay the mortgage company if necessary. But many of my neighbors, it appears, don’t have that option; and for those who must sell – like the family across the street that is being transferred out of town – they’re looking at a major financial hit. They can’t afford to sell.

Becoming Inadvertent Landlords

I consulted with a Realtor the other day about the merits of selling vs. renting out our house when we, too, move out of town later this year. Suppose we sold for $140,000 – under market value in our neighborhood – to a family that was able to put 20% down, giving them a loan of $112,000. Factoring in property taxes and home insurance premiums, that would give the buyer an estimated monthly mortgage payment of $735. Yet, the Realtor told me, she was able to get information on four comparable properties in my neighborhood currently being rented out by their owners. The average monthly rent those owners were collecting? $1,000.

Why sell my house – at a loss – when I could rent it out and actually make money? I fear this is the same conundrum so many of my neighbors have had to contemplate over the past year. It kind of feels like I don’t have a choice.

There aren’t a lot of statistics on how many homeowners are forced to become inadvertent landlords, but I’d guess that far more homeowners who would otherwise balk at property investment and managing a rental property are now considering it, even if they don’t want to.

How is the housing market doing in your area? Is selling a house a real possibility where you are, or are even responsible homeowners still struggling to be able to even afford to sell?

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