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Decade After Housing Peaked: Owners Richer, Renters Hurting

Rental Market News

MOUNT PLEASANT, South Carolina — It’s a troublesome story playing out across America in the 10 years since the housing bubble peaked and then burst in a ruinous crash: As real estate has climbed back, homeowners are thriving while renters are struggling.

For many longtime owners, times are good. They’re enjoying the benefits of growing equity and reduced mortgage payments from ultra-low rates.

But for America’s growing class of renters, surging costs, stagnant pay and rising home values have made it next to impossible to save enough to buy.

The possible consequences are bleak for a nation already grappling with economic inequality: Whatever wealth most Americans possess mainly comes from home equity. An enlarged renter class means fewer Americans can build that same wealth and financial security.

Nearly two-thirds of adults still own homes. And some who rent do so by choice. Yet ownership has become a more distant dream for the many Americans who still regard it as a route to prosperity and pride. The problem has become especially severe in areas that offer the best job prospects as well as those that have been battered by foreclosures.

“It doesn’t paint a pretty picture,” said Svenja Gudell, chief economist at Zillow, the online real estate database company. “You’re really blocking out a group of buyers from owning a home. They’re truly living paycheck to paycheck, and that does not put them into a good position to buy.”

Joe Fabie and his wife face just such a bind. They moved to Mount Pleasant, just over the bridge from historic Charleston, South Carolina after law school in Pittsburgh. The suburb’s pastel-hued harbor vistas, tin-roofed houses and Spanish moss-adorned live oaks were enchanting.

But the rising rent on their one-bedroom apartment — more than for their three-bedroom rental in Pittsburgh — made it impossible to save enough to buy a home. With their rent going up again, the couple moved to a cheaper suburb in hopes of repaying their student debt and saving for a starter home.

“The best school district is Mount Pleasant, and we would like to be there,” said Fabie, 27. “But if you’re lucky you can get some beat-up homes for around $300,000.”

An exclusive analysis by The Associated Press of census data covering over 300 communities found that two major forces are driving a wedge between the fortunes of renters and homeowners:

— Historically low mortgage rates have enabled homeowners to refinance and shrink their monthly payments, thereby reducing a major household cost. The median annual mortgage expense for a U.S. homeowner has dropped by $1,492 since 2006.

— A combination of foreclosures and new college graduates crowding into the strongest job markets has raised demand for rentals. Renters accounted for all the 8 million-plus net households the United States added in the past decade. Home ownership has dipped to 63.5 percent, near a 48-year low.

That demand has driven up rents, which in turn have prevented or delayed people from buying first homes.

The government says if you spend more than 30 percent of your pretax pay on housing, you are “cost-burdened.” The total number of renters in that category has jumped more than 30 percent in the past decade, to 21.2 million. Half of all renters are now considered cost-burdened, compared with just 24 percent in 1960.

These trends are reflected in how and where Americans live. Suburban cul-de-sacs built for owners are now tilting toward rentals, especially in such areas as Orlando, Las Vegas and Tampa, where the bubble and crash were especially intense.

After the bust, investors bought distressed houses in these communities at sharp discounts and rented them out. Many of the new tenants belong to Generation X households — ages 35 to 51 — that began renting after the crash, according to the Harvard University Joint Center for Housing Studies.

Rents have also jumped in areas that absorbed many young college-educated job hunters. These workers have increasingly clustered in areas, including Boston, San Diego and Washington, with abundant jobs but high housing costs. The result is delayed home ownership for a population group that historically had the means to buy.

The AP analysis also found a contrasting belt of stability across the Midwest where the housing boom and meltdown had little effect on homeownership. Rates of ownership remained relatively stable, for example, in Minneapolis, St. Louis and Kansas City, Missouri, where starter homes are comparatively affordable.

But the transformations have been vast in other areas, particularly in smaller suburbs where much of the country lives.

Both before and during the housing boom, farmland around the country was bought cheaply and developed into houses, schools and shopping plazas — a build-out that ignited homeownership. Now, in a twist, many of those cul-de-sacs are occupied by renters living in homes whose former owners lost them to foreclosure.

To see just how drastically the foreclosure crisis transformed certain neighborhoods from the domain of owners into blocks of rental properties, consider the Orlando suburbs.

The shift has been vivid over the past five years in the Piedmont Park neighborhood of Apopka, a former agricultural hub now crowded with housing developments. Where one in 10 homes was once a rental, now more than a third are. Many are owned by Wall Street investment firms that bought them out of foreclosure at deep discounts.

Erika Pringley, a 42-year-old police dispatcher, rented with her husband a three-bedroom ranch house this year. Through a string of subsidiaries, the house is owned by Blackstone, the world’s largest real estate private equity group.

Previously, the house had been owned for eight years by Damian and Eva Elizondo, who lost it to foreclosure in 2013. The Elizondos owed nearly $258,000 on the home; the investment firm bought it for roughly $100,000.

At that price, the equivalent of the monthly mortgage would be under $500.

Pringley’s rent: $1,310 a month.

Pringley, who works for the Florida Highway Patrol, hopes to buy a home — if she can emerge from debt.

“I’m kind of tired of paying for somebody else’s property,” she said. “At my age, I want to own something that’s my own, have something that’s my own.”

Making that leap to ownership is becoming harder for typical Americans. The average first-time buyer makes $84,559, much more than the average household income of $75,037 — the widest such gap in over 15 years, according to an analysis by the online housing marketplace BuildZoom.

The residue of the housing bubble also remains achingly visible in Las Vegas, where the gamble of no-money-down, interest-only mortgages ignited a rush of construction in 2006 that led to mass foreclosures.

Vegas recovered slowly. Tourists returned to the casinos. Population growth picked up as retirees flocked to the Nevada desert. Ikea opened its first Las Vegas outlet, not far from where 8,000 apartment units are planned for construction.

Still, thousands of houses are stuck in the foreclosure pipeline, controlled by banks, and could flood the market should prices recover enough. Nearly half of Las Vegas now rents, compared with less than 40 percent a decade ago.

This closes one of the paths to accruing wealth. On average, homeowners have a net housing wealth of $150,506, according to figures soon to be released by the Urban Institute’s Housing Finance Center. That average climbs to $229,296 for those who own their homes free and clear, making the house an asset that provides a crucial financial cushion.

Elsewhere, rising prosperity is the reason why renters are stuck.

Just as the economy tanked nearly a decade ago, millennials began flooding the job market after college and graduate school. The most educated tended to cluster in cities where jobs were still plentiful, such as Boston, San Francisco, and San Diego. They now pay historically high rents — a result of too few apartments to meet demand and too few renters with enough savings to buy.

Over the past decade, the number of under-35 college graduates in Washington rocketed up more than 50 percent to nearly 100,000. Bistros, boutiques and posh gyms opened along the once-downtrodden 14th Street corridor. Builders erected condos and rehabbed old buildings into apartments.

All this has created a paradox in Washington: Incomes are rising — normally fuel for home buying — even as homeownership is declining. Average household income in the district has climbed an inflation-adjusted 8.7 percent since 2006 to $104,615, according to the Census Bureau. Yet ownership has dipped to 41.6 percent, from 45.8 percent.

Ultra-low mortgage rates have enabled Jim Phillips, 51, to capitalize on the influx, buying condos and renting them at a profit.

“With more and more younger people moving into the city, it’s creating an opportunity for me,” Phillips said. “So far, I have two condos. My goal is to buy, basically, one a year.”

The opportunities are there for people who have money — or those who are already homeowners.

Americans have refinanced $9.4 trillion of mortgage debt after the bubble burst, according to the Mortgage Bankers Association. New mortgages at under 4 percent interest have freed up thousands of dollars annually for households in several metro areas, according to Census figures.

Alpana Patel and her husband landed a house in San Marcos, California, about 35 miles from San Diego, in 2007. To buy their $845,000 home, they took out an interest-only mortgage with an adjustable rate starting 6.7 percent. Including property taxes and insurance, their monthly costs totaled about $6,000.

The couple kept paying the mortgage through the housing bust before refinancing in 2013. Their new mortgage charged just 3.75 percent, which shrank their monthly payment by $2,000 and allowed them to build equity.

“We’re actually able to pay down our mortgage, because initially we were just paying interest only,” said Patel, a 42-year-old real estate agent.

The couple eventually decided to rent out that house at a price that covers nearly all their mortgage costs and to buy a second, larger home where they could live.

“Now, we’re able to own two homes because we hung in there,” Patel said.

What the housing recovery presented was a rare opportunity to capitalize on mortgage rates that had never dipped so low in anyone’s lifetime. But even while millions of renters struggle to save enough to buy, many such homeowners have never had it so good.

“They’re basically taking advantage of the changing economics of home ownership in ways that renters can’t,” said Andrew Jakabovics, senior director of policy and research at the affordable housing nonprofit Enterprise Community Partners.

——

AP writers Meghan Hoyer in Washington, Mike Schneider in Orlando, Florida, Alex Veiga in Los Angeles and Jim Salter in St. Louis contributed to this report.

$1,000/Month Rent Increase In Seattle – What Really Happened

Free lunch is over’ for tenants: $1,000 hikes hit some older Seattle rentals
By Mike Rosenberg
Seattle Times business reporter

Hoping to strike while the housing frenzy is still hot, some eager Seattle-area landlords are enacting supersized rent increases all at once — eliminating some of the region’s last remnants of affordable housing.

In a tiny rental house pushed up against the freeway in Wallingford, landlord Bruce Wilson is looking for his piece of a housing boom that has seen prices zoom sky high across the city.

Wilson said he realized he’d been undercharging a pair of retired nurses who have been living there for the past eight years with rent at $1,460 a month. His solution? Jack up the rent by nearly $1,000 a month, all at once.

Laws for rent increases
Seattle:Landlords must give 60 days’ notice on cost increases of 10 percent or more

Seattle: Landlords now can’t raise the rent on units that don’t meet basic maintenance standards

Rest of Washington:Landlords must give 30 days’ notice on rent increases

Rent control:Illegal under state law

Source: Seattle Times research

“The free lunch is over with,” said Wilson, who said he looked only at the cold, hard math of the situation. “This was a business decision.”

Tenants Peggy Haug, 68, and her wife, Juanita Merrifield, 74, said they can’t afford the 64 percent rent hike on Social Security and their retirement nest egg. Their pleas for a smaller, phased-in rent hike were rejected.

“We couldn’t believe it. All my friends have just said that it’s not right,” Haug said. So now, they’re getting ready to move out.

In Tukwila, Reginald Wilson saw his cheap $850 townhome rent go up an extra $1,085 in April after a local investment company bought the complex and began fixing it up. Now he doesn’t know whether he’ll be entirely priced out of the area, which has traditionally been more affordable than most of Seattle and the Eastside.

“These people are all about the investment,” said Wilson, an out-of-work security officer who’s also looking for a new place. “There’s no help for people. They can do whatever they want.”

Huge hikes all at once
While much of the focus on Seattle’s rental crisis has been on steadily rising rents — an extra hundred bucks here and there — there are a small but seemingly growing number of landlords deciding to enact huge rent increases in one fell swoop, often forcing out longtime tenants.

Older, traditionally more affordable units are being hit the hardest since new buildings typically open with higher rents right out of the gate.

Property owners say they’re just pushing cheaper units up to around market rate. But those unable to afford the sudden, drastic cost change find themselves struggling to find an affordable alternative.

“It’s been heartbreaking to hear,” said Liz Etta, executive director of the Tenants Union of Washington State, which has tracked a rise in large rent hikes recently.

Because Seattle has no rent control — unlike many other pricey cities, such as New York, Los Angeles and San Francisco — landlords can raise the rent as much as they want as long as they provide 60 days’ notice in the city, or 30 days outside Seattle.

Figuring out exactly how widespread such large one-time rent hikes have become is tricky because unlike general rent prices, no one keeps data tracking that specific issue.

But those working to help tenants say there’s no doubt the phenomenon is growing. The nonprofit Solid Ground has documented a rise in distressed renters calling their hotline to report getting slapped with oversized rent increases that typically amount to a cost bump of 30 percent or more.

From 2012 to 2014, the nonprofit received an average of 25 calls a year from people in King County complaining about sudden large rent hikes. Last year, that figure more than tripled to 84, and it’s on pace to grow even higher this year.

Trish Abbate, one of the tenant counselors at Solid Ground, found this out firsthand a year ago when her landlord posted a note on her affordable studio in North Seattle: Her rent was going up 54 percent. She wound up moving out.

“There’s so much money to be made here that it’s just a matter of time before a landlord is like, ‘You know what? I could get $350 more a month, so why not?’ ” Abbate said.

The anecdotal reports of extreme rent hikes certainly match up with the overall trend in rental affordability. Seattle has in the past year been consistently featured on various top 10 lists for cities with the fastest-rising rents. Earlier this month, apartment research firm Yardi Matrix said Seattle rent has grown 12 percent in the past year, the most of any city in the country and double the national average growth rate.

Zillow now pegs the typical Seattle rent across all home types at $2,480 a month, up from $2,220 a year ago and $1,840 three years ago.

At the Wallingford house where Haug and her wife were hit with the $940 rent increase, they shared their story with friends on Facebook and received plenty of replies about how their rents, too, were soaring.

“I know that there are a lot more people in the boat like me,” Haug said.

Wilson, the landlord, said he consulted with experts and checked real-estate sites, concludingthe fair market rent for the house on Northeast 54th Street was much higher than he was charging.

He settled on a new rent of $2,400 a month, which is about what Zillow’s algorithm estimates the property could rent for. Wilson said he didn’t consider phasing in the price increases or accepting a lower counter-offer from Haug, citing years of steady rent.

“I put my head in the sand for a number of years,” he said, adding that he anticipated a negative reaction to his decision from the public. “You’re getting persecuted for doing the correct thing from a business standpoint.”

At the Tukwila complex where Reginald Wilson got a similar $1,000-a-month rent hike, new owner DSB Investments has been busy sending in crews to paint the building, install marble countertops, spruce up fireplaces and make other significant changes. Wilson said about a dozen of the 15 renters in the Willow Creek units on Southcenter Boulevard have moved out since the big rent hikes were handed down two months ago.

Now he doesn’t know where he’ll end up.

“The rent everywhere is horrible,” Wilson said. “When I started looking for places, I’m like, ‘Are you for real?’”

Josh Alhadeff, president of DSB, said the previous landlords let the complex run down over the last 35 years and kept the rent steady just to ensure tenants would stay and the rent checks would keep coming.

“If all your neighbors are paying (higher rent) and you’ve kind of had that one lucky landlord that let you squeak by — you never got the rent increase as the neighborhood gentrified around you — eventually, that catches up,” Alhadeff said.

Alhadeff said the company’s goal is to fix up the old townhomes to create affordable housing for future decades. That strategy still results in cheaper rents than construction of the new, often luxury apartments springing up across the region, he said.

Rent control no panacea
Most rental property managers seem to be electing to phase in more moderate rent increases to keep the tenants in place, as evidenced by the average annual rent hike hovering around 10 percent throughout the last year or so. Landlords can lose potential revenue when the property is sitting empty and it can be costly to market a unit for new renters.

To combat outsized rent increases, tenant advocates have been pushing in Seattle and at the Capitol to repeal the statewide ban on rent control, but that plan is no panacea.

While residents in cities with rent control are protected from huge rent hikes in theory, in reality those laws can have limited impact because they prevent only big increases for existing tenants. To get around this, some landlords in pricey cities try to evict longtime tenants so they can install new renters at a much higher rent.

In rent-controlled San Francisco, for instance, the number of evictions has soared 70 percent in the last four years as rents there have skyrocketed.

But the situation doesn’t always end badly.

Haug, who initially feared she and her wife would have to move far outside Seattle to find something cheap, learned last week they’ll be able to rent another affordable home in the city starting in August.

It’s only because a friend she knows through church was willing to rent it below market rate, said Haug, who says they were lucky.

“It was handed to us,” she said.


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