By Paula Dwyer
The Obama administration yesterday took a major step toward pulling the housing market out of its nosedive. The U.S. Treasury notified institutional investors that it will entertain ideas for buying and converting foreclosed homes owned by Fannie Mae, Freddie Mac and the Federal Housing Administration into rental units.
Jack Reed, the Democrat who represents Rhode Island in the U.S. Senate, for many months now has been calling on the U.S. to rent out its burgeoning stock of repossessed homes. Bloomberg View also suggested doing so in a July 26 editorial.
The aim is to shrink the inventory of government-owned homes -- about 250,000 units and growing. Doing so offers several beneficial side effects, including getting the government out of the home-ownership business, hopefully without hurting the resale value of those homes.
By removing foreclosed homes from the market, the U.S. can help stabilize national housing prices. (Foreclosed properties drag down existing home values even beyond the neighborhoods where they are located.) The government move could pull much-needed private money into the housing sector. And once homes are sold, institutional buyers would need to renovate units for the rental market, thus creating jobs and driving down unemployment.
Now that more and more households are renting instead of buying, all of this could take some of the pressure off rapidly rising rental prices. In Rhode Island, for example, the average monthly rent for a two-bedroom apartment has increased 54% since 2000, according to Reed.
There are countless ways the federal government could design a program, thus the Aug. 10 "request for information." For example, it could emphasize letting previous owners remain in their properties as renters. It could encourage buyers to let current renters become owners through lease-to-own deals. Or it could call on institutions to focus on markets with the strongest rental demand.
What do you think the government's objectives should be, and how would you design a program to meet those goals? Hit the comment button and send us your thoughts. The best ideas may very well find their way into our next editorial on how to fix the housing market.-0- Aug/11/2011 18:10 GMT