Foreclosures Lead To Rental Complications In Michigan

July 14th, 2008

The rental market is in confusion. More foreclosures are leading to multiple rental complications. On the one hand there is a rush in demand for rental accommodation and on the other with more houses becoming available for rent because of foreclosures, the market does not know how to react as regards the play of demand and supply.

There is another side to the rental market. Landlords have become very strict – insisting on clean credit records. This means less number of qualified renters. But the demand has led to landlords having the last say by offering fewer concessions in comparison to the previous year.

The first steep decline in rental market was noted in 2004. The years of 2005 and 2006 were relatively flat according to Kevin Dillion of Hendricks & Partners based in Birmingham. In the past year apartment owners have found an automatic increase in demand for rented accommodation because of the foreclosure crisis. Another reason is that after suffering the foreclosure marauding, few people can afford to buy houses; they have no option but to move into rented lodgings. The scenario is bleak with unemployment on the rise and strict credit standards as well as controls.

Dillion commented, “Younger people in the workforce who would have been in a good position to purchase homes are now waiting until they find a home that is a good short-term investment. Previously folks would buy a house and then shift to a better one within few years. But now they are waiting for the real estate market to stabilize – there is no knowing if prices will fall further.

Faith Gauden of Kemp Klein Law Firm says that while demand for rented living has increased so has the supply of non-conventional rental houses like condos and single-family units. “The market is mixed,” she said. If a condo is available for $600 why should one pay the same amount for an apartment in a high-rise?

In 2007 (3rd quarter) the average rent in force was $765 marking an increase of 0.9%. In year-over-year calculation the effective rents in Detroit increased by 1.9% - the highest jump since the last 6 years. By and large the demand for rented quarters has increased with many brokers working out 3 to 5 leases for each house being purchased. The owners of apartments and condo complexes are facing competition from individual house owners who are snapping up houses in the foreclosure market for less than $200,000.