Can REOs Relieve The Affordable Housing Squeeze?

According to the Institute for Housing Studies, the number of quality but affordable rentals available to families with average and below average wages is on the decline.  The housing crisis has had the unexpected side effect of putting a squeeze on affordable rental properties which weren’t prevalent in many areas even during the housing boom.  According to a study conducted by the institute, an apartment/house is considered affordable when a household pays no more than 30 percent of their income on housing. 

"The statistics in Out of Reach show the disconnect between what it costs to afford decent rental housing in the U.S. and what low-wage employment actually pays," researchers wrote in a press statement on the report, "with more families turning to the rental market and job losses numbering in the millions, the struggle to find affordable housing has become even more acute."

The volume of renting households expanded by 2.2m during the last two years, while the volume of home owning households contracted. The unemployment rate jumped to 8.1% during the last 12 months from 4.8%, and holds at 12.6% for the segment of the population without a high school degree, according to the report.

Because of the nature of renting, there is always a risk that the cost of rent will increase astronomically in comparison to wages.  This is why owning a home is a better long-term solution.  The current surplus of REO properties offers an opportunity to encourage lower income families to invest in homeownership.  But the step into homeownership should be accompanied by sensible mortgage loans and affordability formulas that take into account the real way that people live.  In other words, low-income individuals purchasing REOs or other properties should only buy what they can truly afford after taking into account all of their expenses and the necessity to save.

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