Hold the Champagne: The Foreclosure Figures Aren’t The Ones To Watch

That rushing sound you hear is the collective sigh of relief at the latest RealtyTrac numbers: foreclosures are easing…though keep that bottle corked, because there are plenty more distressed properties in the pipeline.

Still, as the housing market limps along, foreclosures are starting to change the context of homeownership valuation…and that means, how much your house is worth.

Here’s why.

Banks and investors are renting out millions of foreclosed houses. Rents deliver cash flow. And even if the investor or bank intends to eventually sell, renting out a house even for a minimal monthly charge, lets them postpone selling the house until home values are on the rise. With rentals so prevalent, and homes stuck in the sale pipeline, the new yardstick for measuring home value is linked to rent. Rents simply are a more accurate reflection of current market values.

That means that you can use current rental rates to estimate the market value of your house. Lucky for us, the feds have already done the heavy lifting on this one. The Consumer Price Index tracks rent trends; currently, rents are rising at a annual rate of 1.2% nationally. 

The CPI rent calculation is based on the “owners’ equivalent rent of primary residence.” That means, how much would it cost you to rent your own house? Track local rents via ads. When rents for homes equivalent to yours start to rise, you’ll know that home values in your neighborhood are stabilizing.

Image courtesy of Morguefile contributor gracey.

Rent Vs. Buy: The Great Debate of 2011

Everybody’s in a holding pattern.

Housing prices fluctuate, so buyers wait.

Sellers can’t sell, but they have to move.

The universal solution: rent.

It’s where you park while you’re in a holding pattern.

The other day  Trulia released a report that it’s actually more affordable to buy a house than to rent in 72% of the nation’s  cities. (The study was based on two-bedroom condos and townhouses, which represent the entry level of the real estate market,  which limits its value.)

Trulia’s argument is that the demand for rentals is driving up rental rates. That may be so for the moment, but how long will this last?

Not long. House rentals don’t sync with the usual May and October turnovers for big apartment complexes, so Trulia’s recent examination of only the units in its database doesn’t include one of the most important factors in the rental market – those big complexes. Professional managers have more flexibility in pricing individual units than do individual homeowners. 

You can bet that a comprehensive survey of rental rates will reveal that the widespread competition in the market has kept prices level or down. So do plenty of research before you calculate the  rental cash flow you might capture from your house.  One survey doesn’t tell the whole picture.