rockin'robin

(Reuters) - One night last spring, David Hall returned home to his studio apartment outside Boston to learn that his monthly rent had spiked from $725 to $995.

It would be much cheaper for the maintenance manager to buy a nearby starter house than to stay put. But his mortgage broker told him that while his credit score was good, it was not high enough to meet banks' tough standards, he said.

"I know if I walk into a bank, they are just going to laugh at me," Hall says. "So I'm stuck."

He is not alone.

Five years after the housing bubble burst, the United States is in the midst of a housing affordability crisis. Home prices have fallen a third from their peaks, but many Americans cannot benefit because they cannot get a mortgage.

With credit tight, many consumers have no choice but to rent. Others who can afford to buy are also renting, because they view real estate as a lousy investment. As demand has increased, rents in some cities have jumped by double-digit percentage rates.

Rents rose 1 percent to record highs in the second quarter from the prior period, according to real estate research firm Reis.

Just 4.7 percent of U.S. apartment units are vacant, the lowest level since the fourth quarter of 2001. Low vacancies are likely to push rents even higher, Reis said.

People with lower incomes have long struggled to find affordable housing, but many in the middle class are now hurting, too.

Most personal finance experts recommend allocating no more of 30 percent of family income to housing, but nearly 40 percent of Americans are paying more than a third, according to the U.S. Census Bureau's American Community Survey.

In New York City, one-third of households are spending more than half their pay on rent.

"We have falling incomes, rising rents and nothing but substantial upward pressure on those rents," says Chris Herbert, director of Harvard University's Joint Center for Housing Studies. "And nothing in the cards suggests it will turn around anytime soon."

PARADISE LOST

Today's housing market is a buyer's paradise.

It is now cheaper to buy a home than it is to rent in virtually every major city in the United States, according to John Burns Real Estate Consulting.

But for many in the renter class, buying even a modest home is impossible because financing is so hard to secure.

Lending for home purchases hit a 12-year low of $404 billion last year, down from $1.4 trillion in 2006, according to trade publication Inside Mortgage Finance. That means mortgage credit is tighter than it was even before the housing boom.

This year, lending is expected to drop even more, according to Inside Mortgage Finance.

A recent Morgan Stanley research report states that the average credit score is 762 for a consumer securing a mortgage backed by government-sponsored enterprises like Fannie Mae. But 65 percent of Americans have scores below 750.

In other words, a disproportionate number of mortgages are going to people with unusually good credit. A perfect score is 850, and anything below 660 is considered subprime.

"Basically, access to credit for borrowers with less than spotless credit is severely limited," the Morgan Stanley report states. "A good chunk" of U.S. households are "cut off from mortgage credit on this count alone."

For people who can get mortgages, rates are at their lowest levels in several generations. Add that to the cheap home prices, and houses are at their most affordable since at least 1970, when the National Association of Realtors began tracking this metric.

Normally, high affordability translates into higher sales. And the housing market is showing some signs of recovery - the S&P/Case Shiller index of home prices had its third consecutive monthly gain in April. Last week, the NAR said pending home sales had matched a two-year high in May.

But any recovery has been tepid. The NAR said existing home sales had declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April. That is 34.2 percent above the July 2010 bottom of 3.39 million, but far short of the 5.5 million pace that the NAR considers healthy.

"Home sales have just barely picked up from their cyclical lows, and that's because there are still constraints to borrowing," said Moody's Analytics economist Celia Chen.

Part of the lender pullback has to do with the stringent regulations Washington put in place after the housing crash, says Michael Fratantoni, vice president of the Mortgage Bankers Association. These rules put more of the losses from bad mortgages onto lenders, instead of investors or government-sponsored enterprises.

Then there is the climate of unstable home prices and a shaky labor market: "There's a risk that even a borrower with moderately good credit may fall behind," Fratantoni says.

Consumers who cannot buy must rent, and that is where many Americans are feeling the pressure. A rent index from real estate data provider Zillow shows year-over-year gains for 70 percent of the U.S. metropolitan areas, while its home value index rose in only 7.3 percent.

In the 12 months ended in May, rents rose 14 percent in San Francisco and 11 percent in San Jose, California, according to Zillow. Last year in Minneapolis, they spiked 11 percent even as home values sank 8 percent.

Only a few years ago, landlords in cities like San Francisco and New York were tossing in a month or two of free rent, sometimes with parking, to lure tenants into signing leases.

Today, applicants are showing up at apartment viewings with copies of their unblemished credit reports and letters of recommendation from bosses and prominent friends, in the hopes of snatching up a place to rent.

Equity Residential, one of the biggest apartment owners in the United States, has more renters with high credit scores than ever, Vice President of Operations David Santee said on an April conference call with analysts.

Demand for apartments is also higher because many potential buyers in their 20s and 30s want to stay flexible - home ownership is not as attractive as it was to earlier generations.

Still, plenty of people would prefer entry into the ownership class.

Last spring Rosemary Wynder, a physician order specialist, found her rent shooting up. She decided to buy a house.

But a bank glitch in February had caused one late car loan payment, dinging her credit score. The Utica, New York, resident has been unable to straighten out the mistake, and five banks have rejected her for a mortgage.

"I've been crying," says Wynder. "I've been praying."

Americans squeezed by higher rents, tight credit - Yahoo! News

Deafness

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deafdrummer

That man in the article has another option with a series of steps.

1) Get the hell out of the city he's living in.
2) If possible, transfer to another position in another city the company has a location in, if the cost of living is lower.
3) Instead of renting apartments, try buying your own travel trailer and live out of that.

I am considering one or all of these options this fall. Rent is going up because no one wants to buy right now, or if they do, it is for the well-to-do people who have more of a stake in staying in one place for a long time. 7 years this fall is the longest I've stayed anywhere since 1984.

I have lived in travel trailers before, so I know what is expected in those conditions. I'm hoping to hell that markets cooperate this fall so that I can make my move, otherwise, I have to bend over for another year.

There is another option that is more radical. Move your stuff in storage, live in your vehicle, and clean up daily at your location's shower facilities, if they have it. I have less than two month to decide what to do. If this kind of rent jump happened to me, I'd be headed to the apartment locator RIGHT NOW. F* this rent jump. Greedy bastards.

You're probably going to say, "What if all rents are this high now?" Screw it. I'm moving. I have the savings to buy my own home (travel trailer) right now, BUT I don't want to go there yet. I'll wait until later in the year when my company has another position open near the store I want to go to. I will be going to visit family later in the year, and there will be a LOT OF TALK about this to see if we can make it happen.

Foxrac

The demand for apartments have went UP so that why we need build more apartments to meet demand needs.

High demand, low supply = higher rent

Lower demand, high supply = cheaper rent

Life in Alabama sucks so I'm moving back to CA as soon as after college.

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dereksbicycles

I hope that rent didn't go from $725 to $995 in current lease. Why was the tenant surprised? If owner simply told the tenant that in next lease, your rent will go up to $995, then owner would plan. It's illegal to charge more rent in current lease.

Jane B.

Not sure what is common where; but twenty odd years ago in a small town in Southern Illinois virtually all the apartments owned by the company I was with were month to month rather than leases. Thus changes were based on our changing costs of ownership.

LoveBlue

I've been blessed in that my landlord has not raised my rent in the almost 5 years we've been in the house. We have a verbal agreement that I will buy the house from him and I have been pre-approved for a mortgage already though that was last fall when we first talked about him selling me the house. As long as interest rates stay low, I should be able to save about $125 or more a month (this includes all the costs included in the mortgage payment). There are pros and cons to renting and owning, so I'm in no hurry to buy the house.
He needs to fix somethings (that I've asked for, but are not necessary to be done for renting purposes) but he's having financial difficulties himself (which is why he wants to sell the house), so I think that is why it's taking so long for us to move forward on the sell.

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Reba

You'd best get that verbal agreement in writing.

Reba

Where did you live in California?

I love California but that is one very expensive state to live in.

Reba

Yeah, living in an RV isn't bad, especially for a single guy, like in the article. I don't know about the Boston area, though. Nice long-term parks for RV's near his work place might not exist.

We know many missionary and evangelist families who live in RV's, traveling cross country, and that's with kids and pets. Some are huge, with bump-outs, and quite nice.

The best deal is to buy a used one. Some of them have very few miles on them, in very good condition.

Some parks don't let people live in them long term. The campsite that we use is for military people, and it's on a lake. Very nice. Some retirees move there permanently, although technically, they can't stay there permanently. What they do is, every six months or so, they pack up and go away for a week. Then they come back. That satisfies the management. The "permanent" section is like a little village.

LoveBlue

Like I said, it doesn't matter to me whether I rent or buy the house. He's a friend of my late husband so I think we're both trying to have things be a win-win for both of us. Seeing as he wasn't able to sell his other property (across the street from me) and now has it back up for rent, I think he'll be happy for me to buy my house at his asking price (though we did not verbally agree on that yet).

I have faith that things will work out and at the right time for both of us.

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authentic

Not true.

News Headlines

1. Hawaii
2. Alaska
3. California

Food, clothes, house taxes are cheaper here in California than DC/Alexandria, VA where I used to live. California's minimum wage is higher than your state. Fuel are expensive here in CA than any other States, so use brain to think about the alternative way such as walk, use bicycle, motorcycle, and transportation to avoid paying the gas. We will have Speed Train coming up soon, so you can travel from SF to LA in 3 hours without fuel. There are more things to say, but I think California is not that really expensive State to live in.

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caz12

sadly this is situation in most of western world

authentic

About credit score, it is very true, most car dealerships love bad creditors so they make a lot of money profit from their high interest percentages (only if they are stupid enough to sign the deal form). Well, I know there are a lot of people who desperate in need to get a new car so they would rather to pay high percentage with monthly payment of that car than spending a lot of $ for repairs.

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Reba

What is the price of a nice 2,100 sq. ft. house, 4bedrooms, 2.5 baths, large fenced-in back yard, attached 2-car garage, central heat/air, fireplace?

authentic

$99,000

13924 Lakeshore Drive, Clearlake CA - Trulia

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whatdidyousay!

I agree with you! A verbal agreement would never hold up in court.


I brought a small house in Berkley, Cal. the seller had a tenant and he was renting out the house and telling people he own it! After I was all moved in a guy came to my house looking for the 'tenant' as he gave the 'tenant' $500
for rent , I asked the guy if he got anything in writing and he did not .
That tenant was a con artist , a woman also came to my house looking for him too as she also gave him $500! Either person got anything in writing and where out $500!

whatdidyousay!

That really depends of the location of the house.

diehardbiker

I own the house, I forgot what rentals looks like.
My payment for house will be pretty much the same for next 20 years. After that, just taxes.
Not planning to sell my house anytime soon.

Thank god my mortgage is about 200 dollars cheaper than average apartment rent here in my home town!

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Avatar picture is Cape Hatteras light house in OBX.

Steinhauer

Mine too.

Reba

Not quite. It's smaller, fewer rooms, and it's a mobile home. The outside isn't very appealing (chain link fence in front, no landscaping.) On the plus side, it's on a lake, so I guess that would increase the value.

Interesting history. Too bad the lake is heavily contaminated with mercury because it looks like a pretty area.

Do you consider that area to be representative of the state of California housing prices? What about the San Diego area?

Tousi

Plus Clear Lake is out in the boonies and the lake resulted from what I call an "inverted volcano" cuz I don't remember the exact terms.....anyway, this lake is huge. I saw about 1/3 of its shoreline and it was pretty dirty for a lake that isn't very commercialized.

naisho

You mean, the lake was a result of phreatic eruptions?

kokonut

You mean phreatomagmatic eruption? Also known as a maar.

Global Volcanism Program | Clear Lake | Photo Gallery

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"... turns out they are telling the truth."

Reba

But its name is Clear Lake!

TXgolfer

A house like you are describing in the bay area will run about $2 million. Cheaper on the Oakland side if you don't mind dodging bullets. Also of note sales tax on autos is 9.5% and that is on the full value of the car....The do not deduct the trade in allowance for tax purposes and my car tags are roughly $500/year.

He may be right about food being equal to the DC area, but it is no where close to TX prices. TX is much cheaper.

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Foxrac

San Fernando Valley, the portion of LA city limit.

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Steinhauer

There is an entire city, designed to house 1.5 million people. It has government buildings, apartment skyscrapers, warehouses and 12 schools.

Not a single person lives there. It was built by the Chinese and is in Angola, Africa (???).

The rooftops are also color coded.

Foxrac

Yup, food price in DC metro is ridiculously expensive, also NYC is more expensive than CA.

During Katrina era, the gas price in CA was cheaper than southeastern states.

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Foxrac

You can find a mobile home in Orange County, CA for those price.

The housing in San Diego is expensive, except if you don't mind to live in low income community. Inland Empire (San Bernardino/Riverside Counties) is cheap to buy a house but little pricer than in South Carolina.

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Reba

Is that the same area you want to return to?

I would like to go back to California for a visit but I doubt that I could live there again. I lived in San Diego, and Lancaster.