Rent to Own – Bright Forecast as Home Sales Remain Grim
Housing remains the weakest part of the US economy, analysts tell us, and we shouldn’t expect much improvement in the coming months. “These numbers are at an all-time low by historical standards,” said IHS Global Insight US economist Patrick Newport. This report comes at a time of year when home sales should be at their peak. However, while traditional home sales reports have been grim, the rent-to-own market is on the rise because, for many, it has become the only way they can buy or sell a home.
Getting hard numbers for these types of purchases is difficult as they are private leases with an option to buy until they are then recorded as a home sale when the transaction is complete, often 2-3 years depending on the terms of the contract. But indicators of increased online searches, book and document sales, as well as general inquiries in the real estate and mortgage industry show that interest is strong and many rent-to-own transactions are taking place.
For many home sellers who have had homes on the market for many months with little or no activity, the immediate interest generated by a rent-to-own listing can be overwhelming. Today’s market is flooded with above-average risk buyers whose credit problems are recent due to current market and economic circumstances, but who were previously responsible and on time with their obligations.
With bankruptcy or foreclosure, prospective buyers are unlikely to qualify for a home loan for some time, and with the surge in homeowners-turned-renters, the price of rent continues to rise. A lease with a home option locks in the cost of rent for the specified lease period, giving buyers another incentive to buy.
On Wednesday June 22, Federal Reserve Chairman Ben Bernanke said that the housing market was a strong and persistent factor hurting the broader economy. With the continued rein on traditional lending and the rise in the rent-to-own trend, it would not be surprising if the federal government at some point identified this trend as a viable way to increase home sales and possibly offer incentives. and tax benefits for this type of purchase, and strengthen protection regulations for both buyers and sellers.
It could also benefit real estate agents and brokers to be willing to facilitate these types of sales, although it would delay their main commission by 2-3 years. Real estate professionals will often provide property management services during the lease period, since most property managers are real estate brokers. They may charge an upfront fee for providing initial services; red tape, credit and background checks, attracting a buyer or seller, etc., and if they choose, they can manage the monthly payments for additional monthly income until the sale closes in 2-5 years.
Rent-to-own, when properly managed, could help put people back to work, stem the housing drag on the economy, and pay off mortgages that could otherwise be foreclosed on. Those seeking this option for themselves need to do their homework and be aware of any potential pitfalls to avoid, but selling a rent-to-own home can not only be a good option for buyers and sellers, but which can potentially be a good trend. for the US economy.
