A federal announcement could lead to more foreclosed properties becoming rentals, a development that could lessen the blow to New Jersey real estate values from a backlog of foreclosures hitting the market.
The Barack Obama administration announced Wednesday it is soliciting ideas for selling or otherwise disposing of properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.
This could lead to thousands of foreclosed houses entering the rental market — a move that could help some New Jersey markets inundated with foreclosures.
“It would have the effect of softening the blow on the housing market of the foreclosure shadow inventory,” said Jeffrey G. Otteau, president of Otteau Valuation Group.
Otteau said urban and exurban areas have been bracing for an additional wave of foreclosures hitting the market, which “has the potential to flood some housing markets with large amounts of distressed inventory, which in turn would trigger additional price declines in those submarkets.”
The federal proposal could mitigate this downward pressure on home prices, he said.
Kicking the can down the road
“They’re kicking the can down the road a few years,” Otteau said, though it would be a good move, considering the circumstances. He said demand for rentals is high, both from people unable to finance home purchases and from those who have lost their homes.
The sale of foreclosures would be welcomed by Martin Laderman, president and CEO of Jersey City-based MEM Property Management.
“Anyone can do better than the government at this point,” Laderman said Thursday, adding that private owners and property managers are in a better position to maintain foreclosed properties.
Laderman said he was encouraged that the government is starting to think outside the box, adding that he would also like to see a reduction in government bloat.
“For management companies, sure, we’re always looking for new opportunities, new markets to grow in,” said Laderman, who added that he may submit information to the Federal Housing Finance Agency in response to its request.
Laderman, whose 24-employee company manages 12,000 properties in the state, said one problem facing the real estate market is that banks are not in a position to maintain large numbers of foreclosed homes. He said management companies may become key players in buying houses to become rentals, noting that abandoned houses can drag down the value of nearby multifamily apartment buildings.
“It could be attractive just to keep the neighborhood and the values of other properties up,” Laderman said of properties owned by the FHA and the government-sponsored enterprises.
“In the long run, everyone will benefit” if the houses become rentals, Laderman said.
If fully implemented, this could shift the balance of homeownership in cities like Elizabeth, Newark and Trenton, as well as some rural communities in counties like Sussex, while leaving heavily suburban areas largely unaffected, Otteau said.
Adding single-family rentals would like face opposition in some residents who have a negative perception of rentals, though, said Otteau, who also questioned whether the effect on bank balance sheets factored into the federal request.