The housing slump has created another type of pain: the suffering of people who find themselves navigating a tight rental market after losing their home to foreclosure.
Hundreds of thousands of former homeowners have been scrambling to find a place to rent. Yet rental properties are in short supply in many markets, pushing prices higher. And some landlords are imposing tougher credit requirements on people who have gone through foreclosure.
Ray and Trish Vanags recently found themselves contending again with the indignities of renting.
The couple lost their first home, a three-bedroom townhouse in Frederick, Md., after their adjustable-rate mortgage reset and the bill jumped by about $900 a month, to $3,300. They no longer could afford to make the payments, and in December, their house, which they had bought in 2005, went on the auction block.
The couple, both in their 30s, and their 3-year-old son moved into a rented townhouse in Gaithersburg, Md. Almost immediately, they discovered problems, including a deck that wobbled, dead electrical outlets, missing smoke detectors and bad plumbing. With the help of the town's health department they moved out, but still haven't recovered their $2,300 security deposit.
They now live in a 1960s-era split level in Rockville, Md., that Ray Vanags found through a business networking group, paying $2,250 a month.
"I can't believe I worked so hard for a house only to lose it," said Ray Vanags, a sales manager at an information-technology services company.
Swelling the ranks of the renters
Foreclosures have helped swell the ranks of renters, according to a study released Wednesday by Harvard University's Joint Center for Housing Studies. The study shows that U.S. renter households increased by nearly one million last year - four times the pace of renter growth from 2003 to 2006 - to 35.1 million.
Competition for rental properties has pushed up average rents to a record $775 a month, says the Harvard center. Since only about one-third of rental properties are single-family houses as opposed to apartments, it can be hard for foreclosed homeowners to find an equivalent, affordable place to rent, said William Apgar, the center's senior scholar.
And though hundreds of thousands of houses and condos have gone back to the banks that lent money on them, few of these properties are being offered to tenants because lenders don't want to be in the property-management business. So they sit vacant.
Mark Verge, owner of WestsideRentals.com, an apartment-finding service in Santa Monica, Calif., said he's getting 7,000 to 8,000 inquiries a month from would-be renters, up 15 percent compared with last year. Many are from people who are facing or have gone through foreclosure, he said.
The problem could get worse. Foreclosure filings were reported on 649,917 properties in 2008's first quarter, up 23 percent from the previous quarter and 116 percent from a year earlier, according to RealtyTrac, an online marketplace for foreclosed homes.
Michael Ryder, a 45-year-old information-technology business analyst, slept on the floor of his unheated Winston-Salem, N.C., house before getting evicted in December. Like many homeowners, he felt flush with equity during the housing boom, when he took out a $30,000 loan to build a pool and deck on the house he bought in 1998, and bought a fixer-upper country home where he eventually planned to live.
But then Ryder's marriage crumbled. His wife got the country house in the divorce settlement.
With the real-estate market soft, he couldn't sell his remaining house for enough money to pay his rising bills and couldn't work out a deal with his lender. He stopped paying the mortgage; foreclosure followed.
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Afterwards, Ryder couldn't find another house to rent for what he could afford to pay. So now he lives in a two-bedroom apartment that seems cramped when his son and daughter visit.
He finds he misses the "pride" that even routine chores like mowing the grass gave him, and yearns to repair his credit, so he can buy another home to fix up and decorate as he pleases. Most of all, he wants to start building equity again.
"I want to leave something behind for my kids," he said.
Boon to the multifamily housing industry
The flood of "accidental" renters like Ryder into apartments has been a boon to the multifamily housing industry, which has been suffering from a dropoff in condo buyers.
Bill Donges, chief executive of Lane Co. in Atlanta, which owns or manages more than 26,000 units in 10 states, said that as late as 2006 about half of his units were rental apartments and the other half condos; now the ratio is 95 percent rentals and 5 percent condos.
Dan Haefner, president of the company's asset-management division, said increased demand for rental units has allowed him to tighten credit requirements for tenants. He will consider applicants who have gone through foreclosure, but only if they have a good history of paying other bills - and he often requires an extra month's rent in advance as a cushion.
Matthew Cooper, a 31-year-old advertising salesman, was excited to buy his first place in 2002: a two-bedroom condo with a fireplace a few blocks from the beach in Santa Monica. And he found the payments on the $450,000 property affordable - his interest-only loan cost about $2,800 a month.
But by 2005, the payments had soared to about $4,500. He lost the condo to foreclosure eight months ago. Now he's living in a one-bedroom rental not far away for $1,700 a month. He's had to squeeze his office into his bedroom, and he says he holds fewer dinner parties because the apartment feels cramped.
Although the stress of trying to make impossible mortgage payments is gone, he would like to own again - though he will insist on a fixed-rate loan.
"Buying is the only way to accumulate wealth," he said.
Foreclosures even are displacing people who aren't homeowners.
Ron Fry, the 41-year-old general manager of an ice-cream company, was shocked when his wife called him to say a sheriff had served eviction papers on the nearly-new four-bedroom Colonial in New Prague, Minn., that they had been renting for $1,300 a month. It was only then he discovered that the house's owner hadn't been making the mortgage payments, even though the Frys had been paying their rent faithfully.
Disgusted, the couple moved to an even nicer four-bedroom home nearby that they're renting for $2,000 a month. They negotiated an option to buy the house within the next three years for $441,000, which is what the current owner paid for it.
Ron Fry figures the house is a bargain, and optioning it will get his family out of what has become a crazy rental market.
"It's a win-win situation," he said.