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Foreclosed properties become rentals

Submitted by News Desk on Sun, 08/17/2008 - 10:00pm

AS the mortgage meltdown forces more homes into foreclosure in the Bay Area, some of these properties are being picked up by investors who are putting them back into the rental market.

The upshot of this activity is that more single-family houses are starting to show up as rentals in parts of the East Bay — such as Antioch — and in San Joaquin County. In addition, some condo for-sale properties in downtown Oakland — such as the Broadway Grand — are being rented out as apartments because developers are having a hard time finding buyers in today's tough housing market.

Foreclosures account for a growing share of home sales as prices continue to tank and more homeowners are unable to keep up with payments on subprime mortgages that are resetting to higher rates. That's bad news for homeowners.

But as investors buy foreclosed homes and rent them out, the number of available rental properties is likely to increase, which could lead to lower rents down the road, observers say.

In June, foreclosures accounted for 28.7 percent of sales of existing single-family houses and condominiums in the Bay Area, up from 27.6 percent in May and way up from just 3.5 percent in June 2007, according to DataQuick Information Systems. Home sales numbers for July are scheduled for release today.

Many of those foreclosure properties are being purchased by investors who then rent them out.

"It's happening in Antioch and Stockton, not so much on the Peninsula," said Eric Weigers, deputy director of the California Apartment Association. "We are starting to see a trend. Investors are picking up the homes and turning them into the rental market right away. ... We have not seen the foreclosures drive up rents anywhere right now."

Joy Diricco, a Realtor in the Antioch office of Prudential California Realty, has a different take about what's happening on her turf.

She has 20 listings for various short-sale properties in Antioch and Brentwood. A short sale is when a home is sold at a price for less than the loan balance, provided the lender approves the sale. Such sales help people who are having problems paying their mortgage avoid going into foreclosure.

Diricco attempts to find rental houses for her short-sale clients to move into after their properties are sold.

"I've been very lucky getting my clients into rentals. It has not been easy," she said. "All of these short-sellers — when they sell — they have been displaced from their homes. Now they need a place to live, so they have increased that renters market."

Typically, a rental house put on the market in Antioch or Brentwood is gone in three days, she said.

"Every offer I have on my rentals is a multiple offer," she said.

Foreclosure activity involving investors who are turning the homes they buy into rentals is indeed increasing the rental stock, said Steve Edrington, executive director of the state Apartment Association's northern Alameda County chapter. Another factor is that some condo properties in downtown Oakland are being turned into rentals, he said.

"We are seeing a lot more rentals coming back into the market — single family homes and condos," he said. "We are seeing this in Alameda and Contra Costa (counties) and seeing it out in the Central Valley."

As a result, rents could start declining by year's end as more properties continue to come onto the rental market, according to Edrington.

"I think we are in this transitional point where rents are going to slow down and sales of houses are going to pick up a bit because there is less inventory out there," he said. "The (foreclosed) homes are being bought and rented out and not being sold for owner-occupancy."

Eve Mitchell covers personal finance and real estate. Reach her at 925-952-2690 or