May 20, 2019
Do Fannie Mae and Freddie Mac Drive Up Multifamily Rent Prices?
When looking at the relative valuations of housing for purchase and for rent, there is a lot to take into consideration. Of late there has been much talk about how rent prices are outpacing the ability of families to pay in many markets—taking a large chunk out of the monthly take-home pay of many families, which in turn causes their debt-to-income ratios to rise, and decreases the chance of their ever being able to move from the rental market into the realm of being homeowners. In particular, Millennials, who have put off the starting of families and who have favored urban settings as the places to make their homes, and who shoulder an Atlantean burden of educational debt unlike that of any previous generation, are finding themselves subject to a rental market that some are calling untenable at least and on its way into a bubble at worst.
The putative purpose of Fannie Mae and Freddie Mac is to decrease the burden on lower-income families in purchasing homes by offering loans with lower interest rates and lower barriers to entry. Of course, they are also meant to increase the availability of housing to those who are incapable of purchasing a home at a given point in time as well, and have taken as the best way to do so the increasing of multifamily units.
A recent Wall Street Journal article examined the possibility (put forth by a number of economists) that, rather than helping on this last score, Fannie and Freddie serve instead to decrease the affordability of rental apartment housing. The single-family rental unit sector has been on the rise since the so-called Great Recession, particularly in twenty-two of the largest metro areas in the nation, where they have outpaced multifamily units since that time, but there are signs the former is slowing down—at the same time that Fannie and Freddie plan to drop out of this subsector of the rental economy by ending their two-year experimental pilot programs (having determined that this sector would be doing just fine without their help). Meanwhile, they have become the dominant sources in the apartment rental mortgage market, much of which is accomplished by providing low-interest loans to builders of high-end apartment buildings that promise to make a certain number of the units available to low-income renters via a lottery system, among other avenues.
Yet other economists assert that Fannie and Freddie continue to functionally aid in lowering housing prices. The topic is a complex one, and more research is necessary before we can know the truth for certain.
The best housing option—in terms of affordability and building equity—remains to purchase a home. Our team here at Topouzis & Associates, P.C. does everything we can to be absolutely sure our clients are conveying and purchasing title clear of judgments and defects. And, yes, we help our clients put into place a good policy of title insurance to make certain they don’t get surprised by any nasty lurking issues with a property. Contact us if you’d like us to do this for you.