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Does Sub-Prime Fall Out Equal Rental Boom?

How Will The Current Housing Slump Effect Rental Markets?

By Phil Silberman
Copyright 2007 ApartmentWIZ

Graph of Housing Slump

The housing slump has been all over the news and has been weighing heavily on the markets for the last six months.  Some say that the Federal Reserve under estimated the effect of the housing slump on our overall economy when the Fed continued to raise interest rates amid a faltering housing market.

However, the Federal Reserve recently changed its anti-inflation focus by cutting the discount rate (the rate at which banks borrow money from the Federal Reserve) in order to address housing and other market related issues.  Whether this move will save the housing market remains to be seen; however, as the housing market continues to slump, many are asking what effect this slump, if any, will have on rental markets.


Metropolitan areas in Texas including Dallas, Austin, and Houston have seen some of the largest foreclosure numbers in recent decades.  More than 10 percent of all homes in these areas are in foreclosure. 

Most of these foreclosures are occurring in areas where sub-prime lending was used to finance most home purchases in the previous years.  These loans were offered to borrowers with poor credit ratings, 0 percent down, and low introductory rates.  Most of these mortgages were secured against homes valued under $150,000.


As interest rates increased, these unqualified borrowers found themselves unable to meet higher monthly payments.  Now the question remains, what effect will these homeowners facing foreclosure have on rental markets in the coming months?

ApartmentWIZ’s Houston leasing manager, Ken Hastings, believes that these former homeowners will have little effect on class A and B rental markets in Houston.  Hastings points out that it is nearly impossible to find apartments in Houston for tenants with a foreclosure on their credit report at Class A and B properties.

Home Interest Rates Rising
Apartments and Rental Market


Apartments in Houston’s Inner Loop, luxury lofts in Houston, Houston’s high rises, Downtown Houston apartments, and Midtown apartments in Houston will be largely unaffected,” says Hastings.  “It’s the class C and D properties that accept tenants with foreclosures that will see a large increase in their demand for units.  Most of these apartments are located in Southwest Houston.”

Chris Dillard, who heads up the leasing office in Dallas, agrees with Hastings.  Dillard believes apartments in Downtown Dallas, lofts in Dallas, Dallas high rises, Uptown Dallas apartments, and other high end areas will not be affected.  However, Dillard believes that suburban Dallas apartments with high vacancy will open their doors to tenants with foreclosures to fill vacancies.


“Suburban areas in the DFW area have seen low occupancies for some time now.  I expect apartments in Richardson, Plano apartments, Arlington apartments, and other surrounding areas to relax their credit requirements to capitalize on the sub-prime fall out,” says Dillard. 

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