ALEX COHEN, host:
From NPR News, it's DAY TO DAY.
If you are a renter instead of a homeowner, perhaps you've been gloating a little bit while you hear all the bad news stories about the troubled housing market. We hate to break it to you, but your fate may not be much better. A study released today shows that rising foreclosures may cause an affordability crisis in the rental market too.
MARKETPLACE's Sam Eaton joins us. Sam, is the rental market going to be the next victim of the subprime fallout?
SAM EATON: Well, Alex, it really depends on - of course, if we're talking about a victim, which side of the equation you're on. Landlords should fare pretty well. It's the low and moderate-income renters who are running into trouble here. According to the Center for Housing Policy, the number of people in that group paying more than half of their income for housing has doubled over the past decade. And it's likely to get worse if the housing crunch forces more people into an already constrained rental market. The study says average rents are expected to rise about four percent this year and next.
COHEN: Let's get a little real estate 101 here. How exactly do foreclosures affect the rental market and drive prices up?
EATON: Alex, it's really a combination of factors here. The number of defaults in the subprime mortgage market is at a 10-year high right now. That's a lot of people getting out of housing. But the higher interest rates and the fact that it's harder to get a mortgage even in the prime market right now is also keeping renters from buying, so more and more people are renewing their leases instead. I talked to the study's author, Maya Brennan. She says another factor has to do with the kind of housing developers were building during the boom, and she says that's created a one-two punch for the rental market.
Ms. MAYA BRENNAN: First, there wasn't as much supply of apartments being developed because people were developing condos instead. And then second, now that homeowners are being foreclosed upon and moving back into renting, the demand for rental units has gone up.
EATON: And then that, of course, is putting exponential pressure on rental prices.
COHEN: And how does this compare throughout the country? Are there some places where people are going to be worse off than others?
EATON: Well, Los Angeles tops the list for the number of income-strapped renters. We have about a quarter of low and moderate-income families are paying more than half of their income in housing here. But the important thing to note here is that this isn't just happening in major cities. Denver tops the list as far as how fast the changes occurred. Charlotte, North Carolina and Kansas City also haven't faired well.
COHEN: Any signs of relief, or is this something that may only get worse?
EATON: Well, housing experts say this is only the calm before the storm, unfortunately. As more and more people default on loans in the coming years - 2008 should be a pretty bad one - the situation is expected to worsen. Even all of the conversions of defaulted homes and condos as people get out of those - people are converting them back to rental units - it's not going to be enough to counter increasing rents. One possible bright spot is that landlords used to refuse - who used to refuse to rent to people with foreclosures on their credit score are now rethinking that idea.
COHEN: Nice that there's some silver lining here. Thank you so much, Sam. Sam Eaton of public radio's daily business show MARKETPLACE. It's produced by American Public Media.