The Bursting Housing Bubble is Causing Homeowners to Become Renters

From a paper by the Center for Economic Policy Research and the National Low Income Housing Coalition:

The bubble that developed in the U.S. housing market from the years 1996 to 2006 pushed prices in many markets far out of line with fundamental values. The correction that began in the middle of 2006 has helped to bring house prices back in line with their long-run trend growth path. Nonetheless, house prices in some of the most inflated markets are still hugely out of line with rents and income....

In bubble markets, renting is becoming an increasingly attractive refuge for homeowners saddled with a depreciating asset. Nationwide households evicted as a result of foreclosure are also likely to turn to rental markets for housing. Additionally, homeowners who are making a transition in their lives or households or individuals entering the housing market for the first time are even more likely to put off the decision to own in the current market....

With or without proactive policy, the transition from owner-occupied housing to rental housing is happening. There are a variety of factors that make it likely that the transition of the housing stock may not keep up in many areas. In these bubble markets, policy makers must not only be less committed to sustaining ownership and home values, but also must proactively facilitate the conversion to rental of vacant, foreclosed and delinquent units to limit the pressure on the rental market. Even in slack markets, it is necessary to limit the impact on the most vulnerable renters and more importantly to use the opportunity provided by the current market to relieve the pressure on these households by providing additional affordable housing through programs to purchase, renovate, and reuse foreclosed and vacant units to house those at risk of homelessness.