Mark Douglas knows about the tough housing market.
He has spent almost a year trying to sell his four-bedroom, three-bath house in Cowarts. He bought the property in 2006 after moving from Kentucky to take a job selling to the wholesale nursery industry.
Unfortunately, the nursery industry suffered with the rest of the economy when the recession started in 2008. He began looking for another position and took an agriculture job back in Kentucky.
He and his wife, a teacher at Ashford Elementary, have been living apart for almost a year, and he decided about a week ago to list the home for lease with Century 21 James Grant Realty.
The scenario is not unusual. As homes spend months on the market without selling, some owners are opting to offer the properties for rent.
And in many cases they are finding takers as more people conclude that renting is sometimes better than buying.
“The conventional wisdom about home ownership versus renting isn’t quite right,” said Scott Beaulier, executive director of the Manuel H. Johnson Center for Political Economy in the Sorrell College of Business at Troy University.
“The idea that you’re ‘just throwing money away’ when renting is false,” Beaulier said. “In fact, unless a person is committed to a home for a long, long time — 10 years or so minimum — housing is a pretty bad bet.”
Potential buyers don’t always consider the added costs that come with owning a home.
“People often get big homes — four-bedroom homes when they don’t even have kids — in case out of town guests visit,” Beaulier said. “All of this added space is expensive to heat, maintain, and gets built into the size of the mortgage.
“In many cases, the people would be better living in a smaller home (or renting), and then just putting their guests up in a nice hotel,” he said.
By making reasonable assumptions about housing going forward — that prices aren’t going to appreciate much, for example — Beaulier said renting makes sense for anyone planning on staying in their home for less than 10 years.
“If housing prices are going to continue to fall, which might be reasonable given the glut of housing stock and foreclosed homes waiting to come on the market, renting makes sense for even a 15-year period,” he said.
The situation isn’t as dire locally as it is in some regions of the country where home prices have plunged 30 percent or more. But home sales here have been hurt by tightened lending standards.
“Back in the 80s, people had a loan from FHA or VA, they just sell you the house and you picked up that loan,” said Jimmy Grant, whose family business has the Douglas home listed. “You didn’t have to do any qualifying.”
Today you don’t have that, and it “makes it real hard,” Grant said. “You gotta go get a loan or you gotta pay cash.
“At one time, they hardly looked at a credit score,” he said. “Now you have to have a (minimum) credit score mostly around 620.”
Some people overbought as the housing market collapse and the resulting recession approached.
“When they got more house than they could afford was probably back in 2005, 2006, 2007,” Grant said. “They bought these houses that they probably shouldn’t have been buying, they were given loans they shouldn’t have been given on these big houses. Now, you have a hard time getting that money out of it.”
Mortgage rates are low, close to 4 percent, but demand for homes is still not matching supply. “I would never have thought they (mortgage rates) would go down that low,” said Grant, who has been a real estate broker for almost four decades. “This is the hardest period of time (in real estate) that I’ve been involved in.”
Grant said it’s difficult to get 100 percent financing these days, but you don’t have to put down a lot of money to buy. “If you can qualify, you can get in a house for about 5 percent (down payment),” he said.
Still, the incentives for renting can outweigh the urge to buy.
“The relative attractiveness of renting versus buying is driven ultimately by supply and demand,” Beaulier said. “When housing became extremely ‘hot’ back in 1997 or so, the price of owning a home — mortgage, insurance, taxes, etc. — rose dramatically for a 10-year period. In relative terms, rent became more and more attractive.
“As the bubble burst in 2007 and people got more realistic about expected housing price appreciation, renting became more attractive,” Beaulier said. “We can see this quite clearly in the data when we look at price-to-rent ratios, and there are many anecdotal accounts of people ‘deleveraging’ by dumping their big home in favor of renting.”
Grant said his company had 124 properties listed for rental about a week ago and only three were unoccupied.
When occupancy rates rise, the number of people looking to rent properties declines.
Keith Jackson, who serves as president and principal owner of both Century 21 Key Realty and Real Estate Services of Dothan, a property management company, said the number of people looking to rent houses has declined some.
His company manages approximately 900 rental properties, about 85 percent of those residential. His lease screening process involves a credit check, verifying previous rental references and income.
“Based on those criteria, we either approve or decline them,” Jackson said.
He has seen a number of houses put on the market with the option to lease.
“We encourage the owners to leave it for rent or for sale,” Jackson said. “In the event we’re able to rent it for them, then they are removed from the market, or vice versa.”
Jackson said it’s a good time to buy properties to rent out if you’ve got cash available. “The return in the rental market at this time is certainly greater than what you’re getting in a bank or CD,” he said.
Whether the local housing market is poised for recovery is debatable.
“Let’s certainly hope we’re at a bottom,” Jackson said. “I seem to believe there are some indications out there that we’re not quite there, but I would certainly be optimistic if that is the case.”
He said certain sectors of the housing market are good, but the amount of product has created an imbalance of supply and demand. “In my opinion, currently there’s more inventory out there than there are renters,” Jackson said.
Grant said at the end of 2011 there were 1,042 active listings of homes for sale in Dothan. The maximum at one point last year was 1,350, and the total number of new listings during the year was 2,756.
Of the 1,045 houses that sold, the median selling price was $132,000 and the average selling price was $145,424. The total for those home sales was about $152 million.
“I just hope that it’s going to improve this year,” Grant said. “I feel like it might, and this is the first time in two years I’ve felt like it might improve.”
Grant said sales activity has increased. “We had a good November, December, and it’s picked up some in January. That’s the reason I think it might be a good indication of things to come.”
But economic uncertainty is still a factor.
“Until people quit worrying about not having a job, you’ve just got a problem in real estate,” Grant said. “They are worried that they might be laid off, and so why would you buy a house (if you’re) worried about getting laid off?”