@Ken Scarbrough Responding to a few of your questions but first
>wouldn't lower housing prices and higher rents cause more people to want to purchase a home instead of renting?
>Therefore Lessening the pool of renters
Yes, theoretically.
Background: I owned a 4 bedroom home on 2.5 acres purchased in 1994, and saw things getting very frothy (chalk it up to experience, I had lived through a previous cycle.) I put it up for sale in 2006 and sold with a good capital gain. My plan was to stay out of the market for 3 years and then reenter. I had changed jobs and my wife and I relocated, so we were out of real estate entirely and we found a good rental (in which to live) in a single family home in an area that was very difficult to find good rentals (Asheville, NC). So the plan was to live in a rental for 3 years. The home which I we rented went up for sale 10 months after I moved in. It fit our household and lifestyle well, I was busting butt at a new job and did not want to spend the time to find another rental.
So we bought (not following my plan) in 2007 about 1 year before the crash and rode the market down. This was in a planned community with an HOA. 6 months after we purchased, the HOA took a successful vote to change the covenants to PREVENT rentals of any properties. In 2012 I had another job opportunity which required relocation. 5 homes were up for sale because they could not be rented. We did not want to hold a vacant home, so put it up for sale and lost all of our equity. (We ultimately moved back but the cost of holding the property unrented over 4 years would have been equivalent to the equity lost)
Issues that impeded home purchases during the crash:
Credit dried up: ie, the mortgage business transformed from handing out mortgages to anyone with 0% down to denying mortgages to people with 800 FICO scores. If you wanted to buy cash was king.
Inventory was down - Many homes were underwater - no one wants to sell a home if you are underwater and leave your equity on the table - so inventory was reduced. Those homes that were short sales or foreclosures - were under bank control - so everything moves extremely slowly.
By 2012 Blackstone purchased 300 single family homes in the Greenville, SC are - cleaning up a lot of the foreclosure backlog and further restricting inventory.
Now for the answers you have been waiting for, how does one prepare for a crash...
- Have a good stash of cash (not stocks, not bonds) to do deals if the banks are not lending and the market is crashing. Or, have a good working relationship with a hard money lender... as banks will be useless.
- Tilt yourself toward cash flowing properties - it is the flippers who were really caught with no chair when the music stopped
- Make certain your financial situation would not require you to sell a property at a loss (time is on your side - my shelf life is shorter than yours)
- Consider avoiding purchasing a condominium or home in a planned urban development due to overreaching homeowners associations who can AND WILL alter bylaws (after you purchase) preventing you from renting an owned property. [Remember if you sue the HOA you are suing your neighbors and yourself - BAD KARMA]
