by Calculated Risk on 9/02/2009 11:15:00 PM

We've been discussing accidental landlords for a couple of years. Here is another article about homeowners becoming landlords out of necessity, from the WSJ: The Reluctant Landlords

With housing prices still in the dumps, many Americans are finding themselves in the uncomfortable position of landlord.
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Hard data are scant on how many homeowners are renting out their homes, but anecdotal evidence suggests numbers are up. In one indication of the trend: More homeowners are converting their homeowners insurance to landlord policies that cover the additional risks of leasing out a home. Allstate Corp., the second largest home insurer in the U.S., reported a 27% increase in conversions in the first quarter from the previous year.

The article discusses a few hapless homeowners, and I'll give the same advice as last year:

[T]hese accidental landlords are looking at prices from a few years ago, and deciding to wait to sell. In general this is a mistake. Owners should analyze the rent or sell decision based on current prices - and consider the probability that nominal prices will move lower or at best stay flat for several years.

This is part of the shadow inventory that will eventually be sold and will help keep inventory levels high for years.

And on the shadow inventory, here is an excerpt from: The Surge in Rental Units

The supply of rental units has been surging:

Click on graph for larger image in new window.

This graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. (all data from the Census Bureau).

The total number of rental units (red and blue) bottomed in Q2 2004, and started climbing again. Since Q2 2004, there have been over 4.3 million units added to the rental inventory.
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This increase in units has more than offset the recent strong migration from ownership to renting, so the rental vacancy rate is now at a record 10.6%.

Where did these approximately 4.3 million rental units come from?

The Census Bureau's Housing Units Completed, by Intent and Design shows 1.1 million units completed as 'built for rent' since Q2 2004. This means that another 3.2 million or so rental units came mostly from conversions from ownership to rentals.

These could be investors buying REOs for cash flow, condo "reconversions", builders changing the intent of new construction (started as condos but became rentals), flippers becoming landlords, or homeowners renting their previous homes instead of selling.

Whatever the reason for the conversion, many of these 3.2 million units are part of the shadow housing inventory. Especially the properties owned by accidental landlords, who will sell as soon as possible.