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Multifamily Starts Suffer Biggest Monthly Plunge Since 2006: Is The REO-To-Rent "Recovery" Dead?

Tyler Durden's picture


It is no secret that in addition to the well-known phenomenon of "foreclosure stuffing", one of the primary drivers of the artificial housing "recovery" has been the surge of hedge funds and asset managers into purchases of rental units courtesy of near-zero cost REO-to-rent federal lending facilities, which have taken out distressed inventory from the market in hopes of converting it into rental. This has manifested in a surge in multi-family starts which have been the primary driver behind the rise of housing starts in the past several years, even with single-family units barely moving higher. All this despite Och Ziff making the case loud and clear late last year, that the days of profitability of this strategy have come and gone. Today we got the first confirmation that other asset managers may have finally given up on the rental conversion strategy, following the observed collapse in multi-family housing starts which crashed from 376K to 234K in April (the lowest since last summer), a drop of 142K and the worst monthly drop since 2006 when the housing market had once again peaked and was about to undergo a very serious correction.

So does the above plunge indicate that this most important, if very much artificial legs of the housing (non) recovery stool, was just broken? And if so, does this mean that the US consumer is indeed so tapped out that hedge funds can no longer arb the rent-to-own cap-to-mortage rate conversion? If so, this is very bad news for all those who have been, incorrectly, proclaiming a housing recovery.


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Thu, 05/16/2013 - 09:24 | 3568571 buzzsaw99
buzzsaw99's picture

po people can't pay the mort so they'll have to rent, or so the thinking goes. because they can afford to pay the rent but not the mort. let them eat section 8. bwa ah ah

Thu, 05/16/2013 - 09:27 | 3568589 LawsofPhysics
LawsofPhysics's picture

It sounds like you are trying to say that wages matter.  Hogwash, the robber barrons are back, go long sharecropping (the new "section 8" plan).  End the Fed already.

Thu, 05/16/2013 - 09:34 | 3568618 King_of_simpletons
King_of_simpletons's picture

Overall great news today with the initial claims and now this.

Berkshire downgrade is also superb news. Dow 36000.

Thu, 05/16/2013 - 10:10 | 3568816 ArkansasAngie
ArkansasAngie's picture

Speaking as a little bitty landlord ... The big guys have bet strong on Bernanke and company creating inflation.  Their excel sheets in the sky depend on a steady increase in rent rates.  You still have to pay debt back even if it is "only" 4.5%

I, on the other hand, am making money now and will still make money when these yahoos default cause I don't own nobody any money.

When rent rates don't keep up with their forecasts of inflation banks and such will take another hit. 

Economic value based on income is a bitch and results in insolvency when the cash flow ain't there.  Liquidity?  Horse manure.

Thu, 05/16/2013 - 10:12 | 3568826 PiltdownMan
PiltdownMan's picture

To be fair, 5+ unit PERMITS rose dramatically offsetting the decline in STARTS. See this guy's charts.

Thu, 05/16/2013 - 10:13 | 3568838 Rory_Breaker
Rory_Breaker's picture


Thu, 05/16/2013 - 11:23 | 3569209 Gromit
Gromit's picture

Thanks for posting this link which gives the true picture.

Apartment construction is booming.

It's been seven years now without much new supply so the market will be able to absorb it for a while before it puts pressure on rents.

Thu, 05/16/2013 - 14:03 | 3569957 MarsInScorpio
MarsInScorpio's picture



Have you bothered to check out rental rates recently? 2 BR apartments going for nearly a thousand a month in third-tier markets. 3 BR apartments going for $1500/month in the same size markets. Four BR apartments don't exist in the new construction. And we are talking perhaps 850 - 1,000 square feet for the 2s, and 1,000 - 1,300 square feet for the 3s. These are not luxury manors.


I know you can point to some market somewhere (NYC, for example) where those rates would be heaven-sent; but please, let's keep this in the Big Picture nationally.


The fact is that rentals are approaching, or have surpassed, mortgage payments. The problem is that so many people who aren't in their own home can't get qualified, especially if the lender wants 20% down. You are talking $40,000 down on a $200,000 home.


That is where this building boom is going to stumble and fall. The rates are unaffordable - except for people getting housing allowances.


Here comes the over-hang - and with it, another bubble-bursting hang-over.



Thu, 05/16/2013 - 10:34 | 3568953 MachoMan
MachoMan's picture

You're right, but you're also going to eat a nice loss when valuations decline due to a decrease in the amount of rent that can be charged...  or interest rates rise...  take your pick.  I advocate putting a slice of the portfolio into medium range RRE (less than 3x avg. local salary)[there isn't a better return out there for morts], but it isn't a panacea.

Thu, 05/16/2013 - 09:39 | 3568620 Shizzmoney
Shizzmoney's picture

The country is in an income crisis...and you can agrue we haven't even hit its peak, despite it happening for 30+ years.

Over 100m are paid less than $40K.  So, they will go where the cheapest rents are.  They will have as many roommates as they can fit (state permitting, there are new laws being placed about having "non family roommate" as well as tenant quotas) to help pay for the rising cost of bills and rent (contrary to what you are "taught" to believe, iPads don't pay rent: cash does).

I cannot wait til these hedge fund assholes and the corporate shitheads and central bankers are going to be in a rude awakening, starting in 2015 and years after, when *my* generation (16-35) has a) no interest in investing and b) no money TO invest with (b/c the majority of us are indebted).

Enjoy that short term thinking, assholes.

Thu, 05/16/2013 - 09:43 | 3568666 LawsofPhysics
LawsofPhysics's picture

careful, some academic prick like Krugman is going to point out that "income" can come from investment while wages come from actually producing something of real value.

Thu, 05/16/2013 - 09:32 | 3568610 Cursive
Cursive's picture


The initial downpayment is the problem for most po folk.  Last time I checked (2 years ago), a rent home in my neighborhood was let at $1500/mo.  My monthly cost (mortgage, taxes, general upkeep) is about 60% of that.  On top of that, the rent home wasn't updated since maybe the '80's.  Of course, my LTV is about 70%, so I had to "pay" for this priviledge.

Thu, 05/16/2013 - 10:43 | 3568991 CheapBastard
CheapBastard's picture

Last year there was some movement of houses in my area...but they had to reduce them 20-30% to sell them. This year is dead despite it's the "peak season." Not even rentals moving much.


If this"peak season" is miserable, I wonder what the Fall will look like?

Thu, 05/16/2013 - 11:14 | 3569151 Dingleberry
Dingleberry's picture

Housing faces several problems, none of which are correctable.

Baby boomers retiring en mass and trying to sell (seeing it in my neck of the woods, but only good houses in good hoods sell). usually under 200k. Everything else sits and sits and sits.

Student loan bondage stories are making a daily appearance in the news now. The millinials are fucked. They aren't even buying cars, let alone houses. Hope their iPhones give them some comfort.

Banks aren't lending. Sure, if you have great credit and can get an appraisal that jives with the asking price (good luck with that one).

And FHA is changing the rules this month. Permanent (i.e. lifetime) PMI (or whatever they call it), no matter the loan balance. Got that? 30 years of paying for loan insurance. So about 40% plus of the market is done thru them. Those lendees just took one in the anal cavity. Hard and with no lube.

So that leaves the conventionals and cash buyers, which are actually quite numerous according to my realtor friend.  

It looks like 3% mortages aren't enough to do the trick. Last we had rates like that (with ARMs) RE skyrocketed.  It's easy to see why that won't be happening again anytime soon.

Thu, 05/16/2013 - 11:35 | 3569271 buzzsaw99
buzzsaw99's picture

Mortgage insurance is a sweet, sweet, racket. Ask MGIC and Radian. You collect and collect and never have to pay out a claim no matter how bad it all goes to crap. Lifetime PMI sounds a lot like student loans, what a great scam!

Thu, 05/16/2013 - 09:25 | 3568579 W T F II
W T F II's picture

Sounds promising...QEEE, after QEE is tried seems to be THE logical and effective solution

Thu, 05/16/2013 - 09:26 | 3568580 i-dog
i-dog's picture

I'd like to know why JOYFUL is dead (ie. barred from ZH..."Access denied" to his profile). Tyler?

Thu, 05/16/2013 - 09:39 | 3568646 CrashisOptimistic
CrashisOptimistic's picture

Only data matters.  Why join a cult of personality?

Thu, 05/16/2013 - 09:49 | 3568690 dick cheneys ghost
dick cheneys ghost's picture

ZH is nothing without a good, diverse comment section................

Thu, 05/16/2013 - 10:05 | 3568776 Son of Loki
Son of Loki's picture

They must of stopped accepting EBT cards as down payment for it to plunge so much .... with zero interest rates and Uber EZMoney out there an dtons iof incetnives such as free big screen Tv's, etc ...but only if you sign on the dotted line for 30 debt slavery.

Thu, 05/16/2013 - 10:12 | 3568832 Rory_Breaker
Rory_Breaker's picture

Suicided? God help us.

Thu, 05/16/2013 - 14:22 | 3570098 Thisson
Thisson's picture

Because he's a fucking moron who keeps posting racist crazy shit.

Thu, 05/16/2013 - 09:26 | 3568581 Cursive
Cursive's picture

I've had two unsolicitied refi offers just this week:  one via mail and a phone call from my current mortgage holder.  Something is up.

Thu, 05/16/2013 - 09:29 | 3568601 GMadScientist
GMadScientist's picture

Me too...and I don't even own a fucking home.

Thu, 05/16/2013 - 09:33 | 3568614 Cursive
Cursive's picture


Really?  Well, there's NEVER been a better time to buy...  :)

Thu, 05/16/2013 - 09:51 | 3568708 GMadScientist
GMadScientist's picture

I'm confident there will be an even better time to buy in fairly short order. ;)

Thu, 05/16/2013 - 10:36 | 3568964 MachoMan
MachoMan's picture

And this is why there is no traction on the recovery...

Thu, 05/16/2013 - 10:35 | 3568952 SunRise
SunRise's picture

Let's see . . .they want you to refinance a non-existent asset, so you'll have more cash?  Is it the Federal Reserve that's sending these letters to you?

Thu, 05/16/2013 - 09:43 | 3568667 EscapeKey
EscapeKey's picture

Startling, how short peoples memories are.

Reminds me of a few years back, with oil prices marching towards $147, people stopped buying SUVs altogether. 6 months later, with prices receding, consumers started purchasing them again.

Goldfish me... er, what was I talking about again? Oh, the Apprentice is on.

Thu, 05/16/2013 - 09:46 | 3568680 fuu
fuu's picture

Speaking of gas, up $0.60/gallon in 3 days here in Minneapolis. From $3.59 on Monday to $4.19 yesterday.

Thu, 05/16/2013 - 15:43 | 3568741 fuu
fuu's picture

Ugg ugg ugg ugly.

Thu, 05/16/2013 - 13:50 | 3569882 Kayman
Kayman's picture

Don't need no Keystone pipeline. Long horses.

Thu, 05/16/2013 - 09:26 | 3568584 Agent P
Agent P's picture

Maybe the rent isn't too damn high

Thu, 05/16/2013 - 09:27 | 3568592 Seasmoke
Seasmoke's picture

No just the fucking property taxes.

Thu, 05/16/2013 - 11:39 | 3569299 Shizzmoney
Shizzmoney's picture

And vacancy rates

Thu, 05/16/2013 - 10:08 | 3568807 Sudden Debt
Sudden Debt's picture



Thu, 05/16/2013 - 09:26 | 3568586 fonzannoon
fonzannoon's picture

Joyful is gone?

Thu, 05/16/2013 - 09:29 | 3568599 fuu
fuu's picture

He and TwoShortPlanks got the boot.

Thu, 05/16/2013 - 09:32 | 3568611 tip e. canoe
tip e. canoe's picture

now that's a damn shame

Thu, 05/16/2013 - 09:38 | 3568640 i-dog
i-dog's picture

"First, they came for the communists...and I said nothing. Then they came for........"

Thu, 05/16/2013 - 10:07 | 3568799 xcehn
xcehn's picture

ZH can't exist on an island. Long arm of the kleptocracy. It's either bend or break.

Thu, 05/16/2013 - 09:33 | 3568612 HulkHogan
HulkHogan's picture

How do you guys know this stuff?

Thu, 05/16/2013 - 09:36 | 3568630 fuu
fuu's picture

Click on their profile link. For an active user you are taken to their profile page, otherwise you get an Access Denied page.

Thu, 05/16/2013 - 09:39 | 3568648 fonzannoon
fonzannoon's picture

Wow. Twoshortplanks......what a bummer.

Thu, 05/16/2013 - 09:52 | 3568702 i-dog
i-dog's picture

Indeed. On a short, er, long enough timeline, the survival rate for [painful] truth is reaching 0 ... or something like that....

Thu, 05/16/2013 - 10:18 | 3568860 Rory_Breaker
Rory_Breaker's picture

Damn! If he is reading this I'd like to thank him for that Custodial Framework post.

Thu, 05/16/2013 - 14:24 | 3570108 Thisson
Thisson's picture

Awww, some bigots got banned - let's all cry over it.  Boo hoo!

Thu, 05/16/2013 - 09:27 | 3568593 dolph9
dolph9's picture

Silly hedge funds, not everybody's on section 8.

No have money, no pay rent.

Thu, 05/16/2013 - 09:28 | 3568597 GMadScientist
GMadScientist's picture


Thu, 05/16/2013 - 09:28 | 3568595 GMadScientist
GMadScientist's picture

There's no way to pimp a corpse without encountering perverse incentives.

Thu, 05/16/2013 - 09:34 | 3568616 the not so migh...
the not so mighty maximiza's picture

like screwing a dead hooker,   yuck

Thu, 05/16/2013 - 09:52 | 3568715 GMadScientist
GMadScientist's picture

Weekend in Bernise.

Thu, 05/16/2013 - 09:29 | 3568600 youngman
youngman's picture

In Denver they are building way to many apartments...thousands of units...all in two years....chasing a 5 years you will be able to buy them cheap....then they are a good deal..

Thu, 05/16/2013 - 09:35 | 3568625 Cursive
Cursive's picture


In 5 years, it's more likely these units will be inhabited by squatters and squirrels.

Thu, 05/16/2013 - 10:08 | 3568806 i-dog
i-dog's picture

... or they'll be the servants' quarters for the underground city under the airport (so I've heard...don't quote me on that)

Thu, 05/16/2013 - 09:30 | 3568602 Seasmoke
Seasmoke's picture

I guess they finally realized if you can't afford a $1200 a month mortgage , you can not afford a $1500 a month rent.

Thu, 05/16/2013 - 09:33 | 3568613 Gavrikon
Gavrikon's picture

Well, this and the unemployment claims ought to be worth another 100 points on the Dow, as well as another minus $30 on paper gold today.  It's enough to put me off my feed.

Thu, 05/16/2013 - 13:54 | 3569956 WTFUD
WTFUD's picture

. . . you eat'n. ..?

Thu, 05/16/2013 - 09:34 | 3568617 EscapeKey
EscapeKey's picture

... so far, the Dow has *collapsed* 16 points. That should be sufficient for a POMO-led 200 pt "recovery" tomorrow.

Green shoots everywhere!

Thu, 05/16/2013 - 09:37 | 3568634 CrashisOptimistic
CrashisOptimistic's picture

Generally speaking, the sooner we stop hearing about equities on ZH, the better.  There is no market.  There is only HFT. 

You KNOW this.  So stop trading.

Get your money out and find some farmland to buy.  Farmland produces calories.  Calories are the only thing that matters in the world to come.

Thu, 05/16/2013 - 11:41 | 3569307 Shizzmoney
Shizzmoney's picture

And tomorrow is a Friday; traders gotta leave "up" for the day before they leave at 3:45pm to beat the traffic to the Hamptons.

The Tuesday "DJIA up 18 in a row" phenomenon is an outlier for sure; but for a manipulated really is "just another day".

Thu, 05/16/2013 - 09:35 | 3568619 CrashisOptimistic
CrashisOptimistic's picture

One more time, because this is just not ever going to get old:


Behold the cause of celebration, when you achieve the TROUGH of sales that took place in a country with 50 million fewer people and much higher mortgage rates.

Thu, 05/16/2013 - 09:36 | 3568624 Whoa Dammit
Whoa Dammit's picture

Wait until Blackrock and the rest of their ilk discover just how much fun being a landlord really is, as one woman in Atlanta found out.

"A landlord was left with a $19,000 water bill after a tenant moved out of a northwest Atlanta condo.  The city says the owner is responsible for the bill.

Francis said that the city paperwork showed that the account had been in the tenant's name and that the lease agreement spelled out that utilities were not included in the rent.

"I was informed that if I did not pay the balance that they were going to put a lien on myself, on the property," Francis said. "I was really, really stunned. Actually speechless. "

Thu, 05/16/2013 - 09:44 | 3568669 CrashisOptimistic
CrashisOptimistic's picture

In Florida, tenants who are about to get booted just turn off the air con, which they can endure in winter, but lack of airflow guarantees mold grows inside the walls.

Two, three weeks later, the PE firm has a $20,000 repair job and the tenant is long gone.

Thu, 05/16/2013 - 09:37 | 3568626 Kaiser Sousa
Kaiser Sousa's picture

obviously all this horrid data this morning is again negative for Gold and Silver aka the only 2 forms of real money...

case in point - the takedown yet again on the London open...

fucking obvious....


Thu, 05/16/2013 - 09:45 | 3568677 CrashisOptimistic
CrashisOptimistic's picture

The only form of value is calories, from farmland.

All else is imaginary.  The value is inside your head.

Thu, 05/16/2013 - 11:42 | 3569313 W74
W74's picture

In the end I agree.  Food, Water, Freedom.  A few stones dug out of the ground and a roof over your head are nice, but not entirely necessary.

I'm a huge fan of PMs but at the end of the day they need to be able to buy food.

Thu, 05/16/2013 - 09:36 | 3568627 Edward Fiatski
Edward Fiatski's picture

Smell that?

Smells like May of 2008.

"Summer of Fun" to follow.

Thu, 05/16/2013 - 09:51 | 3568700 azengrcat
azengrcat's picture

The door to door knocking realtors have returned to Phoenix. REO-Rent-Flip is dead here jim. If interest rates pop, it's going to be a shit show.

Thu, 05/16/2013 - 10:16 | 3568825 Son of Loki
Son of Loki's picture

Azen, What's with these door-to-door realtors now sometimes 2 a day...WTF is that?! They are all over the place now....used to be 'new roofs' or 'blind installations' or 'carpet cleaning' but now it's realtors knocking door-to-door...strange stuff.


They're not supposed to use words like, "plumet" "plunge" "sink" "suffer'....and so on...


Only ..."happy" "recovery" 'improving" "growth"...and so on.....


The censor/editor must have taken a coffee break.



Thu, 05/16/2013 - 11:39 | 3569287 W74
W74's picture

LOKI, I've had them call me out of the blue!!!  Not to mention practically every loan officer I talked to more than 3 years ago and with whom I have not had contact since. 

"Just checking up on you" they say.

Really now.  I know Realtors are flat broke from having to pay off their McMansions (bought to impress prospective clients; and for their own egos) and SUVs (bought to impress prospective clients) and to supply their 2-pack/booze habits.  I've never met a Realtor who wasn't Flashy as hell or who didn't have an addictive personality.  But aside from my little rant here, this is a new low even for those scavengers.

Thu, 05/16/2013 - 10:28 | 3568914 Ignorance is bliss
Ignorance is bliss's picture

Why rent when you can squat for free?

Thu, 05/16/2013 - 14:07 | 3570006 WTFUD
WTFUD's picture

feeling sorry for some of you folks i'm livin' rent free. no windows or roof but have to move on every week when they come to take the skip away.

Thu, 05/16/2013 - 11:16 | 3569161 vachon
vachon's picture

I heard some twit in a shiny new suit on PBS about 2 months ago talking for an entire half hour about how this was a win-win for the banks and consumers.

The market will hit 30,000 in no time.

Thu, 05/16/2013 - 12:02 | 3569426 monad
monad's picture

Don't worry, in order to keep the prices out of reach the statists are bulldozing as fast as possible all the free surplus housing that they seized and haven't given to their friends, just like the 85B they give to their friends every month and only charge us 850B for. Its all good. Now give us your guns like the good children that lying cunt Warren says you are.

Thu, 05/16/2013 - 13:08 | 3569768 miker
miker's picture

In Charlotte, huge apartments buildings being put up everywhere.   I read somewhere they are getting financing from Fannie/Freddie (e.g., the Fed Govn.).  Developers will build anything if they can get cheap money.

These apartements are butt ugly huge boxes with internal parking decks.  100's of units; like a big hotel.  I predict they won't be able to rent anywhere near capacity. 

But that won't matter, moral hazard prevails and the Fed will simply buy them back with the $40B a month in mortgage securities.  Then they'll turn them over to the HUD and they'll stuff poor people in them.  Mark my word, these apartments will end up being subsidized housing down the road.  Nobody is going to want to rent them.

I do think the big buildout is ending though, permits/starts notwithstanding.  What I see is just about everything has started that can and many are finishing up.  It will be interesting to see how long they survive before failing.


Thu, 05/16/2013 - 13:32 | 3569864 Mrmojorisin515
Mrmojorisin515's picture

don't know if any of you guys have read this yet, but from all the different sites i read with differing viewpoints, quite a few are saying that something wicked comes with the end of summer.  I found this article very plausible and bringing alot of different news together.

Thu, 05/16/2013 - 14:15 | 3570061 WTFUD
WTFUD's picture

Knew there was a catch McDonalds are givin' away green cards with every Big Mac Happy Meal over here in the UK.

Do NOT follow this link or you will be banned from the site!