The Housing Bubble Is Still Raging In These 20 "Buy-To-Rent" Cities, And Burst In These 20 Others

Tyler Durden's picture

Earlier today we reported that the nearly two year long scramble by Wall Street asset managers to gobble up distressed and other properties, most often subsidized by the government using various REO-to-Rental funding structures, with the intention of renting them out and in the process generating a 15%+ annual ROI, is now officially dead in such former hotspots as California where America's biggest landlord, private equity firm Blackstone, reported that its purchases in California are down a staggering 90%.

RealtyTrac admits as much when in a report released overnight showcasing the Top and Bottom 20 markets for rent-to-reo "flipping", it shows that the annual gross yield on most California (and Colorado, and Virginia, And Montana) cities is now at most 5% - something no self-respecting market rigging institution would bend over for. Of note, the worst market by far when it comes to rental yield is none other than New York City, where one can get a better return investing in Treasurys than buying real estate with the intention of renting out.

Then again, we are talking about institutional investors, filled to the gill with both Other People's Money and the Fed's Zero Cost debt. The same "investors" who, having run out of prime markets in the US are now scrambling to buy up real estate in Europe (although how the local dynamics of 25% in youth unemployment will translate into rental cash flow is one of those great mysteries of life).

Well, not so fast. Because as the following table also by RealtyTrac confirms, the US still has an abundance of "own-to-rent" cities, where one can generate a return as high as 30% in one year, if one is willing to drive through the downtown area at 65 mph. Places like bankrupt Detroit, where the median sales price is $45K, and somehow the average market rent is $1.1K, meaning one can recoup their investment in just over 3 years! (how Detroit's residents can afford $1K on rent is another of those great mysteries of life)

In other words, the housing bubble will still be raging in these 20 cities, at least until such time as the yield drops sufficiently due to soaring prices that the Blackstones of the world are forced to dump other people's money in such undervalued places as Ulan Bator and Almaty.

Finally, a heatmap summarizing the few remaining places where the second US housing bubble in under a decade can still flourish is shown below.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
InjectTheVenom's picture

Nothin like some sweet housing-bubble porn to start my evening !

dtwn's picture

"although how the local dynamics of 25% in youth unemployment will translate into rental cash flow is one of those great mysteries of life"


Love Tyler(s)' dry and snarky humor, comedy gold.  Funny because it's true, don't know whether to laugh. . . . . . or cry. . . . . . 

boogerbently's picture

The "fracking" zone seems under represented, here.

Oh regional Indian's picture

I'd say it curiously matches the water sitution in some ways, since we all know CA is screwed (Agenda 21 +++++++++++).

Ah housing. I remember the days in 2004/2005, I was a NINJA with a $1,000,000 pre-approval and went lookinng at mansions in Berkeley! Those ....were....the friend....


That was in-between my store-sitting and house-painting job! 

What a joke. By the way, Flush with liquidity? Flush is what we use to wash shit away, right?



OldPhart's picture

2004/2005 back in the days when my own little California shithole was getting daily junkmail offering refi at $360k for the shack I bought at $75k in 1998.  When I see that offer again, I'm selling this piece of shit and renting.  Because I now know that the next crash will be permanent.

I want to convert as many dollars into gold as I can.

disabledvet's picture

downtown LA....105 million...all cash. House.
nuff said.

I do recommend keeping the windows rolled up and doors locked in addition to "surprising speed for downtown" as well.

I don't think the realtor needs to go full on MRAP quite yet.

Squid-puppets a-go-go's picture

am i the only one compelled to defend the investment yeild honour and prospects of Ulan Bator?

Livid, livid i tellsya!

johngaltfla's picture

RT might claim it is raging but from the builder's point of view, they smell a top in the dead cat bounce. We're seeing signs of lending requirements tightening up even more and existing homes sitting on the market longer. With the Florida program to accelerate foreclosures there is a new, larger wave of dead properties about to add to the inventory and the hedge funds know it (as documented by ZH) and are bailing out of buying down here. The only buyers are the speculative suckers who got their asses reamed in 07-08 and didn't learn a damned thing.

Vampyroteuthis infernalis's picture

The best market on the list is ugg, Detroit. Include an AK-47 and several boxes of ammo and we might make a deal.

i_call_you_my_base's picture

It looks like 80% of the population lives in "poor".

Bill of Rights's picture

PJmedia notes:

A RAND study pours buckets of cold water on the Obama administration’s claims that it has nearly reached 7 million sign-ups for Obamacare. The whole point of Obamacare, supposedly, was to insure the uninsured and bend the cost curve down. Those who had insurance were supposed to be able to keep it. Families were supposed to start saving about $2500 a year. If you believed the Obama administration. 

Reality, according to RAND‘s study, is that the Obama administration’s 7 million figure is deceptive. Supposing 7 million have actually signed up and paid their first premium — which is not a given, as the administration claims it does not know how many have paid — two-thirds of those who did sign up already had insurance before Obamacare.

JR's picture

Four days prior to the sign-up deadline, the AP was reporting polling data showing approval for ObamaCare was as low as it has ever been, including as low as it had been just before it was adopted.

But in the space of those four days, the press, including the Washington Post and LA Times, etc., were reporting polls showing support for ObamaCare had miraculously edged out the opposition: 49% approving, 48% disapproving.

As for the ObamaCare RAND report, MailOnline reports today (April 1, 2014)

“'The debate over repealing this law is over': Obama boasts 7.1 MILLION have signed up to Obamacare - but study shows just 858,000 newly insured Americans have paid up!”

It seems that with Obama’s second term the mainstream press – the networks and eastern newspapers in particular – have passed on from bias to statist media, supporting every lead taken by the Obama Administration, including actually manufacturing polling data and manufacturing statistical data – such as these signups.

Americans need to transfer to the Internet to keep some semblance of awareness as to what’s actually happening in the nation. The mainstream press as it blends into State-owned media is operating much as did the former Soviet news outlets; that is, it has become the voice of the government. As government lies, they lie.

yogibear's picture

Oil looking good for a pre-season pop upwards for the summer.

Robot Traders Mom's picture

Blackstone is now in the market to unload $2.5B of commercial office space. Things are going to start falling apart very soon... 

WillyGroper's picture


Am I blind or do I fail to connect Blackstone to your link?

Tasty Sandwich's picture

Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

mumbo_jumbo's picture

the worst part is the cock sucker who said that is considered an "expert" and now commands high fees to spew even more bullshit.

The Wedge's picture

"I don’t think it’s gonna drive the economy too far from its full employment path, though".

By the fourth quarter.....of what year?

Postal's picture

WTF? Richmond county, GA?! The only thing that shithole has going for it is Augusta National. Everyone who can is moving to Columbia County.

HoofHearted's picture

And everyone is leaving Bibb for Houston. Everyone is leaving Bibb for anyplace else. Hell, Macon is the Detroit of the rest of the country.

Dr. Destructo's picture

Short-term profits and shitty dealings > long term profits and ethical business.

The Romans and the French aristocrats before the French Revolution would agree.

Après moi, le déluge.

thamnosma's picture

And I hope our aristocrats meet the same fate.

crash commando's picture

Detroit is a "top market".  Pfft.

The Wedge's picture

Absolutely Detroit is a great market! They have a buy two get three free special for the reasonable price of $6500! What a steal! And they're guaranteed to have had less than two murders committed on premises! For real bargain hunters you can score a former meth house for less than a $1000.

I know you're loading the tools now. Gonna flip some homes in Detroit!

Deacon Frost's picture

Or turn it back into farm land

ArkansasAngie's picture

Those projected returns are horse manure.

Average after expenses is 55% of rent.  Of course if you aren't going to pay property taxes or insurance or do any repairs AND lie about your occupancy ... then sure.

They screw up the market for honest, hard working, law abiding business people.

ebworthen's picture

Looks to me like people are moving to the boonies where there is land and things are cheaper.

Ahh..the great urban/suburban centers of mass consumpterism and high taxes not so great anymore?

Rubbish's picture

Rely on a city/county worker to repair a pot hole or see your neighbor grade the road without the expense of a pension.


Maggie made you a pie, and thank you for grading the road out front.

rlouis's picture

A number of the bottom dwelling cities are under rent control - the stupidest way to destroy the housing infrastructure outside of bombing and arson.

kw2012's picture

Neither Sandy Springs (Fulton County) nor Marrietta(Cobb County) are in Clayton County as the chart says. The average home value in Sandy Springs is almost $400,000, not $50,000. Marrietta average home value is about $200,000. Average home value in Clayton county is $120,000. So that's more inline. I do know a guy still selling condos to Blackstone.

thamnosma's picture

I detest these social parasites.  Just another arm of the squid.

Cabreado's picture

"Average Fair Market Rent" is not to be trusted in the least, but it's interesting to see the various ways of documenting chaos.

bluskyes's picture

The market is a kettle being brought to a boil, as the bubbles continue to form, and burst - the kettle threatens to boil over, and put out the flame.

4 Freedoms's picture

If you could even find an $85K home in Baltimore, I really doubt it would be safe to live in it.

CHX's picture

Well 85k is median, so HALF of all homes in B-town should be of equal or lesser price than that. Re-enforces your safty argument...

robobbob's picture

just reinforces the fallacy of statistics. what good are averages without knowing SD?

Plenty of reasonable 85K bargains in the shrinking lower end blue collar neighborhoods. The city has over 40,000 ABANDONED houses (out of 300K +/- units). Whole blocks are empty ghost towns. Those that do sell are 30 to 40K, but most built pre 1950, be prepared for lead and asbestos abatement, and a mile of red tape. We don't want any of those silly civilians trying to buy and fix them up and actually having somewhere to live. Instead we'll provide housing vouchers and ship them to the suburbs.

MEANWHILE, along the shore and harbor the tax credited/deferred funded glittering towers of the local elites are pushing 1M +. Government gives developers tax credits to build, paid for by tax payers. Developers sell the credits at a discount to brokers, who sell to their rich clients. And people cant figure out why the rich are getting richer and everyone else poorer.

starman's picture

tick tock tick tock

ElvisDog's picture

Who wrote this article? "San Francisco-Oakland-Fremont"? I think they meant "San Francisco-Oakland-San Jose". Fremont is a place you drive through on your commute to San Jose/Cupertino/Mountain View. No one chooses to live in Fremont.

GeoffreyT's picture

FFS why would any report use median house prices, but average rents? After all, if they have the data to calculate the average, they have the data to obtain the median.

Both rents and house prices are skewed, and pretty significantly so. Forming a ratio of the mean of one distribution with the median of another, makes no fucking sense whatsoever - it gives you a statistic that has no sensible interpretation.


The statistics in the RHS (which obviously assume 100% occupancy rates and no agency or other costs) basically amount to saying "If you bought a house at median prices, and can rent it out at average rents, then your return will [...] X%" - what is the appropriate word to fill [...]?

Will be X%? Only in a world of zero uncertainty.

Will average X%? Only in a world where the average of the ratio is equal to the average realised rental yield (which implies strong - and unrealistic - conditions on the sampling distributions of the median price and mean rent... massively unlikely with the skews observed in housing data).

No. More likely, the appropriate replacement for [...] is a phrase... namely "Will lie somewhere on the number line: another number on the number line is" X%.


Fucking pointless 'pseudo-statistics' and pseudo-analysis... it's fucking everywhere, from this piece of statistically nonsensical shit, to the new secular religion of the left - climate 'science' - which now purports to say meaningful things about the impact of 'climate change' on medium-run agricultural output... yet none of the practitioners spouting this is a bajillionaire from accurately predicting grain and other ag futures.


And don't get me started on the Left jumping all over the output of quant climate models and treating the point forecasts the generate as if they're fucking stone tablets from Yahweh: it's fucking infuriating, given that the Left's hatred of quantitative economic models borders on the pathological. Quite amazing, given that climate is orders of magnitude more complex than economic interactions (economic interactions are relatively simple, but there's a lot of 'em - which is where the complexity comes from).

And now the 'climate' scaremongers are forecasting climate-induced economic effects - feeding a pretty pathetic economic model, with the central-tendency estimate from a non-bijective climate model in which most important parameters are imposed (and the sensitivity analysis is so rudimentary as to be worthless), and forecasting over timeframes where the forecast bounds widen like a fucking ear-trumpet.


Get this down: the parasitic sociopathic motherfuckers in the global political class want to tax energy. They want to tax it because demand for energy is highly inelastic. And they have no shortage of charlatans - "true believers" and ordinary rent-seekers - willing to line up to have an entire career on the climate-propaganda closed-shop research-grant gravy train.

Demonoid's picture

Your post is a small jewel of fucking brilliance. Not only your brutal teardown of the statistical innumeracy of the RHS analysis, but your later conclusions and observations are dead-on, too.


ParkAveFlasher's picture

Location, location, location.

kurt's picture

This is a fraud piece trying to keep some already dead horse propped up. I smell a Fed.

The Wedge's picture

Boiiing! That's the sound of the arrow firmly lodging itself into the bulls eye.

CHX's picture

All good and very right, except that in my place (and many others around the globe) it has been getting steaily warmer for 30+ years, and not only here. The real question regarding warming is do what degree (%-age) is the current warming trend due to CO2 incrases in the atmosphere, and to what degree to other/natural causes. My personal (and professional) opinion is that "some" of the warming is highly likley due to increases in CO2, but it's definitely not 100%. But governments do like to tax, and energy tax - founded or unfounded - makes no exeption. Anyway, finite resources, be it fossile energy, gold ore, farmland, or whatever, is a bitch to the eternal economic growth fantasy. Time and natural selection sorts out everything unnecessary in the long run. Bottom line (it') is a dirty business.

SelfGov's picture

If I didn't have an account I would have created one to upvote this.

Max Cynical's picture
American Migration [Interactive Map]

Close to 40 million Americans move from one home to another every year. Click anywhere on the map below: blue counties send more migrants to the selected county than they take; red counties take more than they send.

syntaxterror's picture

You can buy a fixer-upper in the San Francisco Gay Area for $1,000,000 and recoup your investment in 40 years!

Jugdish's picture

Did they really put Palatka FL on the list that city is the ugliest group of people I've ever witnessed in my life. When you start to roll into the town everyone starts blaming each other for shitting them self but then the windows come down and one soon realizes the rancid shit smell is eminatting from the town itself. The locals are immune to it. Whichever analyst created this data needs to pay visit then we can chat about gross income in palatka. 

chinoslims's picture

District of Columbia - What a great place for investment property.  The revolving door of assholes that come through that place provides no shortage of renters.  The renters have money.  Lots of dirty money.  

Tapeworm's picture

Many of the green areas have high numbers of deadbeats that get gummint paid rents and the rest of what it takes to live in a house.