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

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.