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IRVINE, CA—Investors buying rental property last quarter are getting an average annual return of 9.06%, down from an average annual return of 9.65% for the third quarter of 2013, according to a report from RealtyTrac. The report ranks the best US markets for buying residential rental properties.

For the report, RealtyTrac analyzed median sales prices for residential properties and average fair market rents for three-bedroom properties in 586 US counties with a combined population of 218 million people, or 71% of the US population. Rental returns were calculated using annual gross rental yields: the average fair market rent of three-bedroom homes in each county, annualized, and divided by the median sales price of residential properties in the third quarter.

“The single-family rental market is still strong, with returns averaging 9% in the 586 counties analyzed,” says Daren Blomquist, VP at RealtyTrac. “Even so, the market is softening, with those same 586 counties averaging a nearly 10% return a year ago.”

He adds in the high-risk, high-yield markets, where unemployment and vacancy rates are higher than national averages, the average return was “a whopping 19%, actually up from a year ago, thanks to a strong increase in rental rates. Home prices, meanwhile, were more volatile in the high-risk, high-yield markets, with three out of the 16 posting double-digit percentage decreases in median home prices from a year ago.”

Regarding what the report indicates about the housing recovery overall, Blomquist tells GlobeSt.com, “It's more evidence that the investor-driven housing recovery we've been experiencing the last two years is fading, a victim of its own success. More competition from investors, many of them single-family rental investors, has driven up home prices in many markets to a point where it just doesn't pencil out as favorably to buy properties as rentals in those markets.”

As GlobeSt.com reported last week, the share of home sales in the above-$200,000 price range increased 10% in August from a year ago, while the share of home sales in the $200,000-and-below price range was down 9% in that time period, according to a report from RealtyTrac. At the same time, home-price appreciation slowed in 18 of 20 of the largest US housing markets and a total of 63% of all markets last month as compared to a year ago, the firm reports.

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