Recent headlines in the mainstream press have alluded to a shiftin the housing market. In several instances duringthe past few weeks, the dismal tone that has become the standardfor housing market discussions has yielded to conversations on anemerging trend: large-scale acquisitions of distressedsingle-family homes being repurposed (in the near term atleast) for rental, that is, rent-to-buy.

Historically, rent-to-buy has been a fragmented businessrestricted largely to individuals buying and renting out secondhomes as vacation homes. Now, the numbers that are trickling inpoint to a new trend among sophisticated real estate investors. Forexample, a June article in USA Todaymentioned one fund’s plans to invest more than $1.5 billion inbuying and renting single-family homes, and that the fund hadalready acquired more than 1,000 homes in Arizona, California andNevada. In May, The Wall Street Journalpublished an article about a large homebuilder and another largeinvestment fund forming a private REIT to pursue this strategy inthose markets as well.

The examples point to two significant aspects of the rent-to-buytrend. First, the places attracting the most attention fromrent-to-buy investors are all cities that, although hard hit, havegood long-term fundamentals and strong rental demand, such as: LasVegas, Miami, Phoenix and, in California, the Inland Empire andSacramento. Homes in Phoenix, for example, have appreciated 15% to20% since the start of the recovery, a trend that is expected tocarry on if investors there continue to absorb supply from themarket. Already, there is less than a two-month supply of homes tobe sold in Phoenix, compared to a one-year backlog a year ago.