Boston Fed President Eric Rosengren warned Monday that the United States can’t afford another “boom and bust cycle” in housing.

After the National Association of Realtors last week reported an all-time-record 24% jump in the median US home sale price between May 2020 and May 2021, it’s hard to view the housing market as anything but an incipient bust.

Corporate America thinks home rental is the hottest investment out there; Blackstone last week paid $6 billion to acquire Home Partners of America, and other institutional investors are piling in alongside it.

Remarkably, investors are paying top dollar for single-family homes with zero expected return. That can’t be good.  Record low mortgage rates are driving up home prices.

If you take the cost of servicing a mortgage on the median home (roughly 3% of $340,000), and deduct it from the median rent (about $1740 a month), you come up with a median return on investment of 3%. That’s about the annual depreciation on an American home. So your return after wear and tear is zero.

That’s the definition of a bubble: You buy an asset expecting that it earns nothing at all, but hope to find a greater fool to take it off your hands at a higher price.

US single-family homes aren’t the only risk asset with expected return of zero.

The effective yield on junk bonds is at an all-time low, with single B’s paying just 4.4%. The expected loss rate on single-B credit, according to the rating agency Moody’s is 4.55% (that’s a 7% default rate with an expected recovery rate of 35%).

Of course, Moody’s default rate is an average across business cycles; a recession would produce severe losses in junk bond portfolios.

With interest rates pegged at zero by the Federal Reserve, investors have to put their money somewhere. The Fed has forced them into investments that offer an expected return of zero or less. That never ends well.