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Monthly Market Trends July

In this Monthly Market Trends series, we'll continue to offer you our interpretation of current trends through the eyes of our VP of Market Risk, Patrick Donoghue, and provide you with his balanced commentary so you can make the best investment decisions today, for the highest returns tomorrow. 

The dog days of summer are here. The term dog days not only refers to the sultry and oppressive heat that occurs this time of year (especially in Atlanta), but also derives from the sunrise appearance of the the Dog Star, Sirius. I’ve tried to view the sunrise star on my early morning walks with no luck, but I really don’t know what I’m looking for. I’ll stick to markets. Maybe I’d have better luck predicting what will happen later this month at the next Federal Open Market Committee (FOMC) on July 25 & 26th.  

The probability is very high that the FOMC will raise the Federal Funds Rate in the upcoming July meeting. The raise will likely be .25% bringing the target rate to 5.25% to 5.50%. The CME Group forecasts probability for this event using their FedWatch Tool and this tool currently shows a 97.3% likelihood the FOMC will ‘raise a quarter (%)’.

  Source: CME Group

Perhaps you’ve heard more than one commentator say ahead of an FOMC meeting that the market has priced this or that in, largely they are referring to this forecasting tool or a similar measure.   

So what does this mean to the Groundfloor marketplace where we invest in short duration loans to home flippers? For one, the market will not be surprised if the FOMC acts according to the above forecast. I see this as highly positive because it should produce a status quo type reaction. Like the market is rolling its eyes muttering “okay we know already”. What sends markets spiraling or spiking are surprises. And a raise of a quarter % this month to the Fed Funds Rate would not surprise anyone (97% likely). More likely, any comments Chair Powell makes surrounding the decision could stir volatility.

An increase to the Fed Funds Rate will likely pushes mortgage rates higher though. 30-year mortgage rates are generally benchmarked to the 10-year treasury yield, and as the Fed Funds Rate has moved radically higher over the past 15 months, the 10-year treasury yield has followed, thereby sending mortgage rates higher.  


Source: Mortgage Daily News

The spread between the 30-year mortgage rate and the yield is also important to consider when analyzing this data. The current spread is 3.06% (6.89% - 3.83%). 


A spread of 3% between the 30-year mortgage rate and the 10-year treasury yield is historically high and this is something that we need to be aware of because it signals heightened uncertainty.


30 Year Mtg. Rate

10 year Yield 



July 14, 2023




Inflation & Recession fears

July 14, 2022




Rising Rates

July 14, 2021





July 14, 2020





July 14, 2019





Historically, the spread ranges between 1.5% and 2%. In the above table we see three of the five recent years with a spread above 2%: July 2020, July 2022 & July 2023.  

If we are in a period of heightened uncertainty, then premiums for our invested dollar should be sought. On the Groundfloor platform over the past 13 months, the weighted average rate estimate of LRO opportunities has hovered around 11.41%. That weighted average return potential represents a premium when viewed against other types of investments and asset classes. 

Short term collateralized real estate debt, like the Groundfloor LRO, offers consistent and prudent answers to larger market uncertainty. The liquidity benefits offer regular repositioning opportunities if needed and the aggregate returns over time stack up well even with very sophisticated institutional money management strategies. I acknowledge this is not a direct apples to apples comparison - but does your money care?  …


A well diversified portfolio of Groundfloor LRO’s can return 9% to 10% and has a consistency that is hard to replicate. Last year is a good example of the downside traditional asset classes experience. In fact, “Cash” in the heat map above was the asset class leader in 2022. Cash? That is uncertainty. All are respectable asset classes and I am not diminishing their efficacy and I further respect the importance of balance across diverse asset classes. I am only pointing out that most asset classes have much higher volatility and do not have consistent liquidity like a well diversified portfolio of Groundfloor LRO’s comprised of short duration, high yield debt instruments that enjoy senior lien positions.    

A probable bet is that mortgage rates will tick higher after the Fed likely raises rates on July 25th. Mortgage/Buyer demand may dampen and this may drive inventory higher (which should also increase seasonally). But, this effect will be temporary. What I am focused on is the fact that this is one more step taking us ever closer to the day when the Fed has completed raising rates - and then uncertainty may begin to recede or shift focus like uncertainty often will.  Unfortunately, the process of normalizing inflation is going to take a while, so in the meantime go grab some collateralized premium.

While we are on the topic of the Fed and its lengthening battle to quell inflation, let’s take a peek at the data. Below is a multi-year chart that tracks the general inflation rate. Notice the peak of 9.1% in June 2022 and where we are now in July 2023 - clearly lower at 2.97%.

U.S. Inflation Rate

Here are the comments from the US Bureau of Labor Statistics:

The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%. The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. Energy cost slumped 16.7% (vs -11.7% in May), with prices falling 36.6% for fuel oil, 26.5% for gasoline, and 18.6% for utility gas service. Electricity prices increased by 5.4%. Also, inflation slowed for food (5.7% vs 6.7% in May) and shelter (7.8% vs 8%). Smaller price increases were also recorded for new vehicles (4.1% vs 4.7%), apparel (3.1% vs 3.5%), and transportation services (8.2% vs 10.2%). The cost of medical services was down 0.8% and prices of used cars and trucks declined 5.2%. The core inflation rate dropped to 4.8%, the lowest since October of 2021.source: Bureau of Labor Statistics

The Fed watches another inflation gauge more closely and that gauge is the Core PCE Price Index - "PCE" stands for "Personal Consumption Expenditures". Core PCE does not include volatile categories such as food and energy. The Bureau of Economic Analysis explains the index this way:

A measure of prices that people living in the United States, or those buying on their behalf, pay for goods and services. It's sometimes called the core PCE price index, because two categories that can have price swings – food and energy – are left out to make underlying inflation easier to see.source: Bureau of Economic Analysis

U.S. Core PCE Price Index Annual Change

The Fed’s target rate is 2%. While the U.S. inflation rate shows a very clear and substantial decline, the Core PCE measure has also decreased, but the rate of change is slower. So, the battle against inflation continues.  

While the Fed continues to fight inflation, our borrowing partners will continue to bring new and renovated houses onto the market. And Groundfloor will continue to offer LRO’s with consistent risk-adjusted returns. The housing market will gradually move towards achieving a balanced supply and demand, but the ongoing uncertainty may continue to affect us for some time.

In the August Market Trends blog I will be looking at the relationship between housing and recession. Stay tuned!

Patrick Donoghue

VP of Market Risk

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