In this Monthly Market Trends series, we 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.
Let’s start by reviewing key metrics for the residential real estate market.
These metrics detail the national residential real estate market's health, trends, and potential opportunities.
Mortgage Interest Rates
The prevailing rates at which borrowers can obtain mortgage loans, impacting affordability and buyer demand.
The 30-year mortgage rate has returned to the mid 7’s pushing even more sellers and buyers to the sidelines. The standoff furthers the muted housing market we’ve seen much of the last 15 months. Lack of inventory and high-ish rates, however, does not mean a collapse - a collapse typically occurs when surplus inventory force home prices lower.
30 Year Mortgage Rates (5 years)
Treasury yields have risen steadily since the spring and you can see above how this has pushed the 30-year mortgage back to where it was last year at this time.
Source Yahoo Finance
The rising treasury yields could very well indicate that inflation is stubborn. Investors looking for security may move money into these treasury yields and away from wobbly equities.To hedge against stubborn inflation is a good idea - and a reason to invest in short duration debt with above average returns. The Groundfloor LRO is a good bet against inflation because high yield, collateralized debt hedges against the effect inflation has on your investable dollar. If your flight is from equities, why not balance more of your portfolio with a diverse set of well curated debt investments like the products offered on the Groundfloor platform? Diversifying your investment dollars across a lot of these is critical because you can count on steadily increasing cash flows, predictable returns and limited losses.
Median Home Price
The middle value of all home prices, providing an overview of the market's general price level.
The year so far has been a steady climb back to where the 2022 median price peaked around $459k. Notice I said climb and not descent. And now we are flattening into the fall and will most likely see a Q3 and Q4 slope down, which is expected seasonally. If the Median Price does slope down over the next two quarters we don’t need to panic because this tends to happen every year. Instead let’s watch the rate of slope or better said, ‘change’. I anticipate a rate of change similar to the price slope 2021. You can see here in a longer term look back that between August and December (every year) the Median Price tends to recede - this doesn’t imply a crisis.
Inventory Levels
The number of homes available for sale, indicating supply and demand dynamics.
Inventory continues to be severely constrained and for the most part this circumstance is supporting price levels. Meaning the lack of homes for sale is contributing to prices largely remaining constant. There has not been a national home price recession. In pockets where prices have declined - like the western markets - but nationally prices have held and lack of inventory is a major reason. 2023’s inventory level (the black line in the above chart) remains historically low. I anticipate inventory to recede in the coming two quarters following the seasonal trends.
With a lack of inventory our borrower’s finished projects will sell. Even if buyers have challenging rate environments. There just aren't a lot of well renovated and new homes coming online, it’s a surprising niche! But it does not surprise us.
Days on Market (DOM)
The average number of days a property stays on the market before being sold, reflecting market activity and buyer interest.
DOM currently is higher than where it was in 2021 and 2022, but well below 2020, 2019 & 2018.
For clarity here are the actual DOM as of August for the past six years:
| 2018: 114 Days | 2021: 69 Days |
| 2019: 117 Days | 2022: 67 Days |
| 2020: 117 Days | 2023: 88 Days |
DOM has been more realistic this year than in the previous two years. Properties have been on the market longer, but still historically speaking, they are trading faster than previous years. 2023 has experienced less volatility in DOM, nationally, than in previous years.
Home Sales Volume
The total number of homes sold within a specific timeframe, offering insight into market activity.
We measure home sales volume with a metric called the Market Action Index (MAI), a measure that addresses the rate of sales versus current inventory.
Sellers remain in control. Another way to look at it is to assume that buyer demand is outpacing supply. Many would-be sellers are locked in with rates below 6% which makes selling their property not feasible. This contributes to the lack of inventory we noted below and a foundational reason for why prices on a national level have remained elevated.
Homebuilder Confidence Index
A gauge of homebuilders' sentiment about the market's current and future conditions.
When I relayed with a colleague that the Homebuilder Confidence Index dipped he replied: “Wow, that was fast!” If you knew my colleague, you’d also get the implied sarcasm. It was just a couple of months ago that we saw this index surge into bullish territory (a score above 50) and just like that it’s back down to 50.
I understand the concern. Rates are increasing, material prices are not retreating as fast as we would all like so, of course, if you are building thousands and thousands of units at a time, you might want to catch your breath. And they are. I don’t think this changes the long term implications of how important new homes are and how much they are needed. Warren Buffet agrees as he is noted to have gone long a basket of homebuilders. Read more here.
It's encouraging to see that the greatest value investor of all time sees a healthy opportunity ahead for the equities of homebuilders. There is a demonstrated social and economic value to the construction and sale of new housing units. I am glad brilliant investors like Warren Buffet see this opportunity in new construction as well.
Housing Starts
The number of new residential construction projects that have begun, indicating future housing supply.
Housing Starts
“Housing starts in the US rose by 3.9% month-over-month to a seasonally adjusted annualized rate of 1.452 million in July 2023, above market expectations of 1.448 million. Single-family housing starts, which account for the bulk of homebuilding, climbed by 6.7% to 983 thousand and starts in buildings with five units or more were unchanged at 460 thousand amid limited supply in the resale market. Starts increased in the Northeast (1% to 102 thousand), in the Midwest (9.9% to 178 thousand) and in the West (14% to 383 thousand) but fell in the South (-1.3% to 789 thousand). Data for June 2023 was revised lower to 1.398 million from 1.434 million” US Census Bureau
Tight supply is recognized. The number has clearly bounced around this year, however the May surge is more indicative, I think, of the next 12 months than the January low. We need more houses - so more houses need to be built. Groundfloor will continue to support the construction of new housing, even if it is one unit at a time, so that more homes will be available and that our investors will continue to have the opportunity to diversify into these well yielding debt positions.
If you have any questions or comments, please feel free to reply to this post!