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Monthly Market Trends - December

Welcome to our new Monthly Market Trends series. At the beginning of each month, we will aim to highlight elements from the current news cycle that is relevant to you, the Groundfloor investor. We will primarily focus on the latest real estate and housing market news, while offering our interpretation of current trends and providing you with balanced commentary to help you in your investment decisions. 

With interest rates dominating the headlines, the big question is: what is to be expected in 2023? 

Trading Economics Quote

We anticipate that interest rates, especially in terms of volatility, will moderate. The Fed will pivot at some point and the spread between the Fed Funds Rate and the 30-year mortgage rate should start to normalize. This would mean that if Fed Funds terminate at a 5% level, we should expect mortgage interest rates in the mid-6% range. Historically speaking, this would be considered manageable. Coupled with a moderate home price resetting, 2023 could see a more normalized rate environment, which means we could see first-time homebuyers re-enter the market. To date, this segment has been largely dormant due to recent appreciation. 

Interest Rates to Stabilize in Q3 2023

Source: Trading Economics 

Inflation Rate Forecast

The Fed has been very clear that its efforts will tame inflation. As inflation cools and perhaps hits the 2% target rate in 2023, the Fed should be gradually easing rates overall, which may potentially normalize 2024. Many of the new LROs being offered on our platform will begin maturing at the end of 2023 and into 2024, and the 18-month new construction LROs will be maturing closer to the end of 2024 and into 2025. As we progress further into 2023, the maturities will increasingly align with what should be a normalized market, where sellers and buyers are in greater alignment. 

Target Inflation Rate Q4 2023

Price Discovery

As a Groundfloor Investor, it is very important that you consider the specifics of your LRO portfolio. Groundfloor offers loans that are used to renovate homes in the lower and middle home price segments. These segments have seen considerably more stability over recent quarters (represented by the solid blue line moving from bottom left to top right on the chart below), due to there being a greater engagement with buyers and sellers within that range of prices. Although these values might not be immune to fluctuations, real estate debt investments are still a safer bet than other segments due to its wider reach.

Price Index of Homes

Source: FHFA Index and Case Schiller

Stricter Loan Guidelines

Money House

Because of market headwinds, Groundfloor recognized the shifting housing dynamics and as a result, modified our Lending Guidelines in July 2022. The changes paused our highest-leverage loan offerings and restricted leverage across all loan types, among other adjustments. Our core lending product - the Purchase and Renovation loan - now requires more ""skin in the game"  (cash down payment) from our borrowers, and the loans with more complex construction require additional borrower equity, with less money advanced against the total project cost. Looking ahead to 2023, we anticipate our lending guidelines will remain tight in order to continue to ensure that the company is making the best loans possible while adequately protecting and safeguarding investors' capital.

As we continue to monitor the markets moving forward, Groundfloor will likely be constructing and implementing lending guidelines per specific local market, as we expect each region to have different employment and growth outlooks. While we currently lend in over 30 states, we do have key local markets, and the construct of loan types may need to vary.  

We will update you on a monthly basis regarding housing market trends and will add lending guideline commentary when relevant. For more real time market trend information and Groundfloor commentary, please follow us on the major social channels: Linkedin, Twitter, Facebook and Instagram

Have a safe and happy holiday season. 

Patrick Donoghue

VP of Market Risk

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