Market Report: March 27th 2023

What Parcl Traders Need to Know

• Residential real estate prices remain stable MTD, though some markets on the Parcl trading platform are inflecting higher, such as Phoenix & Manhattan

• Macroeconomic volatility is accelerating; idiosyncratic events such as banking failures and related contagion have materially impacted the most important and liquid financial instruments, including those that price real estate loans

• Realized volatility of government bond prices is inflecting, with recent and sharp moves lower in yields, though mortgage rates haven’t yet responded accordingly

• Parcl traders appear to be remaining cautious in the face of these events, but Parcl markets remain ripe for two way trading

The state of real time real estate

Residential real estate prices remain stable MTD, though some markets on the Parcl trading platform are inflecting higher, such as Phoenix (breaking out) & Manhattan (ascent off a local bottom leveling off). The California markets of San Francisco and Los Angeles are mostly stable after having recovered a portion of trailing 12mo losses in February. Miami and Brooklyn are both roughly flat YTD, with Miami exhibiting far greater volatility (and tradability!).

What is driving markets generally?

Macroeconomic volatility remains elevated; treasury yields are exhibiting accelerating realized volatility, which has an impact on myriad downstream elements, such as mortgage rates and demand for housing.

Idiosyncratic events such as bank failures (SI, SVB, SBNY) and the resulting contagion in parts of the financial system (Credit Suisse, First Republic, etc.) and Federal Reserve policy decisions, are exacerbating the push/pull on interest rates and compounding changes in risk appetite.

These and other recent events have led to a near term pullback in government bond interest rates, which could provide some relief to homebuyers via lower mortgage rates, though we haven't seen this materialize yet. This appears in part due to the spread (premium) in 30 year mortgage rates relative to the 10 year treasury, which has reached levels not seen since 2008/09.

If the spread between the 10yr & mortgage rates mean revert, and the 10y treasury continues to decline, this could perhaps create a resurgence for residential real estate demand near term.

The Case Shiller is set to update for Janurary data this week, which will likely bring residential real estate prices and volatility back into focus. We see a tradable setup, as we expect the Case Shiller to show continued softness, versus real time data from Parcl Labs showing a bottom in early 2023.

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