Market Update: August 2023

What Parcl Traders Need to Know

• Seventeen tradable North American Parcl markets posted mixed returns in August. Average performance across all markets fell 0.3% vs. July in ppsft terms. This compares to -0.9% MoM in July and +1.8% in June.
• Some residential real estate markets, such as Portland, Austin, and Chicago, experienced meaningful price declines MoM, while Atlanta, Brooklyn, and Miami Beach were the MoM out-performers. The USA price feed was flattish at -0.1% MoM.
• Portland and Austin are the clear under-performers YTD (-7.6% and -1.5% respectively) and YoY (both down approx. 10%).  On the other hand, Boston remains the top performer in 2023, up 18.6% YTD and +17.5% YoY. Miami Beach (+11.0% YTD) remains the top YoY performer at +17.9% vs. August 2022.
• Total August open/close volume was over $120,000 USDC (over $500,000 in notional exposure), down slightly from the banner month of July but exceeding June by over 4x.
• Parcl traders exited August as long as they’ve been since late June; the aggregate split across all pools is 69% long / 31% short.
• Certain pools are notably skewed, however. Standouts are Miami Beach (~99% long, ~$71k OI), San Francisco (~96% long, ~$57k OI), Austin (~99% short, ~$43k OI),  and Seattle (~99% short, $10k OI).
• Total open interest (OI) across all Parcl pools is above $250,000 in USDC terms; the highest OI markets as of August 31st are Miami Beach, San Francisco, and Austin.
• Paris and Ile-De-France are the most recently launched markets on Parcl. Paris rose 1.1% MoM in August (vs. -0.84% in July), while Ile-De-France declined -2.6% (vs. -0.73% in July). Stay tuned for more global locations coming soon!

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The State of Real-Time Real Estate Prices

Final August data shows the second consecutive MoM decline across the seventeen tradable North American markets. July was the first MoM decline since January. The average performance in august fell 0.3% vs. June. This compares to -0.9% in July and +1.8% in June.

Some residential real estate markets, such as Portland, Austin, and Chicago, experienced meaningful price declines MoM, while Atlanta, Brooklyn and Miami Beach were the MoM outperformers. The USA price feed was flattish at -0.1% MoM.

Portland and Austin are the clear underperformers YTD and YoY. Portland is now down 7.6% YTD, and is 15.8% off its all-time high. Austin is -1.5% YTD and -9.8% YoY.

On the other hand, Boston remains the top performer in 2023, up 18.6% YTD and +17.5% YoY. Miami Beach (+11.0% YTD) remains the top YoY performer at +17.9% vs. August 2022.

All markets are at least 1% off their all time highs, many of which were set within the past several months, except Phoenix (-0.8% from all time highs), and the USA price feed (-0.4% from highs).

Only three of 17 tradable North American markets outperformed the USA Price Feed YTD (+11.8%): Boston, Chicago, and Brooklyn. Philadelphia is no longer outperforming.

What might this indicate? Regions outside of the most recognizable and populous (largely coastal cities) are driving most of the recent performance. This is supported by Parcl Labs data.

What factors are driving markets generally?

Volatility across markets remains subdued, as evidenced by the VIX Index. Volatility remains well below the spike in March around bank solvency concerns, consistent with real time readings from the St. Louis Fed Financial Stress Index (below). This has led to an apparent stabilization in risk appetite.

real-timeTreasury yields are up modestly from mid-March, while equity markets are up double digits. Inflation has fallen markedly over the same time frame.

The spread between 30-year mortgage rates and the 10-year U.S. Treasury yield is the widest it has been in nearly 40 years. Should this spread mean revert somewhat, and the 10y Treasury remains unchanged or continues to decline, this could perhaps create an additional tailwind for residential real estate demand near term.

Important to note, the magnitude is diminished when adjusting for the effects of duration relative to the treasury yield curve.

The Case Shiller updated with June data on Tuesday 8/29, showing continued gains in prices across all major markets. Real time data from Parcl Labs picked this up as it was happening, and, in the nearly two months since, show a continued but slowing recovery. While many markets are up low/mid single digit percent from their end-June marks, a few, such as San Francisco, are off their highs and close to turning negative.

Importantly, July marks the tail end of the seasonal outperformance typically seen in many north/northeast markets.

What are Parcl traders doing?

Parcl traders exited August as long as they’ve been since late June; the aggregate split across all pools 69% long / 31% short. Interestingly, this coincides with the USA price feed stabilizing after a modest drawdown in late July and early August.

Certain pools are notably skewed, however. Standouts are Miami Beach (~99% long, ~$71k OI), San Francisco (~96% long, ~$57k OI), Austin (~99% short, ~$43k OI),  and Seattle (~99% short, $10k OI).

Total open interest (OI) across all Parcl pools is approximately $250,000 in USDC terms; the highest OI markets as of August 31st are Miami Beach, San Francisco, Austin, and Seattle.

Given the variable positioning, contrarian opportunities may exist, especially in regional markets with diverting relative fundamental trends. Contrarian positions can be particularly attractive to traders with a counter or market-neutral view of Parcl markets with funding rate arbitrage opportunities.

Paris and Ile-De-France are the most recently launched markets on Parcl. Paris rose 1.1% MoM in August (vs. -0.84% in July), while Ile-De-France declined -2.6% (vs. -0.73% in July). Stay tuned for more global locations coming soon!