What Parcl Traders Need to Know

• Seventeen tradable North American Parcl markets posted mixed returns in July. The average return in residential real estate prices (ppsft) was -0.9%, the first MoM decline since January. This compares to +1.8% gains in June and +1.9% in May.
• The lone standout in July was Austin, TX, rising 4.8% MoM, and nearly recovering its -5.1% decline in June. Austin was the worst performer of all Parcl markets in June by a wide margin. Austin is still down 10.4% from July 2022, and is 12.3% off its all-time high.
• Former YTD leader Boston, as well as Miami Beach, and Atlanta posted the largest declines in July, down 5.1%, 4.8%, and 4.7% MoM respectively. Chicago is now the lone YTD leader at +18.7%.
• July was the largest month on record for opened positions on Parcl, exceeding the prior monthly high water mark (set in June) by over 5x.
• Parcl traders are slightly net short, with the aggregate split across all pools 42% long / 58% short. Pools have largely remained within +/- 10ppts of evenly skewed since late June.
• Certain pools are notably skewed, however. Standouts are Austin (~91% long, ~$39k OI), Miami Beach (~91% short, $33k OI), and Atlanta (~87% short, $17.5k OI).
• Total open interest (OI) across all Parcl pools exceeded $200,000 in USDC terms earlier in July; highest OI markets as of August 1st are Austin, Miami Beach, Atlanta, and San Francisco. OI now sits at ~$140k, down slightly from July’s mid-month update.
• Paris and Ile-De-France are the newest tradable markets on Parcl. Paris fell -0.84% in July while Ile-De-France declined -0.73%. Stay tuned for more cities coming soon!

The state of real time real estate prices

Final July data shows the first MoM decline across the seventeen tradable North American markets since January. July fell 0.9% vs. June. This compares to +1.8% in June and +1.9% in May. Some residential real estate markets, such as Boston, Miami Beach, and Atlanta, experienced meaningful price declines MoM, while June's biggest loser (-5.1% MoM) Austin reversed to lead all markets in July at +4.8%.

Austin remains down 10.4% from July 2022, and is 12.3% off its all-time high. On the other hand Miami Beach and Boston lead the group on trailing 12 month performance, up 7.7% and 6.1% vs. July 2022, respectively.

This trend of regional divergence that has persisted for much of the past ~12 months rolls on, at all levels of geography (national regions, state vs. state, intra-metro, etc.)

Chicago took pole position in YTD price performance on a ppsft basis at +18.7%. Runners up include Boston (+17.9% YTD), and Philadelphia (+12.8%). The USA price feed clocks in at +11.9%, good for fourth place out of the seventeen tradable North American markets. Put differently, only three of 16 markets are outperforming the full USA price feed YTD. Indexing strikes again!

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; treasury 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 May data on Tuesday 7/25, showing a continued recovery 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, with many markets up low/mid single digit percent from their end-May marks. This recovery may be nearing a pause or reversal, however, if July performance is any indication. July also marks the tail end of the seasonal outperformance typically seen in many north/northeast markets.

‍

What are Parcl traders doing?

Parcl traders are slightly net short, with the aggregate split across all pools 42% long / 58% short. Pools have largely remained within +/- 10ppts of evenly skewed since late June. Interestingly, this coincides with the USA price feed flattening out after solid gains in May & June.

Certain pools are notably skewed, however. Standouts are Austin (~91% long, ~$39k OI), Miami Beach (~91% short, $33k OI), and Atlanta (~87% short, $17.5k OI).

Total open interest (OI) across all Parcl pools exceeded $200,000 in USDC terms earlier in July; highest OI markets as of August 1st are Austin, Miami Beach, Atlanta, and San Francisco. OI now sits at ~$140k, down slightly from the most recent (mid-month) update.

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

Paris and Ile-De-France are the newest tradable markets on Parcl and also the first European markets. Stay tuned for more global cities & metros, coming soon!