Market Update: September 2023

What Parcl Traders Need to Know

• Seventeen tradable North American Parcl markets finished September approximately flat, in aggregate. The average performance was -0.02% vs. August in ppsft terms. This compares to -0.3% MoM in August and -0.9% MoM in July.
• Some residential real estate markets, such as Washington DC, Boston, and Chicago, experienced meaningful price declines MoM, while Denver, Miami Beach, and Atlanta were the MoM outperformers. The USA price feed was flattish at -0.1% MoM.
• Portland, Austin, and now Washington DC, are the clear underperformers YTD (-6.2%, -0.6% and -2.0% respectively).  On the other hand, Boston remains the top performer in 2023, up 14.1% YTD and +12.3% YoY.
• Total September open/close volume was over $140,000 USDC (over $750,000 notional exposure), up modestly MoM.
• Parcl traders exited September as short as they’ve ever been; the aggregate split across all pools exited the month at 10% long / 90% short.
• Total open interest (OI) across all Parcl pools is above $275,000 in USDC terms, an all-time-high; highest OI markets are Boston, Washington DC, and San Francisco.
• Paris and Ile-De-France are the most recently launched markets on Parcl. Paris fell 1.0% MoM in September (vs. +1.1% in August) while Ile-De-France declined -0.4% (vs. -2.6% in August). Stay tuned for more global locations coming soon!

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The State of Real-Time Real Estate Prices

Final September data shows the third consecutive MoM decline across the seventeen tradable North American markets, albeit a nearly insignificant one. The average performance in September fell 0.02% vs. August. This compares to -0.3% in August and -0.9% in July.

Some residential real estate markets, such as Washington DC, Boston, and Chicago, experienced meaningful price declines MoM, while Denver, Miami Beach, and Atlanta were the MoM outperformers. The USA price feed was flattish at -0.1% MoM (also -0.1% in August).

Portland, Austin, and now Washington DC, are the clear underperformers YTD (-6.2%, -0.6% and -2.0% respectively).  Portland and Austin are down mid-single-digits YoY, while Washington DC remains up a modest 1.3%.

Boston remains the top performer in 2023, up 14.1% YTD and +12.3% YoY. Miami Beach and Brooklyn are close behind (both up 13.2% YTD).

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

Only four of 17 tradable North American markets are outperforming the USA Price Feed YTD (+11.7%): Boston, Chicago, Miami Beach, and Brooklyn.

What might this indicate? That 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.

Paris and Ile-De-France are the most recently launched markets on Parcl. Paris fell 1.0% MoM in September (vs. +1.1% in August) while Ile-De-France declined -0.4% (vs. -2.6% in August). Stay tuned for more global locations coming soon!

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. This has led to an apparent stabilization in risk appetite.

Treasury yields are up meaningfully in recent weeks, now well above their YTD lows in mid-April, 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 has compressed markedly in recent weeks, off its 40 year high. Should this spread mean revert somewhat, and the 10y Treasury remains unchanged or continues to decline, this could perhaps create a modest 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 9/26, showing continued but slowing 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 flattish performance in most markets. While many markets are up low/mid single digit percent from their end-June marks, a few, such as San Francisco, and Washington DC are off their highs and close to turning negative. Denver is the clear outperformer.

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 September as short as they’ve ever been; the aggregate split across all pools exited the month at 10% long / 90% short. Interestingly, this coincides with the USA price feed stabilizing after a modest drawdown in late July and early August.

Total open interest (OI) across all Parcl pools is above $275,000 in USDC terms, an all-time-high; highest OI markets are Boston, Washington DC, and San Francisco.

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.