2020 was a challenging year, with unexpected events and unforeseen consequences for the entire market.

The Coronavirus Pandemic brought uncertainty and confusion and its impact will be felt for the coming periods. But, the overall response from the US Government and Regulatory entities was reasonable and most of the economic segments could survive or even improve in these times. Unfortunately, a few segments shrank and will take longer to recover or even not be the same.

Our segment, the residential real estate market, benefited and strengthened due to the consequences of the change in behavior that this unexpected scenario brought. U.S. housing gained about $2.5 Trillion in value in 2020, the most in a single year since 2005, according to Zillow Analysis. The full stock of U.S. housing is now worth $36.2trillion. The Mortgage Bankers Association projects mortgage originations last year to end at around $3.6trillion, the most since 2003; adding that this “market truly has been one of the very few bright spots of the economic recovery”.

In this environment, we are pleased to inform that our investment fund, the Brickell Bay Mortgage Opportunity Fund, that purchases high Yield residential mortgage notes in the US, reached the proposed benchmark. The fund has been performing properly and building a consistent track record since its inception.

Our partners and investors have been very motivated with the mortgage notes’ performance and its relevant portfolio allocation toll that contributes as an asset diversification option with low volatility and stable returns. It keeps our positive track record, that started back in 2012, and reinforces the confidence in our business model. We have been experiencing an increasing interest by wealth managers, broker-dealers, family-offices, and investors seeking value in our assets and adding them to their investment portfolio. 

Based on the market specialist’s analysis and forecast, we expect a strong but still challenging 2021 and we will stick to our winning proposition of being positioned in mortgage loans guaranteed by residential properties, with a minimum 25% down payment and underwriting guidelines based on ability-to-repay.

Lending standards have proven to be consistent with current market conditions and our conservative underwriting guidelines. The default rate remains under control and at a comfortable level.

US ECONOMY
              
US GDP fell 3.5% during 2020, as a consequence of the Coronavirus crisis that locked down factories, businesses, and households. It was the worst performance since 1946 and the first economic contraction since 2009. Looking ahead, economists, interviewed by the Wall Street Journal, project a strong rebound for 2021, with the economy growing by 4.3%.

Most of this contraction happened in the first half of the year. In the second half, overall, the economy performed above the expectations and proved to be resilient showing slight signals of recovering.

Unemployment rates are still high, but personal income grew significantly mostly because of $1,200 stimulus checks and enhanced unemployment benefits that were extended until March of 2021. The Congress approved around $4 Trillion in relief programs to keep the economy moving and more measures are under analysis.

With this social protection program, disposable personal income grew faster for lower income households than it did for the average household, according to the Peterson Institute. It helped and has been helping families pay their basic expenses on time, including home mortgages; thus protecting their most valuable asset: their homes.

When we take into consideration the guidelines from health authorities, such as social distancing, home quarantine (which values the ownership of the residential property), the acceptance and adoption of the home office as a viable and feasible workplace, coupled with the preservation of the basic income of families, we notice a mitigated impact on our portfolio of residential real estate mortgage notes and the maintenance of the portfolio’s quality. 

RESIDENTIAL MARKET OVERVIEW 

The residential real estate market performed above expectations and contributed in a relevant way to mitigate the negative impact in the economy imposed by the coronavirus crisis. 

Total homes sold in 2020 reached 6,760,000 units, above projections. Average price per home was $309,800, up 12.9% when compared to 2019. These bright numbers were possible with the contribution of the millennials that represented the largest share of home buyers at 38%, followed by higher earners, often less affected by the pandemic’s financial repercussions.

There is still a consistent demand for homes, mostly in the entry level. Per the think tank “Housing Center”, existing supply is at a record low level of 2.3 months where six months is considered a market that is in balance and new construction is down to 3.5 months.

“This strong performance has been fueled by the work-from-home phenomenon, the millennial generation becoming home buyers, second-home demand due to the pandemic and then of course, the low interest rates”. 

The point of attention in this movement is that low supplies and strong demand impact affordability. Just in the fourth quarter of last year, median prices were up at least 10 percent in most of the nation, according to a report by Attom Data Solutions. 

On one side, this phenomenon tends to limit future homeownership opportunities, mostly for young adults. The positive side of this price appreciation is that it has boosted wealth accumulation for homeowners.
 
We think that lock down measures will still be in place for the short term, but we already foresee some come back in the second half of the year due to the expansion of vaccination and higher economic activity. It sustains the projection of another strong year for the residential real estate market. 

Zillow, a real estate marketplace company, predicts that annual home sales will increase more than 20% compared to 2020. This consistent demand will keep prices moving up.

In this scenario, residential mortgage loans have been playing a relevant and strategic role in balancing the relationship between sellers and buyers, contributing to the stability and consistent performance of this market.

Please, feel free to contact us for any additional information.