Pacaso business success amid the current macro-environmentAs mortgage rates initially started to rise, many in the real estate industry observed some buyers opting to remain on the sidelines due to the sticker shock. However, in recent times, Pacaso buyers have been acclimating to 7% or 8% mortgage rates as the new standard. As rates continue to climb, the impact on whole home affordability is significantly greater, approximately 8 times more substantial than that on co-owned homes like Pacaso. Thus, people are increasingly recognizing the value of co-ownership, particularly in a high-mortgage rate environment, which has translated into Pacaso achieving its most successful month in the company's history. In August 2023, Pacaso marked its strongest month of the year, with a 142% increase in funded shares compared to July 2023. Pacaso also has a vibrant resale marketplace averaging 10% gain historically on resold shares.
Impact of rates on the housing marketInterest rates are expected to remain elevated for an extended period; their decline isn't anticipated in the near future. Even though a 8% mortgage rate is notably high, the average mortgage rate typically hovers around 6-7%, so we're not too far from that range. To facilitate a decline in rates, the federal interest rates need to decrease, and the interest rate spread must narrow.The number of homes sold this year has significantly decreased, with experts projecting approximately 4 million homes in the U.S. in 2023. This marks the lowest transactions in this century and the lowest since 1995. In comparison, last year in 2022, the number of homes sold was 5.6 million.In a market with limited inventory, stable home prices tend to find support. Home prices are chiefly influenced by supply, which requires expansion. Nevertheless, there are challenges to rising inventory: many homeowners, holding onto their lower interest rates like "golden handcuffs," and homebuilders are contending with obstacles in increasing inventory due to the elevated building costs brought about by inflation.
Innovative real estate models arising in current high-rate environments
- Unlocking Home Equity Agreements: Innovative home equity agreements are becoming increasingly popular. With these agreements, individuals offer to invest in a portion of your home without charging interest, as long as you continue to own the property. Buyers of co-owned homes with Pacaso explore these home equity options, in addition to other financing options, to finance a second home.
- Emerging Home Equity Lines of Credit (HELOCs): Home equity lines of credit are now emerging, not from traditional banks but from shadow banking systems.
- Assumable Mortgages: It's worth noting that many Fannie Mae and Freddie Mac home mortgages are assumable. Approximately one-quarter of homes in the U.S. have assumable mortgages.