Oct 2022
This year’s heightened market volatility has spread across risky assets and safe havens alike, leaving investors nervous and questioning where to hide from further pain. In these trying times, real estate loans are an attractive alternative providing lower risk and increased stability.
The US economy completed its first period of positive growth for 2022 in the third quarter according to an early estimate of the Bureau of Economic Analysis report October 27, 2022. From July to September, US GDP increased at 2.6% annually coming off its negative consecutive quarters to start 2022. This news further adds to the resolve to the Fed to continue its 0.75 percentage point interest rate increase at the next Fed meeting. A pivot in the narrative is now being reported as the Fed might begin to slow the pace of future increases as they allow time for the effects of its policy on the economy to work in.
Stocks and Bonds are Down Year-to-Date
Through Q3 of 2022, the stock and bond markets in the U.S. have delivered negative returns. Less risky interest-bearing alternatives, such as bonds and CDs, are seeing their rates of return being outpaced by inflation as much as three to one.
The S&P 500 has fallen 1,214 points or nearly 25% since the first day of trading on January 3, 2022. All major U.S. stock indexes (Dow, Nasdaq Composite, S&P 500) are all heading towards their worst annual performance since the financial crisis in 2008.
Even major market players are pessimistic about stock futures. JPMorgan Chase CEO Jamie Dimon recently said the U.S. stock market could see an “…easy 20% drop, which would push the [S&P 500] benchmark index below 3,000 – a level it hasn’t seen since the depths of the coronavirus pandemic.” He continued saying that current market conditions remain “…disorderly…and volatile.” Furthermore, FedEx CEO Raj Subramaniam appeared on CNBC with Jim Cramer predicting that we are “going into a worldwide recession.” These comments came after FedEx missed on earnings in the preceding quarter of 2022.
Bonds have also seen a negative performance and have only performed slightly better than the general stock market in 2022. Bloomberg’s U.S. Aggregate bond index is on pace for its worst year on record going back to 1976. The bond index is down -16% on a year-to-date basis. Bloomberg’s bond market index represents intermediate-term investment-grade bonds traded in the U.S., and professional investors frequently use the index as a stand-in for measuring the performance of the U.S. bond market. As detailed below, we can see the index’s performance over the past 5 years. The drop in 2022 is quite steep with the index hitting 1,982 points in October; the lowest point over the last 5 years.
Other traditional investment instruments like certificates of deposits (CDs) and mutual funds have continued to see low yields despite numerous rate increases by the Federal Reserve (Fed). The yields on CDs are currently ranging between 2% to 3% and mutual funds are hovering at 4.5% on their 20-year average. In addition to these relatively low rates of return, none offer protection against inflation.
All this is leaving investors asking, “How can I gain steady yields without excessive risk?” Safeguard’s answer- through first deed trust lending.
Housing Market and Mortgage Rates
The housing market and all the uncertainty plaguing it is undoubtedly on the minds of prospective buyers, sellers and investors. As the Fed continues to curb inflation through the increase in interest rates, it has indirectly driven up the cost of the primary home loan that over 90% of buyers apply for — the 30-year fixed-rate mortgage.
The average rate on 30-year fixed mortgages in the U.S. has climbed to 6.7% as of September 29, 2022, more than double what it was on September 30, 2021. This increase has homebuyers facing the highest rates and monthly payments since the 2008 financial crisis!
Due to additional rate increase and the still historically high home values, prospective buyers are confronting a growing affordability crisis. This is being reflected by a steep decline in purchasing demand. According to the National Association of Realtors, existing home sales fell for the seventh consecutive month in August and sales dropped 20% compared to one year ago. These disenfranchised buyers are instead returning to the rental market.
At the same time, available inventory continues to grow. Realtor.com data shows that active home listings in 2022 have been exceeding 2021 levels since May, and in September the year-over-year gap peaked at +27%. Prospective buyers understand that if they are to obtain a mortgage for the purchase of a new home, they will see an interest rate nearly twice as high as in 2021 with payments 50-60% higher.
In an investment environment starved of returns and plagued by instability, first trust deed lending is offering both security and profit.
Note Investments Offer 9-12% ROI
Real estate backed mortgage debt offers your investment portfolio a hedge against the current declines and volatility in the stock and bond markets. Investing in debt, compared to equity, offers a physical property held as collateral to ensure the security of your investments.
Rather than buying a property yourself and risking a declining market, investing in real estate loans allows you to benefit from the same higher interest rates that are slowing conventional house buying. Lending at higher rates equates to higher returns for the lender – you!
First deed trust lending is a way to feel more secure as home prices correct, because your gains are predictable in terms of amount and payment frequency, and you have the security of an asset backed investment.
What Does it Mean for Investors?
At Safeguard, we offer first trust deed real estate lending options secured by actual, physical assets.
Our team has a spent the last 15 years creating wealth for our clients.
We currently have lending options to meet every investment need. Short term, long term, large or small; we have an investment instrument for you. Don’t sit on the sidelines watching the value of your money decrease to rising inflation. Get your money working for you!
Reach out to your trusted Safeguard advisors today!
Managing Partner: Corey Fleetwood- corey@safeguardcapitalpartners.com
Director of Operations: Andrew Reed- andrew@safeguardcapitalpartners.com
Customer Relations Manager: Walter McManigal- walter@safeguardcapitalpartners.com
Why be a landlord? Be the Bank!
