Pretium’s Housing Insights, November 2022


Pretium’s Housing Insights, November 2022

November 30, 2022


The US is already underbuilding housing again, worsening the long-term supply shortage

Single-family housing construction has fallen meaningfully below long-term averages1

Rising rates have achieved the Federal Reserve’s intended effect of dampening housing demand and bringing down the rate of home price and rent growth. But increased demand was just one side of a historic supply-demand imbalance that drove rapid home price and rent growth during the pandemic. The other side was years of underproduction leading up to the pandemic, especially of single-family homes. The Fed induced rate shock may have brought housing supply & demand back into balance; however, it has also prompted builders and developers to sharply reduce rates of construction, particularly of single-family homes. Consensus forecasts call for rates of construction to continue to decline into 2023, which means the pandemic construction surge lasted less than two years. This wasn’t enough to address housing’s pre-pandemic housing shortage, let alone a post-pandemic housing market that could feature structurally higher levels of demand driven by factors such as hybrid work, increased migration, and an increased focus on the home. Longer-term, Pretium expects that the housing supply shortage is likely to remain a central driver of US housing market dynamics and that this supply shortage will be more pronounced for single-family vs. multifamily homes. 

Permits are the first step in the construction process and monthly permits trends provide an early gauge of overall housing construction levels. In October, US housing permits are down nearly 20% from their early 2022 peaks. As shown in Exhibit 1 this decline is almost entirely driven by declining single-family permits that are down roughly 30%; by contrast, multifamily activity is down just 5%. Single-family permits fell below the rate of single-family completions in June, so homebuilder construction backlogs have been declining since then. On the other hand, multifamily permits remain well above multifamily completions and construction backlogs are still increasing. In the near-term single-family homebuilders have curtailed production more sharply than multifamily developers because of the sensitivity of home purchase demand to rising mortgage rates; over the longer-term, Pretium believes that land and housing supply constraints are also more acutely felt in the single-family market. 


Starts represent ground-breaking for new homes and provide the longest time series for analyzing levels of construction. As shown in Exhibit 2, the average level of single-family starts since 1959 has been 1.02 mm. October’s single-family starts pace of 0.86 mm is 16% below this long-term average and consensus forecasts project construction levels to continue to decline in 2023. For example, Fannie Mae forecasts that single-family starts will decrease to 0.79 mm in 2023. Multifamily starts remain above their long-term average, but the decrease in single-family activity has been significant enough to drive overall housing starts below their long-term averages. If housing starts begin to recover in 2024 at the same roughly 6% annual growth rate the market experienced from 2013-19, it could take until 2027 for total housing starts to again exceed their long-term averages. This would result in a 20-year period from 2007-2026 where total housing starts only exceeded their long-term average for two years during the pandemic. 

1. Source: US Census, New Residential Construction, as of October 1, 2022; Fannie Mae Housing Forecast, as of October 10, 2022. 

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

CLO Equity Delivered Strong Returns Through the Financial Crisis Period


CLO Performance Report, November 2022

November 10, 2022


CLO equity delivered strong returns through the financial crisis period

During the Global Financial Crisis (GFC) episode, default rates on the bonds issued by collateralized loan obligations, or CLOs, were far lower than those for other structured credit products such as CDOs, RMBS, CMBS, and ABS. Legacy structured finance CDOs (SF CDOs) and subprime RMBS had average annualized impairment rates of 24.1% and 10.0% respectively, vs. just 0.2% for CLO debt tranches (Exhibit 1). CLO equity tranches also performed well through the GFC. A study by researchers at the Federal Reserve Bank of Philadelphia finds that the median CLO equity tranches issued during 2005-2007 earned 13%-18% lifetime IRRs (Exhibit 2). In contrast, most of the equity and debt securities from RMBS, CMBS, and CDO transactions from the same period experienced negative returns.

How were CLOs able to avoid the distress experienced by so many seemingly similar sectors during the financial crisis? We highlight three factors that contributed to the success of CLO equity and that differentiated CLOs relative to other structured finance asset classes of this era:

  • Long-term funding: CLO equity tranches achieve leverage via long-term funding at fixed credit spreads. As a result, CLO managers were not forced to sell loan assets in the periods of deep market distress experienced during the GFC. By contrast, structures that relied on shorter term funding instruments (e.g., repo financing) faced margin calls and thus were forced to sell assets at distressed prices, eroding returns.

  • Benefits of senior-secured corporate lending: The business loans that back CLOs are senior in the issuers’ capital structures and are typically secured by real estate or other corporate assets. As a result, the recovery rates on loans have historically been much higher than for high yield corporate bonds, say, which are typically junior and unsecured. The high recovery rates on defaulted CLO loan assets in turn helped to limit the losses experienced by CLO equity and debt investors during the financial crisis period.

  • Industry diversification: CLO collateral pools are highly diversified across industry sectors. Most prospectuses limit the fraction of total pool balance that can be allocated to any one sector or obligor. By contrast, many other structured finance products were backed by highly similar assets (such as mezzanine subprime RMBS bond tranches in the case of CDOs)1, which all defaulted at the same time when US real estate prices declined and mortgage foreclosure rates rose.

We believe that the factors above which contributed to solid CLO equity returns during the financial crisis period continue to be broadly relevant going forward. While past performance is never a guarantee of future returns, the resilience shown by CLO equity through the historically extreme global financial crisis scenario helps contribute to confidence that the strategy can offer positive returns even if, as we expect, economic volatility remains elevated over the medium-term horizon.

1. “Collateral Damage: Sizing and Assessing the Subprime CDO Crisis”, Federal Reserve Bank of Philadelphia Working Paper No. 11-30/R.

Pretium’s Housing Insights, October 2022


Pretium’s Housing Insights, October 2022

October 26, 2022


Investor activity in housing had no discernible impact on homeownership during the pandemic

The stock of single-family rental housing has been falling in recent years

One of the more persistent housing narratives to emerge during the pandemic is that a dramatic increase in investor activity has limited the ability of aspiring homeowners to purchase single-family homes. As widespread as this narrative is, it doesn’t stand up to basic scrutiny. The US homeownership rate rose through the pandemic at the same trajectory it was rising pre-pandemic (Exhibit 1). As of 2Q22, the homeownership rate reached 65.8%, up 170 bps from 2Q19 and above the long-term average of 65.2%. If investor activity has been crowding out individual home purchases the homeownership rate would have at best been flat or potentially declining.

Also, recently released data from the Census indicates that the total stock of single-family rental units fell by more than 100,000 to 14.3 mm in 2021 from 2019; by contrast, the stock of single-family owned homes increased by 4.5 mm during the same period (Exhibit 2). In the single-family market investor activity during the pandemic appears to have created no impediment for owner-occupiers. In 2022, investor activity in the housing market has slowed along with the purchase market and in the coming years we would expect it to continue to have little to no impact on owner-occupier trends.

The narrative about investor activity and homeownership largely rests on new data released during the pandemic that portrays record levels of investor buying in 2021; however, this data is far from conclusive. It is directly contradicted by other analyses that show investor buying was at historically normal levels during the pandemic and in fact has been falling in recent years. Even if investor buying trends could be accurately captured, it would only tell half the story. It is equally as important to consider investor sales – a recent study found the smaller investors sold 50% more homes in 2021 than they bought. Since smaller investors hold roughly 97% of single-family rental homes, this helps to explain why single-family rentals fell as a share of the overall housing stock during the pandemic.

If anything, the data argues that more investment in single-family rental housing is needed. The Harvard Joint Center for Housing Studies recently found that rental housing options are most lacking in suburban, single-family neighborhoods. Not only will increased investment in single-family rentals broaden access to the opportunities that high quality single-family housing brings for its residents; but also, increased investment is necessary to resolve US housing’s overall supply shortage.

1. Redfin and CoreLogic Investor Buying Analyses, both as of August 2022..
2. National Association of Realtors, “Impact of Institutional Buying on Home Sales and Single-Family Rentals”, May 2022; Freddie Mac, “What Drove Home Price Growth and Can It Continue?”, June 9, 2022.
3. CoreLogic, “Small Investors Chose to Sell Properties Rather than Rent Them During the Pandemic”, September 5, 2022.
4. Pretium calculations based on John Burns Real Estate Consulting Single-Family Rental Properties by Large Operator data, retrieved October 2022 and US Census, American Community Survey 1-Year Estimates, 2021.
5. Harvard JCHS, “Rental Deserts Perpetuate Socioeconomic and Racial Segregation”, August 4, 2022.

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

Key Takeaways from Pretium’s 2022 Investor Symposium


Pretium Investor Symposium

September 13-14, 2022

This September, we hosted nearly 300 investors at our 2022 Investor Symposium in New York City. Leading experts in real estate, residential debt, and credit discussed industry trends as well as the global economic landscape. The headline: there are a number of forces at play in the global real estate and credit markets that are relevant to investors now and as we head into 2023.

A Rising Rate Environment

Perhaps the most salient of these forces is rising interest rates. The scale and speed of the Federal Reserve’s rate increases have pushed up U.S. mortgage rates, leading to an expected deceleration in home prices, with prices in some markets already flattening or beginning to fall. Apart from the impact of rate increases, housing market fundamentals in the U.S. remain strong, with persistent outsized demand, limited supply, strong credit quality, rental growth, and record levels of home equity.

In fact, the $28 trillion in existing home equity in the U.S. is the largest such buildup in the last 40 years. This is expected to mitigate the risk of forced selling and thus support stable home values, unlike what was experienced during the global financial crisis of 2008.

Disruption is also occurring at the mortgage company operating level. During this period of dislocation, mortgage-company stocks are significantly down, and spreads on loans have widened. Once the Fed-induced volatility in rates markets subsides, however, mortgage spreads and lending conditions should normalize.

The Ongoing Growth of Rentals

Opportunities are likely to emerge in real estate and specifically single-family rentals (SFR) as the housing market adjusts to the rising rate environment. SFR yields should rise as rent growth outpaces home price appreciation, which is more affected by Fed tightening. This would represent a reversal of cycle-to-date trends. Build-to-rent (BTR) is also likely to see compelling opportunities emerge as US homebuilders act to reduce unsold inventory backlogs that grew at a faster than normal pace due to pandemic supply-chain disruptions. Even with higher-than-normal builder inventories, single-family housing’s overall supply-demand imbalance persists and should remain an important dynamic in the post-pandemic housing market. Single-family construction has once again fallen below long-term averages; meanwhile, the pandemic has unleashed a long-term structural increase in demand for single-family housing driven by phenomenon such as work-from-home and increased migration. These factors point to SFR as an investment opportunity—and at an attractive entry point.

The Residential Credit Investing Landscape

Strong fundamental loan performance driven by substantial home equity and strong lending standards continues to provide good support for the Residential Credit market.  Investment opportunities remain strong in nonperforming loans, subordinate bonds, nonagency origination, and mortgage servicing rights.  Disruption from higher rates and wider spreads is reducing competition in the nonagency mortgage origination space and will reward vertically integrated platforms.  The aging housing stock will continue to drive the need for residential credit transition loans to sophisticated operators.

Opportunities in Structured Credit

Investors continue to see opportunities in structured credit, as the market has transitioned from a niche to a strategic/core asset class capable of generating double-digit returns. As panelists emphasized, collateralized loan obligations (CLOs) now represent a trillion-dollar market that represents 40% of high-yield corporate debt markets.  CLO issuance is set to experience the second-highest issuance year on record despite a worsening arbitrage environment as investors seek leveraged exposure to a recovery scenario.

During periods of volatility and price dislocation, participants increasingly pivot to secondary markets. The volatility and dislocation are expected to continue, which broadens the opportunity set for credit investment in the next 12 months. Many are relying on defensively positioned portfolios with longer reinvestment periods to maintain dividends through a recession while providing freedom to opportunistically build par and excess spread when market conditions allow.

A Boost from Technology

Technology was another key theme of the symposium. Not only does it allow managers to make more informed, data-driven decisions, but it also is enabling change at the operational level.  Technology helps attract and retain residents while fostering transparency in vendor services. A customer-first mindset and continuous tech improvements in SFR, for example, are mobilizing resources in real-time, giving a boost to resident experiences and ultimately investor returns. As smart homes and home services become more accessible, panelists predicted that innovations, such as “homes as software,” will provide more predictable and controlled living experiences. Meanwhile, as the digital economy expands and the value of technology appreciates, intellectual property (IP) assets have grown in importance, creating investment opportunities in the data and privacy litigation space.

Don’t Wait for Market Clarity

Though the markets are currently volatile, participants are not waiting around for them to calm. Instead, they’re staying nimble and seizing opportunities in the market disruption. As the symposium revealed, there are many investment opportunities to be uncovered, but working with a well-established, vertically integrated asset manager is key to accessing value.

As we celebrate our 10th Anniversary, the valuable insights gained within the context of our global market trajectory make it clear that Pretium is well positioned for the future across all our strategies.

Pretium’s Housing Insights, September 2022


Pretium’s Housing Insights, September 2022

September 21, 2022


In forecasting home prices, the last housing cycle is a poor guide for this one

The post-pandemic demand and supply backdrop has strong and stable underpinnings

As the US housing market transitions to its post-pandemic phase, it faces major headwinds including a historically rapid increase in mortgage rates. With negative headlines growing and memories of the Great Financial Crisis still fresh in investors’ minds, fears of a major home price correction have grown. In comparing this cycle to the last, Pretium believes that housing’s risk profile is dramatically different in 2022 than it was in 2006. The risk to home prices was underappreciated by many investors in 2006 because home prices hadn’t seen a significant national decline since the Great Depression; conversely, the current perceived risk to home prices may be overstated because home prices experienced a major correction just 10 years ago. Fundamentals matter, and the demand and supply backdrop for the post-pandemic period is solidly grounded especially relative to the mid-2000s housing boom. Looking ahead, the supply-demand imbalance that propelled housing during the pandemic is stil likely to remain an important dynamic in the post-pandemic housing market. While home prices may not emerge unscathed from adverse economic scenarios, Pretium expects downside risk to be limited compared to the last cycle. Overall, housing’s unresolved supply-demand imbalance underpins a favorable risk-reward profile for residential housing investment, particularly for single-family rental homes.

The strong demand backdrop for housing is most clearly illustrated by the increase in rents alongside home prices the past few years, as shown in Exhibit 1. Both single-family and multifamily rents grew at a double-digit pace and are up more than 20% in the two years ending June 2022.1 This compares to the roughly 7% increase that rents experienced during 2004-05 period. Easing mortgage lending standards amplified housing demand mostly in the purchase market during the mid-2000s whereas mortgage lending standards tightened during the pandemic. Rental markets don’t experience speculative excess as the home purchase market does, so the meaningful increase in rents during the pandemic argues that housing demand is well-grounded fundamentally. Pretium believes that the pandemic structurally increased housing demand as reflected in trends such as work-from-home, increased migration and greater consumer prioritization of space & wellbeing. Exhibit 2 illustrates the strong relationship between home prices and months supply of resale inventories. The historically low levels of resale inventories during the pandemic (more than two-thirds below pre-pandemic levels) anchored home price growth. For sustained home price pressure to emerge in the post-pandemic period, inventory levels would have to increase substantially from current levels as they did in 2006-07. This seems unlikely given low levels of mortgage distress, a reluctance by existing homeowners to give up their low fixed rate mortgages, aging-in-place and long-term underbuilding since the last cycle. These factors appear to have already begun to limit inventory growth even as the housing market transitions – in recent weeks, the volume of new resale listings has fallen 15-20% below pandemic levels and overall resale inventory levels have begun to flatten. 2

Exhibit 1

Exhibit 2

New and Existing Home Inventory Month's Supply

Source: CoreLogic Single-Family Rent, S&P Case-Shiller and Home Price Indices, all as of September 2022; RealPage Axiometrics Quarterly Market Performance Trend, as of September 2022; National Association of Realtors Existing-Home Sales retrieved via Bloomberg, as of September 2022.

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

1. CoreLogic Single-Family Rent Index, RealPage Axiometrics Quarterly Market Performance Trend, both as of September 2022.
2. Redfin Weekly Housing Market Data, as of September 4, 2022.

Pretium’s Housing Insights, August 2022


Pretium’s Housing Insights, August 2022

August 15, 2022


Housing’s slowdown is likely to be felt more acutely in the new home market vs. the resale market

Pandemic supply chain issues increase inventory risk in the new home market

The increase in mortgage rates by more than 200 bps during 2022 has begun to achieve the Federal Reserve’s desired goal of slowing home purchase demand. In recent weeks, pending sales of existing homes have fallen back to 2019 levels and sales volumes in the new home market as of June have fallen to pre-pandemic levels.1 While home price momentum has also slowed across both markets, it has been felt more acutely in the new home market than in the resale market. While data from mortgage rate locks indicates a still-above average pace of resale home price gains, builder surveys show there are already more builders cutting prices than raising them.2 While it is normal for the new home market to adjust more quickly than the resale market during periods of changing demand, Pretium believes the paths of the new home and resale markets could diverge to a greater extent this cycle due to differences in inventory risk.

At the start of the pandemic, factors such as cumulative underbuilding, aging-in-place3, and lengthening homeowner tenures contributed to historically low existing home listings, as shown in Exhibit 1. The pandemic housing demand surge further depleted existing home supply until it began to recover this year due to slowing demand. New home inventory sat at normal levels by historical standards in the beginning of 2020 before declining in the early months of the pandemic as demand grew. However, supply chain constraints limited builders’ ability to respond to this increasing demand. As construction cycles lengthened and labor/materials became more difficult to source, builder inventories of incomplete homes rose rapidly. The unusual divergence this cycle between inventory levels of existing homes and new home markets is best illustrated by looking at months’ supply, as shown in Exhibit 2, which highlights how the inventory paths of the resale and new home markets began to separate in 2015, and how the pandemic widened the gap meaningfully.

This divergence suggests that the risk to resale home prices should remain less than the risk to new home pricing. Pretium does not expect overall resale home price declines, even in a moderate recession scenario. In the new home market, completions are likely to increase over the next 6-12 months with increasing pressure on builders to sell into a slowing market. As a result, Pretium expects compelling opportunities to acquire in the build-to-rent sector.

Exhibit 1

New and Existing Home Inventories


New and Existing Home Inventory Month's Supply Source: National Association of Realtors, Existing Home Sales as of July 20th, 2022; US Census, New Residential Sales as of June 2022.

These materials do not constitute, or form part of, any offer to sell or issue interests in an investment vehicle or any other entity managed by Pretium Partners, LLC or its affiliates (collectively, “Pretium”). Any such offer or solicitation will be made solely by means of a definitive offering document, which will describe the actual terms of any securities offered and will contain material information regarding the securities. Certain information contained in this presentation has been obtained from published and non-published sources prepared by third parties, which, in certain cases, have not been updated through the date hereof. While such information is believed to be reliable, Pretium has not independently verified such information nor does it assume any responsibility for the accuracy or completeness of such information. Except as otherwise indicated herein, the information, opinions and estimates provided in this presentation are based on matters and information as they exist as of the date these materials have been prepared and not as of any future date, and will not be updated or otherwise revised to reflect information that is subsequently discovered or available, or for changes in circumstances occurring after the date hereof.

1. Redfin, Weekly Housing Data as of July 24th, 2022, US Census, New Residential Sales as of June 2022.
2. AEI Housing Center, Housing Finance Watch as of August 9th, 2022, John Burns Consulting, Home Builder Survey as of August 4th, 2022.
3. Pretium’s Housing Insights as of April 2022

ESG Policy


ESG Policy

June 13, 2022

The Firm believes systematic integration of ESG considerations into investment and ownership is the next step and that this will help the Firm’s decision-making and ultimately enhance value for our investors. We believe developing ESG systems around our investments and adjacent strategies will be key to navigating existing and future risks and opportunities. We are excited about this future.

The following ESG principles will guide our approach to new investments and existing ownership across our investment strategies, ownership, and operations:

  • Regularly engaging stakeholders on ESG.
  • Defining stakeholders as investors, employees, regulators, consumers, and communities in which we operate.
  • Tasking our leaders to drive assessment of material ESG factors across our strategies.
  • Systematically incorporating ESG considerations and solutions in our investments, ownership, and business operations from top to bottom.
  • Avoiding strategies that cause significant harm environmentally and/or socially.
  • Developing methods to disclose, benchmark, review and improve on our ESG strategies year over year.
  • Embracing a leadership role in ESG within our relevant industries.

Our goal is to lead our investment strategies and operating companies into the next decades within this framework and with thoughtful leadership focused on promoting corporate responsibility and enhancing value for our investors. To that end, we will undertake the following ESG Commitments:

  • Maintaining ESG within Executive Committee agenda.
  • Integrating ESG into investment decisions through assessment of material factors from sourcing to due diligence, to investment committee reviews.
  • Integrating ESG into existing portfolio ownership and operations by identifying opportunities to mitigate the effects of our investments on the environment and to promote a consumer and community centric vision.

Based on these ESG Principles and Commitments, the Firm is prepared to sign on to United Nations Principles for Responsible Investing in 2023 when the new guidelines are issued.

DEI Statement


DEI Statement

June 13, 2022

Pretium strives to have a diverse workforce reflective of the communities in which we operate. We believe this driving principle will make us a better Firm, one more able to deliver value to our investors. We are committed to embracing and developing Diversity, Equity, and Inclusion (“DEI”) best practices across our platforms by:

  • Developing recruitment, retention, and promotion practices that focus on expanding our workforce to reflect the communities in which we operate.
  • Developing workforce policies that reflect awareness, inclusivity, respect, equitable opportunity, and a fulfilling work environment for employees of any race, ethnicity, religion, LGBTQ+, familial, and/or disability status.
  • Developing and promoting a network of diverse partners, consultants, suppliers, vendors, and third-party professionals.
  • Benchmarking, disclosing, reviewing, and improving on our DEI strategies year over year.
  • Educating ourselves regularly and engaging around unconscious bias, racial justice, and any other material DEI topics that impact our communities, our business, and/or our stakeholders.
  • Embracing a leadership role in DEI within our relevant industries.

June 2022

Pretium’s State of ESG Report

Read here to learn more.