Happy New Year South Bay! We hope 2017 brings you good fortune and much happiness.
And with the start to a brand new year many of us are inspired, excited, committed and hopeful. For me, I am ready to make some fearless predictions for South Bay real estate in the coming year…
Mortgage Rates Will Barely Rise
The most talked about topic in real estate is rising interest rates. “Get in before rates rise,” agents will tell you. I believe rates will not jump much more from their current levels. Here is my reasoning:
1) The Fed has already announced that they plan for multiple rate increases in 2017. Rates went up after that announcement, and in my opinion, that bounce in rates has already baked in multiple increases set for this year.
2) Do you read the Federal Open Market Committee (FOMC) statement every six weeks? My guess is no, but honestly…I do. There is a key paragraph at the bottom that I always look for, here is the clip:
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Need a translator? The Fed has been buying Mortgage-Backed Security (MBS) and Treasuries for the better part of this decade. Those securities earn interest, so what do they do with all that interest? They continue to buy mortgages which keep home loan interest rates low. As little as 18 months ago they were responsible for half of the agency MBS purchases in the United States. As long as this paragraph is included in the FOMC statement, The Fed has full control over where home loan interest rates go, and my bet is there is no way they let them rise significantly as a strong housing market is key to a healthy economy.
Fear of Rising Rates Will Push Buyers Off the Fence
Although I believe rates will not rise significantly, the general public will fear the prospect of climbing rates. This will push many buyers off the fence to buy a home in the first half of 2017. As a result, we should see a surge of buying competition through the spring, especially in affordable areas or lower priced homes. Think North Redondo, Hermosa condos/town homes, lower priced homes on The Hill, and areas east of the beach cities like Torrance, Lawndale, Hawthorne, and even South Central.
High End Out, Affordable In
The California Association of Realtors tabbed the California housing market as “A Tale of Two Markets: The ‘New’ Normal.” The high-end/coastal cities of California are discretionary and slowing, while the low/moderate-end has demand that will continue unabated. We have already seen signs of this during the second half of 2016 in the South Bay. Sand Section Beach real estate and luxury estates on The Hill have slowed as wealthy buyers have realized their run in the stock market and real estate investments, while the low/moderate-end in the South Bay has kept a steady pace of demand. This affordable portion of the market will be driven by fully recovered employment and Gen X/Millennials strong desire to own a home in the New Year. There are thousands of buyers eager to get their foot in the door to home ownership by the beach and on The Hill.
Softness by the Beach, but Not Until End of Summer
The weak sales numbers and slowing price growth in Manhattan Beach is nothing new for this beach town that peaked in February 2016. My bet is that buyers are still fatigued in this area and a tiny price and rent correction is badly needed. This will not happen, however, until late summer as Snap Chat (aka Snap, Inc.) is set to make an initial public offering (IPO) as early as March. Although Snapchat is a smaller than average tech unicorn, there will still be a couple hundred newly minted millionaires. Not all of them will want to live in Venice, Santa Monica, and Westchester with a lackluster public school system for growing families. There is a reason why virtually every Los Angeles King player lives in the South Bay. Look for quite a few Snapchat employees to drive Manhattan Beach sales in the first half of 2017, and then expect it to get really, really quiet towards the end of summer.
Gen X & Millennials Flock to The Hill
With affordable homes trending, I expect to see more migration to The Hill. The Palos Verdes Peninsula offers the top public schools in the South Bay, big lots with back yards, tons of parking, and the most importantly, the best bang for your buck. This family-friendly environment is perfect for budget conscious Millennials and Gen Xers that are beginning to form their families later in life. Affordable homes in the 90275 area and the lower price end of 90274 will be gobbled up quickly in 2017 by this growing demographic.
Long Term Bet: Garages Become Obsolete, Apartments Become More Dense
Do not underestimate the automated car. Furthermore, do not underestimate the speed at which the automated car is brought to market as the benefits are too great to individuals, companies, and the economy. South Bay home owners need to think about their garages, or rather, stop thinking about their garages. I am betting that automated vehicles and car ownership will be erased in 10 years. Do you live by the beach currently where there is little parking? That will not be issue with automated ride sharing apps. Are you planning a remodel in P.V. and have a large three car garage? You will want to think about how that space could be transitioned to the home in the event you may not own cars. Additionally, if you own land or apartments in metro L.A., you can expect zoning codes to change accordingly that will eliminate expensive parking requirements and allow for more dense zoning as car ownership goes to the wayside. Crazy to think about, but this is entirely possible by 2026.
Conclusion
There you have it! I have made my bold and perhaps not so bold predictions for South Bay real estate this coming year. Check in with me later in the year and I will recap the results of my “fearless” predictions.
Richard Haynes
DRE: 01779425
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The Richard Haynes Real Estate ShowA leader in South Bay real estate for the better part of a decade, Richard thrives as an advisor to his clients with over $248 million in sales as a broker or investment principal at his boutique agency, Haynes. Richard is known for his keen local market insights which have been featured in the L.A. Times, The Street, and Forbes, along with his weekly South Bay real estate blog. [read more]