If you can believe it, we have just one month left in 2023. It is truly amazing how fast this year flew by!
The end of the year always brings about a few annual blog posts.
One of those annual posts is recapping my “Fearless Predictions” that I made back in early January. Our longtime readers know that I always try to keep myself honest every year!
Sometimes I nail my predictions and other times, I could not be more off on predicting the future.
It is one thing to make annual predictions and never revisit them, and it is another to be transparent with readers on my wins and losses. At the end of the day, I think we can all learn a lot from them.
It is impossible to be 100% correct when forecasting, but this year I did pretty well, at least in my eyes (humble brag dot com).
For those of you new to the blog or that want to reference my 2023 predictions post, it can be found through this link: “South Bay Real Estate: 2023 Fearless Predictions”
For the rest of my past fearless predictions, you can also go to our blog feature on the website and click on every January month for previous prediction posts over the past seven years.
But for now, let’s get into it!
Prediction #1 – Select Palos Verdes Submarkets Decline Double-Digits
My Prediction: Specific Palos Verdes “Pandemic Markets” will drop by 10%.
Results: In early 2023, I predicted that Palos Verdes markets that over benefited from pandemic home buying trends would fall. These were “far away” markets that likely ran a bit too much.
Specifically, I called out five Palos Verdes (P.V.) submarkets at risk of a double-digit decline:
- Palos Verdes Drive East
- Mira Catalina
- Palos Verdes Drive South
- Los Verdes
- Peninsula Center
Let’s look at the rolling 12-month median price average ending in October and see how it played out.
- Area 167 – Palos Verdes Drive East: Down 4.7%
- Area 168 – Mira Catalina: Up 0.7%
- Area 169 – Palos Verdes Drive South: Up 7.6%
- Area 173 – Los Verdes: Down 9.7%
- Area 175 – Peninsula Center: Down 6.1%
This was not quite a home run call since one submarket was up 7.6% and another submarket flat at 0.7% growth.
I feel pretty good hitting those three submarkets down 4.7%, 9.7%, and 6.1%. While a double-digit decline was an over-zealous prediction, it is rare that real estate markets go down significantly in a year. And, getting these submarkets called out to drop in a sizable manner feels like a nice call in hindsight.
Prediction #2 – Low Supply Plagues Market All Year
My Prediction: Historically low inventory will remain sticky and stay low in 2023.
Results: In short, I nailed this one.
The entire CRMLS active homes for sale in 2022 saw an inventory range from a low of about 42,000 to a high of 68,000 properties for sale, which was already historically low.
In 2023, homes for sale dropped even lower compared to the historical low of 2022. The range is astonishing.
On the entire CRMLS database, the lowest hit 35,000, and the highest range was around 38,500 properties for sale. Unreal!
So, the entirety of 2023 had fewer homes for sale than the lowest point of inventory in 2022. Not only was 2023 a historic inventory squeeze, but it beat 2022’s record historic squeeze by close to 30% fewer homes.
We may look back in history and never see lower homes for sale ever again in our lifetimes.
Prediction #3 – Mortgage Rates Remain Stubbornly High
My Prediction: The Fed is determined to crush inflation and mortgage rates stay high as a result.
Results: It is normally a fool’s game to predict interest and mortgage rates. I have been made to look silly in past fearless prediction post, but not this year! Nailed it again.
Do you remember the social media trend of, “date the rate, marry the house?” Well, I sure do and it was bad advice.
There were too many real estate professionals (and wannabe pros) recommending that home buyers purchase a home towards the end of 2022 and through the first half of 2023, and then take advantage of falling interest rates by refinancing in the second half of the year.
Unfortunately, rates did not drop and no refinancing occurred. So, if you were betting on rates dropping then you may have been burned.
Instead, The Fed continued to raise the Federal Funds rate and as a result, mortgage rates continued to go higher, seeing home mortgage rates go to multiple-decade highs.
Prediction #4 – Split Markets: Some Rise while Others Decline
My Prediction: The year of bifurcated markets where some rise and others fall.
Results: This one is tricky in the fact that we absolutely did see bifurcated markets in the South Bay. There were truly home submarket winners and home submarket losers. That said, some of the submarkets I named were incorrect.
The submarkets that I noted at risk of decline were affordable, interest rate-dependent pockets like Redondo Beach’s Golden Hills and El Nido and East Hermosa Beach.
Both Golden Hills and El Nido were down 6.6% and 6.4% respectively, while East Hermosa was up slightly by 2.6%. A decent call here.
The submarkets I called out for gains were Manhattan Beach’s Tree and Hill Sections, Palos Verdes Estates’ Valmonte, “The Lanes” in Rolling Hills Estates, and South Redondo’s “The Avenues.”
Both the Tree and Hill Sections were down by 10%, and Valmonte dropped by 15%! So I was way, way off here in terms of the specific markets that will appreciate in value.
All in all, I hope readers in January walked away with this quote from my predictions blog: “The key for savvy buyers and smart sellers is to know when to pounce and when to be patient based on if that market is set up for weakness or strength.”
If you took that advice and did your homework, then you could accurately cherry-pick to buy into the declining submarkets or sell into the rising submarkets in 2023.
Prediction #5 – Time to Buy Income (or ADU) Properties
My Prediction: High mortgage rates and income properties. Time to buy units at a discount.
Results: This one I felt strongly about and called many of my clients to gear-up for potential income property deals.
My belief was that high mortgage rates – that were going to stay high – would damage income property values creating some great deals.
At the beginning of 2023, it looked like it would be a great prediction as prices were weak in this asset class; however, as the year wore on, income property prices began to appreciate higher.
What proved to support prices in the income property market were twofold:
- As home buyers could not afford single-family home prices with rising mortgage rates, they turned to duplexes and triplexes to supplement their payments.
- Long-time income property owners had such sizable equity gains and cash flow, they simply just chose to continue holding their properties rather then selling at discounts.
As a result, this prediction did not come to fruition and ultimately NONE of my clients bought income properties this year. In fact, we listed and sold a few income properties this year.
I still think eventually interest rates will come into play and make income properties a wonderful opportunity, but it did not play out in 2023 like I thought.
Prediction #6 – Long-Term Bet: Mortgages and Artificial Intelligence
My Prediction: AI will replace the need for humans and give loan approvals in seconds.
Results: This one was timely. I feel like I nailed it for 2023 and will in the long run as well.
If you liked my prediction around AI for the mortgage and real estate industry based on the newly released ChatGPT in January 2023, then you saw chip makers who specialized in big computing power for the needs of AI (like NVIDIA) see rocketing stock prices.
Nvidia stock price is up over 200% this year because of AI.
Now this is not an equities or stock-picking blog, but AI seems to be the future based on stock market action and all the news around this technology.
If AI continues its development and the future applications prove to be true, then this long-term bet most certainly will play out in lightning-fast loan approvals, along with it affecting our real estate market in all other aspects.
Conclusions/Final Thoughts
My yearly “Fearless Predictions” are meant to get you thinking deeply about the South Bay home market, help you formulate your strategy into the new year, and most importantly, to just have some fun.
As you can see, I hit a lot of my predictions…
- Pandemic Palos Verdes submarkets for the most part saw price declines
- Low supply absolutely plagued our home markets and got even worse
- Mortgage rates did, in fact, stay stubbornly high
- The South Bay did experience bifurcated submarkets (even if I made wrong calls)
- And, in the long term, AI will definitely have an effect on mortgages and homes
My one miss was the opportunity to buy income properties, but if you hired me, or worked with a great agent, then ultimately, we advised clients to stay patient as the deals did not come to fruition.
I look forward to sharing my 2024 Fearless Predictions with you in the new year. Please be sure to check back the first week of January to read them and I hope you enjoy!
Cheers.