RECAP: South Bay Real Estate 2021 Fearless Predictions

Longtime readers know that I write an annual “fearless predictions” blog post for the South Bay real estate market the first week of the new year.

As always, I am planning to post my 2022 predictions the week of January 3^rd.

The predictions are a fun way to start the year and give readers ideas for how to approach their real estate goals.

It is impossible to predict the future, but it is a blast to at least try.

In the past, sometimes I have been horribly wrong, however, sometimes I have absolutely nailed it. I hope you can use the coming predictions to your benefit next month.

This week’s blog is my annual post reviewing those predictions from this past year.

Transparency is good. And, I like to hold myself accountable. This is a great way to look back to see what happened.

If you would like to re-read my 2021 fearless predictions blog in its entirety, you can find it through this link: “South Bay Real Estate: 2021 Fearless Predictions“

Below is a recap of my 2021 predictions…

Prediction Recap: South Bay Home Price Surge in First Half of 2021

My Prediction: A surge in home prices of 5% in the first half of the year.

Recap: This one was half correct and I still feel like a prudent call.

In 2020, we saw prices rise an amazing 10% plus. Based on the drop in interest rates alone, buyers were afforded 10% more in purchasing power the prior year. Double digit growth is HUGE historically and calling another 5% in the first half was extremely bullish.

My call was: “…South Bay single-family home markets are ‘off to the races’ and will continue that momentum through June with ease.”

Turns out the market was even more bullish with local markets up 12% to 20% on the year. We are talking about some of the strongest growth ever seen in local real estate.

The strength was real, but it turned out even stronger than what I predicted.

Prediction Recap: “Coming” Foreclosure Wave Fails to Materialize

My Prediction: The “coming foreclosure wave” will be a non-event.

Recap: Nailed this one big time.

I cannot tell you how many people called and texted me about all the coming foreclosures when the federal foreclosure moratorium expired on January 31^st, 2021.

It seems like a silly prediction, but people were generally worried about this at the end of 2020. Not only did the federal and local government extend protections, but even after expirations, we are seeing essentially zero foreclosure activity.

Not only would professional investors and Wall Street gobble up any foreclosures, but the demand is there from the market that desperately needs more houses. What’s more, prices are up more than 20% since the beginning of the pandemic, so every defaulting owner could sell their property for a profit quickly, if needed.

Foreclosures failed to materialize and will continue to disappoint those who are waiting for a COVID-19 foreclosure event. It ain’t happening!

Prediction Recap: Condos/Townhomes Outperform in Second Half of 2021

My Prediction: Lagging prices of condo/townhomes will surge in the second half.

Recap: This is another half correct call that made a lot of sense and still makes sense today.

Thanks to the Coronavirus, it was understandable to see buyers shy away from large condo complexes and townhome complexes. When I made the prediction, single-family home prices had driven most of the appreciation in the market while condos/townhomes were left at a screaming deal…with the vaccine being distributed, it made sense to predict these home types would comeback.

Condo prices ended up jumping at the beginning of the year, much earlier than I anticipated. It leveled off throughout the year and a couple markets have now seen a nice uptick to end the year as well.

All in all, prices did jump in a meaningful way, just not at the timing I expected. Home prices still have continued to run higher, making condo/townhome prices still very attractive relative to other options.

Prediction Recap: Income/Apartment Buildings Benefit from Low Rates

My Prediction: Income/apartment building values will grow nicely thanks to low rates.

Recap: Another partially correct prediction, with caveats…

The income property/apartment building market certainly enjoyed a rising tide this year due to low interest rates. We made multiple offers on behalf of clients for 2-4 unit South Bay properties and were constantly outbid above the comps.

That said, just like in 2020, income properties are still suffering from eviction moratoriums (still in place for the City of Los Angeles) and backlogs in the courts. Tenants have incredible leverage today, it is tough to raise rents, and rent collection/past due rent is still a problem.

Income properties did well, but not as well as I thought they could. This asset type with income units could be a coiled spring over the next year or two when tenant challenges due to the Coronavirus begin to subside.

Conclusion

Thanks to a “black swan” event (the Coronavirus) in 2020, every single prediction I made was incorrect. Now that we are in a more stable market, making calls got a lot easier in 2021 where much of them I got right.

Making accurate predictions is nearly impossible but doing your best to come up with reasonable future outcomes, along with the conviction to act on it is something worth doing.

Ultimately, as you can see, you can get a predictions correct but slightly miss on the timing.

Now, more than ever, you need to have a long-term time horizon in real estate and generally, things will work out pretty darn well.

In less than a month, I will have my 2022 predictions ready for you. Let’s have some fun.

Cheers.

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