If you have been reading my blog for the past six years, then you know I like to write my annual “Fearless Predictions” blog every January.
I do my best to predict outcomes for the South Bay home market. Sometimes I nail my predictions and other times, I am wildly incorrect!
It is easy to stick your neck out and make predictions, it is another thing to review them and see what you got right and wrong. I like being transparent with readers and it is great to learn how perceptions can change in 12 months and/or how to do better research to accurately forecast results in our local markets.
Forecasting is impossible to get 100% correct – but it is a fun exercise that makes me (and hopefully you) better off in your South Bay real estate knowledge.
Prediction Recap – Another Strong Year of Growth
My Prediction: South Bay home prices will grow by 10% or more.
Recap: I felt good about this prediction and still do! Normally, I am wary to pick big growth after a strong year, let alone two back-to-back strong years – but the market had so much momentum to start 2022, along with low interest rates and supply.
How did it turn out? I was right around being correct at 10% growth.
If you take the zip code percentage growth numbers from my “The Best (and Worst) Performing South Bay Home Markets of 2022” post, then the median price growth by zip code would be 11.05%. That looks pretty good.
That said, taking areas 142 all the way to area 177 on the MLS, I got a median price growth of 8.2%. So, a slight miss there by that calculation.
I stand by this one as being a solid prediction as I don’t think anyone anticipated rates more than doubling – if rates continued to stay on the lower end, our South Bay market would have had another explosive year.
Prediction Recap – Rising Rates & Falling Affordability Don’t Materialize
My Prediction: Rates will rise at a muted pace and affordability will hold steady.
Recap: Staying on the topic of interest rates – I failed at this prediction miserably.
To quote this prediction a year ago: “In 2022, mortgage rates for home buyers will rise but at a muted pace which will not have a huge affect on affordability.” LOL.
I did cover my behind with this sentence: “I have been made a fool in past Fearless Predictions trying to forecast the direction of interest rates. And, here is my attempted to look silly again.”
I crashed and burned on this prediction. If you had read past blogs, the fastest rates had ever doubled took a total of three years to complete, so I had no historical data to suggest otherwise.
As a result of believing rates would not rise substantially, I thought affordability would probably be stable as well. Since rates surged, it crushed affordability – rendering my interest rate and affordability prediction worthless.
Prediction Recap – Millennials Drive Housing Boom
My Prediction: Millennials fuel housing growth in 2022 and beyond.
Recap: I am not sure how to measure this one as being correct or incorrect.
The best data I can pull after my 2022 Fearless predictions is a NAR (National Association of Realtors) published article on March 23, 2022, that Millennials now make up 43% of home buyers, up from 37% the previous year.
They are the biggest buying generation by a mile these days aged 23 to 41 and likely will be the driver of real estate into the future as their generation’s earnings and wealth grows.
Prediction Recap – Supply & Demand Imbalance All Year
My Prediction: Low supply will persist all year which favors sellers in a big way.
Recap: This one I was lucky enough to nail.
Homes for sale have continued to trend towards the all-time low mark. Even as rates rise, affordability drops, and buyer demand eases, active inventory is hard to come by.
Beyond that, I pulled some sales statistics and 2022 November tailing-12 had 1,993 total transactions while 2021 was at 2,790 for the same period. That is a whopping 28.5% drop in sales which is likely due both to low inventory and slowing buyer demand.
Conclusion
All in all, I feel pretty good about my predictions.
Price growth was strong (mostly predicted), Millennials became the major buying force in the market (as predicted) and low inventory persists throughout the year (predicted). On the flip side, I missed HARD on interest rates and affordability.
Predicting the market a year out is nearly an impossible feat to get right 100% of the time, but I do believe professionals who study the market full time can make predictions that pay off quite a bit. That said, I never recommend executing your entire real estate strategy on one-year predictions.
Remember, the best strategy in real estate to get things right is to have a very long-term time horizon, and with that strategy, things will normally pan out pretty darn well.
In less than a month, I will have my 2023 predictions ready for you. I expect the upcoming year in real estate to be one like we have not seen before. It will be a fun ride.
Cheers.