The first blog post of 2023 – Happy New Year!
Excitement, inspiration, and resolutions are all ingredients when starting anew in January. Before I jump into my fearless real estate predictions for 2023, I want to share my resolutions (personal and business) for this year…let’s see if you can all hold me accountable!
- Share valuable real estate information through multiple platforms
- More guests on my podcast (we already have a few lined up for the new year per your requests!)
- Even better client service (our team has grown!)
- Workout four times a week (which sounds like a lot to this Dad of two crazy toddlers!)
- Dry January (cliché…but who’s with me?!)
Here’s to new goals and smashing them in 2023. Now let’s get into my predictions…
Market Recap & Past Predictions
Our local markets had a wonderfully solid year after two years of unprecedented appreciation.
To recap, below are the November trailing-12 YoY appreciation numbers by zip code:
- 90266 – Up 3.3% (Manhattan Beach)
- 90274 – Up 16.2% (Mostly PVE, RH, and RHE)
- 90275 – Up 6.9% (Mostly RPV)
- 90254 – Up 12.5% (Hermosa Beach)
- 90277 – Up 9.9% (South Redondo, some Hollywood Riviera)
- 90278 – Up 12.2% (North Redondo)
While these numbers are not the double-digit appreciation that we have gotten used to, it is an excellent result for South Bay home markets that are unaffordable and battling the highest interest rates in a generation.
Before we get to my fearless predictions, please note these predictions are meant to give you investing ideas to further research, along with insights and thoughts from a real estate professional to help you plan out your own goals. This is not meant to be investment advice and every reader should seek personalized advice from their trusted professionals – or give me a call.
My 2023 Fearless Predictions
Below is a quick list of my 2023 fearless predictions:
- Select Palos Verdes Submarkets Decline Double-Digits
- Low Supply Plagues Market All Year
- Mortgage Rates Remain Stubbornly High
- Split Markets: Some Rise while Others Decline
- Time to Buy Income (or ADU) Properties
- Long-Term Bet: Mortgages and Artificial Intelligence
Please scroll below to see a detailed description of each prediction.
Select Palos Verdes Submarkets Decline Double-Digits
The Palos Verdes Peninsula over-benefitted from the Coronavirus pandemic over the past two or three years. So much so that some areas of “The Hill” may have overheated.
I am calling many areas of Palos Verdes, among other pockets of the South Bay, “Pandemic Markets” due to the surge in demand that was unsustainable. My belief is there are some select Palos Verdes Peninsula submarkets that will experience double-digit declines in price.
Below is the list that is most vulnerable to price corrections:
- Area 167 – P.V. Drive East
- Area 168 – Mira Catalina
- Area 169 – P.V. Drive South
- Area 173 – Los Verdes
- Area 175 – Peninsula Center
Three of these submarkets are considered “far away” from much of the South Bay and two historically have had slower appreciation that went to the moon quickly when the pandemic started.
As the Coronavirus fades into the past, buyers want to be closer to jobs, entertainment, and restaurants. Furthermore, sleepy Palos Verdes markets that slowly appreciate will have to reset to more normal price growth.
As a result, I am calling for a double-digit price correction in these submarkets.
For more proof into the softening Palos Verdes markets, see my October 2022 blog titled: “Palos Verdes Markets Seeing Price Depreciation.”
Low Supply Plagues Market All Year
It seems the talk of the town has been low supply of homes. That means we are seeing few homes listed for sale.
To put the low supply in perspective, before Coronavirus hit in February of 2020, the entire CRMLS database trended between about 70,000 and 120,000 homes for sale on a rolling 12-month average.
Since the pandemic, we have seen those listings trend between 50,000 and 75,000 which is historically low. During the second half of 2022, we saw no more than 53,000 active homes for sale at one time!
I predict that not much will change, and our markets will continue to be short on homes for sale.
This is one of the reasons why I do not believe we will see widespread depreciation in most of our local markets which you will read about later in the post.
Mortgage Rates Remain Stubbornly High
If you have read past fearless predictions posts over the years, then you know forecasting interest rates is not my strength. In fact, maybe you should go with the opposite of what I say on rates.
That said, I am going to make a call since it is still a hot topic.
I believe The Fed is still on a mission to squash inflation and as a result, we are going to have mortgage interest rates that remain around these elevated levels for much of the year.
Sure, rates could fluctuate up or down slightly, but my bet is these higher rates are here to stay in 2023 and buyers can hope for relief next year.
Split Markets: Some Rise while Others Decline
I believe 2023 will be the year of bifurcated markets in the South Bay. There will be markets that rise and others that decline.
For instance, there will be submarkets like the ones I mentioned in Palos Verdes that are “too far” or just appreciated too quickly that need to reset down. There will be other declining markets that will be hot because interest rates are too high and affordability too low for the typical buyer in that submarket.
Submarkets at risk of decline are pockets of North Redondo like Golden Hills and El Nido as well as East Hermosa Beach.
The markets that can rise are areas with low supply and high demand where buyers are not as interest rate sensitive. Think of Manhattan Beach’s Tree and Hill Sections, Palos Verdes Estates’ Valmonte, “The Lanes” in Rolling Hills Estates, and “The Avenues” in South Redondo.
These markets have little to no inventory as of writing this (Valmonte has not one home on the market) and buyers are wealthy enough to not be as affected by rising interest rates (Hill Section, etc.).
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.
Truly, we will see some markets with fabulous price growth and others in correction territory.
Time to Buy Income (or ADU) Properties
This next prediction I will be hammering all year to clients – 2023 is going to be the year to pick up great income property deals.
Since investment properties are more about return/cash flow, a rising interest rate environment has slowed those prices in a major way during the second half of 2022. I expect the deals to get even juicier in 2023 as interest rates remain high.
Income properties will likely take a bigger hit on pricing since investors can just wait for prices and yield to come down to the levels that make a compelling investment, whereas home buyers often buy because they need a roof over their head or emotional motivations (less about price and return).
It is going to be tough year to be a seller of income properties and savvy investors can almost certainly ink some incredible deals.
Many clients are taking my advice now to sell single-unit rentals (homes, condos, etc.) and 1031 exchange into two, three or more units.
Long-Term Bet: Mortgages and Artificial Intelligence
Every year I have a long-term bet to make you more aware of distant changes in real estate that could be many years, if not decades away.
In another five years, maybe we will get to recap some of my earliest long-terms bets.
For this year, I want to highlight the innovation in Artificial Intelligence. While it is in its early stages, many of us have seen the incredible use cases from ChatGPT where it can complete tasks for us in a matter of seconds (Maybe one day it will write blogs for me? Lol!).
Where AI will first come into play in our real estate markets is through the mortgage industry.
If you have ever obtained a home loan, then you know the process is slow, over-bearing, and plain old-fashioned. Underwriters take too long and are overwhelmed with work.
Imagine an AI computer that reviews your financial profile in a matter of seconds to get you approved for a loan? Life-changing! I believe this will happen in the next decade.
There are already companies using AI in the lending realm (see struggling public tech companies like Upstart Holdings) that are helping to approve and lend out money using AI.
It has a lot of kinks to work out, but it is coming!
There you have it – another year of fearless predictions.
I hope I am wrong about falling prices in certain markets, as well as rates staying elevated for 2023. On the flip side, income properties should have some big-time sales and for the most part, desirable home markets are going to stay very tight on homes for sale which will likely push their prices higher.
The 2023 year will go down as a year of great opportunity and savvy sellers/buyers will use it to their advantage.
Here’s to another great year! Wishing you all the best.