As longtime readers know, I write my “fearless predictions” for the South Bay real estate market for the upcoming year. I also like to hold myself accountable and share with readers how my predictions actually turned out.
If you want to refresh your memory, take a look at my predictions from January of 2019 here.
Let’s see how I did…
Prediction Recap: The Interest Rate Effect
My Prediction: The Fed will raise rates, the stock market will close higher, and 30-year rates will go to 5%. Rates that high will hurt the market.
Recap: What a way to start the recap! I was VERY wrong on this one…or at least, two thirds wrong.
After raising rates four times in 2018, The Fed was pressured with a “weakening” economy to cut three times! I was wrong, but also blown away. The lowest unemployment ever, a record high stock market, and real estate also making record highs. Let’s cut rates to stimulate…I give up on rate predictions.
As a result, 30-year interest rates have not gone from 4% to 5%, but in fact, 4% to closer to 3%.
My one saving grace to the prediction was that the stock market would be higher. Some may say it was a bold call, others may say it was obvious the market would go higher. Remember, the stock Dow Jones 30 fell 12% in December 2018 which was a bit scary. This year, the Dow Jones 30 was up over 20%.
Prediction Recap: Timing Selling/Buying
My Prediction: Sell before summer and be very patient if you are a buyer. A lack of affordability in the second half of the year will yield price corrections.
Recap: I was half right here.
Hermosa Beach sold for $100,000 higher in the spring versus the summer. Redondo Beach sold higher in the spring than in the summer as well by about $20,000.
That did not happen in Manhattan Beach, which started slow and took off in the summer. Also, Rancho Palos Verdes was flat and Palos Verdes Estates surged higher.
Prediction Recap: Real Estate Market Correction
My Prediction: There will be a 5% to 10% price correction in late 2019 or 2020.
Recap: This prediction still has time into 2020. We are certainly not in a major correction, but the market has seen slower price increases and some markets are actually seeing price decreases. I will report back on this in 2020 and likely stick by this prediction.
Prediction Recap: How This Relates to the South Bay Micro-Markets
My Prediction: Lack of affordability will slow hot, affordable areas like North Redondo and Rancho Palos Verdes, along with East Manhattan Beach slowing and becoming very risky.
Recap: This was a BIG hit! And a bold call to get right.
North Redondo hit its highest peak price ever in December 2018 at $1.039 million. Today, in December 2019, it is at $1 million. That is not a huge difference but remember, this was a white-hot area that was up close to 20% over the past two years.
Rancho Palos Verdes hit its highest peak ever at $1.25 million. Today, that number is down by $25,000. Again, not a huge number, but this area was used to 7% or more appreciation per year and suddenly dropped.
Lastly, after years of growth, East Manhattan Beach was flat.
The moral of the story: Affordability matters and markets adjusted!
Prediction Recap: Where to Invest Those Real Estate Dollars?
My Prediction: The most powerful force in real estate is large tech, so buy in Playa Vista, Culver City, West L.A., as well as traditionally low-income areas like Crenshaw, West Adams, and Hyde Park. Prices may have gotten ahead of themselves so be selective.
Recap: Hit this one pretty well too. Areas like Culver City continued to march higher, but super-hot areas like West Adams and West L.A. all looked to be flat this year. These areas will continue to go up due to tech, but some of those markets took a breather as speculators pushed prices too high.
I also predicted South Los Angeles (formerly South Central and in the MLS “Los Angeles Southwest”) would be a great trading position with minimum wage rising. That area was up over 6% as a whole, which is perfect economics for six month to a year flippers.
Prediction Recap: Long-Term Bet: “Co-Living” Apartments Go Mainstream
My Prediction: Co-Living will play a massive part in solving housing affordability and homelessness.
Recap: This is a long-term prediction, but Co-Living is trending more and more with investors and legislators to help solve affordability and homelessness. You can’t help but root for Co-Living to work.
Conclusion
I will be honest, this year wasn’t my best for my predictions. If you are being nice, I was about half right, but probably a little less than that.
I think the most impressive prediction was calling out three white-hot South Bay markets (North Redondo Beach, Rancho Palos Verdes, and East Manhattan Beach) to slow after reaching their all-time peaks. Was that enough to off-set my horrible call that rates would go to 5%? I’ll leave that to you to decide.
Hopefully, you enjoy this transparent recap and look out for my 2020 predictions blog the week of January 6th!