About a year ago I introduced the first annual Fearless Predictions for South Bay Real Estate. The inaugural blog was not only fun to write but challenged me to conduct deep research that would hopefully benefit my clients throughout the year. I am proud to say as I recap the results of the early year predictions, many of the forecasts were correct. Below is a recap of each prediction with data and how the market performed.
Prediction Recap: Mortgage Rates Will Barely Rise
Prediction: The Fed has full control over where home loan interest rates go, and my bet is there is no way they let them rise significantly as a strong housing market is key to a healthy economy.
Recap: According to FRED (Federal Reserve Economic Data), January 5th, 2017 30-year fixed mortgage rates stood at 4.20%. As of December 14th, the 30-year fixed mortgage rate is at 3.93%. So rates are actually lower! In my opinion my “barely rise” prediction was in the minority so I’ll chalk that up as a correct prediction.
Rates have actually been on the rise since September and there is a specific reason for that which I will explain in a future blog.
Prediction Recap: Fear of Rising Rates Will Push Buyers Off The Fence
Prediction: We should see a surge of buying competition through the spring, especially in affordable areas or lower priced homes. Think North Redondo, Hermosa condos/town homes, lower priced homes on The Hill and areas east of the beach cities like Torrance, Lawndale, Hawthorne, and even South Central.
New Construction North Redondo 2-on-a-lot Town Homes
2016: 13 Sales
$1,260,000 Median Sale
$1,200,000 Low Sale; $1,328,000 High Sale
2017: 24 Sales
$1,334,500 Median Sale
$1,250,000 Low Sale; $1,400,000 High Sale
That is almost a 6% increase in median sale price, not to mention almost doubling the sales pace from last year which is a massive indicator of strength. Also, there were SEVEN sales of $1.399 million or higher which is record breaking pricing seven times over.
When you take the average of the sales for both years that is a jump of 17% year over year! Now to be fair, the 2017 sales were about 250 sq. ft. bigger than the 2016 sales, but both listings offered 4-bedrooms and 3-bathrooms. These are basically comparable in every way with the exception of the extra 250 sq. ft. It shows that builders are bullish to build bigger AND that buyers will pay up for an affordable price relative to property closer to the beach.
Hermosa Beach Condos
2016: 33 Sales
$649,000 Median Sale
2017: 29 Sales (counting a pending sale)
$695,000 Median Sale (would be higher at $738,000 if the pending does not close)
That is a very strong uptick in price for Hermosa Beach condos at 7.1%. I am fudging the data a little with that pending sale, but if that were to fall out of escrow or close next year, then Hermosa Condos would show a jump of almost 14%!
Lawndale Single-Family Homes
2016: 48 SFR Sales
$499,000 Median Sale
2017: 64 SFR Sales
$512,500 Median Sale
Now Lawndale only appreciated 2.7% year over year which is in-line with inflation. However, a 33% jump in sales is substantial and shows that there is demand. Even though it is the holidays, the whole city of Lawndale only has five homes for sale and all are the 2016 median price or higher.
Hawthorne: Holy Glen/Del Aire
2016: 157 Sales
$710,000 Median Sale
2017: 180 Sales
$766,250 Median Sale
With the Holy Glen/Del Aire neighborhoods offering amazingly affordable homes west of the 405 in the South Bay, it is no surprise the area jumped 7.9% year over year in value and on 15% stronger sales pace.
I could go on and on with the data (Torrance has done well too), but rising rates may have been a factor in getting buyers going. And I would like to say, it did in fact occur in lower priced/more affordable areas as I predicted.
Prediction Recap: High End Out, Affordable In
Prediction: The high-end/coastal cities of California are discretionary and slowing, while the low/moderate-end has demand that will continue unabated. We have already seen signs of this during the second half of 2016 in the South Bay. The affordable portion of the market will be driven by fully recovered employment and Gen X/Millennials strong desire to own a home in the New Year.
Recap: After median prices fell 11% from 2015 to 2016 in the Manhattan Beach Sand Section, the neighborhood did make a comeback in 2017. From 2015 median prices to 2017 prices, there was an increase of 13% or 6.5% annually over the last two years. Not bad by any means but certainly not the growth we experienced when the market was white hot between 2012 and 2015.
Year over year, the median price of the Tree Section was up 1.8%, the Hill Section up 5.2% and East MB was up 3.6%. The city of Manhattan Beach as a whole was up a whopping 13%. The reason? Well, the Sand Section was up 27% year over year but like I mentioned before, it was up less from 2015 due to the drop in values last year. The surge in the Sand Section (making up last year’s losses) was the main contributor to the city’s growth this year.
What about sales over $5 million? Well, up on The Hill in Palos Verdes $5 million or more sales were down to only 10 sales. This continued PV’s trend of decline with 20 sales in 2015 and 15 sales in 2016. For the Beach Cities, sales were up and have trended the opposite way! This year there were a whopping 46 sales over $5 million, whereas 26 in 2016 and 23 in 2015. So really it was a mixed bag around town.
As far as income properties, the proof is in the pudding (affordable is in!)…
Beach City Income Properties (High End)
2016: 82 Sales (2-4 units)
$1,700,000 Median Sale (2-4 units)
2017: 89 Sales (2-4 units)
$1,669,000 Median Sale (2-4 units)
Prices are just too darn expensive these days to cash flow by the beach…and buyers balked. As you can see, prices are down on even more sales. I follow North Redondo 4-units as a barometer and just watching the market you can see that the prices on those buildings have stalled since there amazing run starting in 2013.
Hawthorne Income Properties (Affordable)
2016: 38 Sales (2-4 units)
$627,500 Median Sale (2-4 units)
2017: 42 Sales (2-4 units)
$745,000 Median Sale (2-4 units)
With North Redondo and Inglewood getting great press and all the investor money the past couple years, Hawthorne finally was recognized for being one of the most under-valued income property markets in the South Bay. That changed this year as investors took note of Hawthorne and as a result 2- to 4-unit income properties surged 19% in value which represents over $100,000 in gains for most property owners on strong sales.
Torrance Income Properties (Affordable)
2016: 49 Sales (2-4 units)
$765,000 Median Sale (2-4 units)
2017: 40 Sales (2-4 units)
$950,750 Median Sale (2-4 units)
Another “affordable” area unlike the higher end beach income properties has been Torrance. Just like Hawthorne, Torrance was under-valued. With buyers passing on the beach in 2017, Torrance surged. Almost a $200,000 increase in median price or a 24% increase in median sale price. This was not an aberration as 2015 prices were lower than 2016 AND had more sales. Not only are prices surging, but there is less inventory to service that demand.
All in all, the high end residential properties were a mixed bag. Palos Verdes seems to be down (see old Rolling Hills blog) while luxury beach property is up. However, when you break down Manhattan Beach by neighborhoods, prices seem to be slowing compared to previous years. My gut and other agent’s opinions seem to feel the same thing even though the numbers say otherwise.
So one could say that I slightly missed or slightly hit on the high end prediction, but most definitely a hit on calling the affordable end being en vogue. Right?
Prediction Recap: Softness by the Beach, but Not Until End of Summer
Prediction: Look for quite a few Snapchat employees to drive Manhattan Beach sales in the first half of 2017, and then expect it to get really, really quiet towards the end of summer.
Recap: I will come right out and say that I missed this one by a long shot. The Snapchat IPO tanked and had very little effect on the market, the softness occurred in the first half of the year, and prices in the Sand Section were up even over the 2015 high. According to the Sand Section Residential data…
First Half 2017: 50 Sales
$3,375,000 Median Price
Second Half 2017: 63 Sales
$3,100,000 Median Price
All in all, the data points to growing sales and prices across the board and certainly through summer to the holidays. The beach was a good bet in 2016 or early 2017 and for now it seems like that should continue.
Prediction Recap: Gen X & Millennials Flock to The Hill
Prediction: With affordable homes trending, I expect to see more migration to The Hill. The Palos Verdes Peninsula offers the top public schools in the South Bay, big lots with back yards, tons of parking, and the most importantly, the best bang for your buck.
Recap: Now I really have no South Bay specific data on which generation is buying where, but it “feels” like that occurred (although reader beware with my feelings on the Manhattan Sand Section).
This year I had clients sell in North Redondo, Hermosa Sand Section, and South Redondo to move to The Hill. Half of my Buyers were older generation Millennials and Gen X going to Palos Verdes.
Take this with a grain of salt as I am a Millennial and will attract those types of clientele, but the fact that so many of my buyers did go to Palos Verdes may hold some truth on this prediction. It is impossible to tell but I think that trend is alive and well. Will it drive P.V. prices higher? Not really. Only with the exception of the floor being raised on the lowest priced homes due to Millennial/Gen X demand. The rest of The Hill remains constant.
Prediction Recap: Garages Become Obsolete, Apartments Become More Dense (Long Term Bet)
Prediction: I am betting that automated vehicles and car ownership will be erased in 10 years. Do you live by the beach currently where there is little parking? That will not be issue with automated ride sharing apps.
Recap: This is still a long term bet, but I have some proof that this is coming even just after a year of time. The city of Los Angeles just released the “Transit Oriented Communities Affordable Housing Incentive Program Guidelines (TOC Guidelines)” which is a sweeping section of Measure JJJ approved by voters. This gives additional density to properties near Metro Rail Stations, Metrolink Rail Stations, Rapid Buses, Regular Bus stops, etc.
I have been a big proponent of clients placing their money in property near existing light rail stops or coming light rail stops (i.e. the new LAX Crenshaw line). To further my recommendation, I have been putting my own money into these areas assuming coming density.
The result of these TOC Guidelines in L.A. is massive for density and is on its way to making garages obsolete. For example, my day care property with zoning for an apartment building (near a coming light rail stop) went from 14 units by right/18 units with low income housing incentives and over three stories to 23 units and FIVE stories taller. Not only am I getting more units, but I am able to build bigger units to accommodate more people and charge more in rent. With regards to parking, there are various parking incentives depending on how much low income housing is reserved but the city is offering to waive all parking requirements on a building if it goes to a 100% low income building. That is huge savings for a developer.
This all just goes to show, density is happening and parking is being eliminated. Los Angeles tends to be the most progressive city and there will be more of this to come with other cities in greater L.A. As automated cars begin to take over, you can expect these types of incentives to spread to more property that is not by mass transit. This is just the beginning for the future of our cities.
So that is the very long-winded recap of my 2017 predictions. When will my 2018 predictions be coming? January of course! If you do not want to miss my real estate predictions for the New Year, then make sure to subscribe to my blog here. I hope you all have a wonderful holiday. See you in the New Year!