Starting in 2017, what we’ll most likely see is a unique alignment of economic and market forces with jobs and wage growth, low oil prices, and low interest rates. With the California economy outperforming the rest of the nation, California’s housing market is in a better position than most other states. Those in the Beach Cities are in a better position than most other cities in the State. 2017 should bring a modest increase in pricing with a growth in sales activity. This equates to more money in consumer’s pockets and higher confidence in spending. The housing market will enter an expansion phase nationally and a wave of new construction will slowly replace the aging housing stock locally.

It is interesting to note as we look back on our market forecast for 2016, how our analysis ended up when compared against actual market performance for the year. Read our 2016 forecast and breakdown here

The New Normal

As we move out of the housing recovery mode into a more stable period, many economists are referring to these market conditions as “the new normal”.Most likely, while we will still see prices increase, it will not be at the pace of the past 18 months but will be more moderated in the 4-5% range. Of course, considering the average price of homes in the South Bay, that still means some nice price gains. The high end is projected to turn over at a discretionary rate, while in the moderate price range, demand should continue unabated. Economists are also predicting that prices will rise faster than overall incomes. So if you are thinking of buying, there’s really no reason to wait. 2017 Market Predictions: the buyer perspective

One of the byproducts of “the new normal” will be a rather healthy trend in inventory rebalancing.  So while the MSI or months’ supply of inventory, may still remain tilted towards sellers, it would be surprising to see less than 30 days’ supply on hand as we have previously at a few junctures.

According to The Conference Board, national consumer confidence is at a 9 year high with jobs in California growing faster than anywhere else in the nation, with reported job gains being the highest in the Southern California region. Sustained job growth within the tech and engineering firms in Silicon Beach, the Downtown financial district and the entertainment and sports industries will continue to attract buyers to the South Bay due to the quality of both lifestyle and education. In turn, the market stability we projected in early 2016 should continue the trend, thereby avoiding an unhealthy “bubble”.

In summary, 2017 should see the following:

  • Pent up demand for inventory
  • Increase in unit sales
  • An almost overwhelming need for new construction
  • Local industry growth leading demand
  • Moderate, steady appreciation
  • Lack of affordability in the average price points as a continued challenge
  • Changing interest rates as an almost daily topic
  • Economists keeping a close watch on global markets

Manhattan Beach/Hermosa Beach micro-market forecast for 2017:

There is a wave of activity on the horizon in 2017.

The lack of inventory is holding back market volume, not pricing. For most of the past four years, any time a great home hit the market, there were multiple offers and typically several all cash offers. This made it impossible for buyers who need to sell their current home to be competitive. Due to the huge annual appreciation, many owners opted to delay their selling plans to be able to enjoy the appreciation. As the huge annual appreciation we have experienced over the last four years has been tamped down to a flicker from a flame, more and more owners will take this opportunity to liquidate real estate. This will allow a lot of move up buyers to get into the game. Buyers that need to sell their home to buy their next property will bring more inventory to the market which in turn will spur even more sales.

 

In the past 9 months, the market seems to have slowed down. While the average time on market dramatically increased, the amount of inventory actually shrank. It is the lack of quality listings that has really slowed the market.

At times, up to 80% of local purchases are made by buyers who live in the immediate area. Buyers who a looking for more space, bigger bedrooms, a location closer to the beach or just trying to get into a better school district. There are buyers who have decided it is better to move up than remodel, buyers who now need a bigger home with a yard for the kids, or empty nesters who now can afford moving closer to the beach while downsizing the home. Due to the extremely high housing prices at the beach, the average South Bay home owner moves every 4-6 years.  Steady job growth and public school performance here in the South Bay continues to drive demand across all price points.

Generally speaking, the closer a property is to the water, there we will see the most stability in housing values.  Although the signs of an improving economy will be damped by an increase in interest rates, demographic shifts are bringing strong demand to the area and that consistency in the local markets. The affordability factor of Los Angeles County alone has seen mass migrations of average and first time home buyers moving out of LA towards the Inland Empire, Orange County, San Diego and Ventura. South Bay homes will continue to increase in value as jobs that support the affordability range in our area continue to flow into the expanding industries that surround the Beach Cities and Palos Verdes.

My forecast for 2017 will be that as more listings come on the market, it will spur more buyers who need to sell their current home first, to list their homes for sale.  This will create more inventory and more options for the move-up buyer.

Long Term Predictions Overall

Look for these key things in over the next 3-5 years:

    1. Total volume in sales to increase dramatically
    2. Price appreciation to be closer to 3-5%: closer to the inflation rate. Although the signs of an improving economy will be dampened by an increase in interest rates, demographic shifts are bringing strong demand to the area. Select, prime locations should see a much higher appreciation rate.
    3. As the market stabilizes, the average days on market should trend back to its historical norm which would be 4-6 months for the South Bay area.
    4. Supply will remain tighter in the more affordable ranges, making it important for buyers to be pre-approved with finances in order ready for strong offers in order to compete. Boomers are not moving as often as in previous years and generally, those are the homes most sought after by young families, thereby keeping inventory low and that built up demand urging pricing.
    5. While 62% of homes in California saw multiple offers in 2016, the number of offers a home is expected to receive is likely to decrease as the market settles into “the new normal”. Homes closer to the average affordability index should still see multiple offers as this is the largest gap in available inventory and where the pent up demand will most readily show itself. Homes priced right, in excellent showing condition and in top rated school districts are still expected to see a great buyer response.

Factors that will help support the housing market over the next four years

  1. An improving economy will create more buyer demand. The U.S. Economic Outlook projects a 2.2% increase in the GDP with individuals in California expecting to see a 3.5% gain in real disposable income.
  2. A national energy policy to provide lower cost fuel which will further boost the economy and American companies’ ability to compete internationally. This should result in even more demand for housing.
  3. FED credit regulations should ease, making it easier for qualified borrowers to obtain financing and in turn causing the pendulum to start to swing the other way. The government’s over reaction to lending standards has created a credit crunch. If lending standards ease to common sense levels, the market will react positively.
  4. Many “baby boomers” are nearing the age of retirement and may be selling their current homes and looking at other options.
  5. First time buyers, many of whom were on the sidelines the past few years, most likely will beat their historic average of being 40% of the market
All information on this site is deemed reliable, but not guaranteed. All information should be independently verified.
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