It is difficult to make predictions because they are often wrong and if I knew what the future held I wouldn’t be typing this blog, I would be sipping mai tais poolside in Maui. But nothing ventured, nothing gained, so I will make some predictions for the coming year.
- Interest rates will go up. I don’t know if we will have a recession in 2017, but with government support for Fannie Mae and Freddie Mac waning, and the federal bank determined to stamp out the slightest sign of inflation, mortgage interest rates are sure to increase. In the short term, it will motivate buyers to buy now rather than waiting. In the long term, we will run out of buyers (particularly in the high end) and prices should soften.
- Oil prices will increase by 20 to 30%. OPEC has been a bystander the past few years as worldwide production ramped up. But with increasing stability in the Middle East, and Russia cooperating with the goal of decreasing production to increase prices, oil prices will rise.
- Home prices will flatten at the top but stay strong at the bottom and middle. There is plenty of talk about creating “affordable” housing, but absolutely no funding mechanism to make that happen. A number Redevelopment Agencies throughout California abused this locally controlled channel of development, but it was effective. The State removed these agencies, took their money, but did not have anything in ;place to create affordable housing. Now cities and counties depend on the fees generated from housing to pay their bills, and they are not going to relinquish these funds. We are finishing our 10 townhome project and we paid over $500,000 in local fees to a number of agencies (school impact, park in lieu fees, affordable housing exemption, developer fee, public safety, etc.). It is difficult to build affordable housing after paying all these fees.
- Stock prices will drop 10 to 20%. The stock market has increased dramatically the past few months and now sits at an all-time high. The market is counting on corporate tax cuts, a vibrant economy and a strong job market. If any of these three were not to occur, stocks will drop rather quickly.
- Rental rates will stay strong. The rental market will continue to be robust because all the new communities sell “lifestyle” as much as 2 bedrooms and 2 baths, and tenants must pay for that lifestyle. Since the median home price in Orange County is over $650,000, detached home rentals will continue to be in strong demand with tenants.
- There will be a push for more rent control. I call this the “tenant tipping point” effect. Once a city has more renters than property owners, tenants are more than happy to pass any legislation that benefits them even if it is at the cost of an owner. They pass bonds which tax real property, support rental mandates and of course, and lobby for the holy grail of life long tenants: rent control. What is better for a tenant than a tenant deciding what their rent should be rather than the open market?
- Neither the Los Angeles Rams or Los Angeles Charges will win the next Super Bowl but USC will win the college football championship. Our professional football cup runneth over with now two teams calling Los Angeles home, but neither have the personnel to make it to the Super Bowl. But I believe (hope) the Trojans finally climb back up the Pete Carroll mountain and win their first National Championship with the playoff structure.
Bold predictions for this blog, and next year I will see how these predictions fared.