Housing market update for Southwest California - Temecula, Murrieta, Menifee, Wildomar, Lake Elsinore, Canyon Lake, Hemet & San Jacinto

1. Housing Recovery Slows
Economic recoveries usually begin at home, specifically with the housing industry and the construction and creation of new homes. (You
can build a house but families create a home. Both have significant multiplier effects on the economy.) As we’ve discussed here before,
housing has lead the economic recovery in 6 of the past 8 recessions with the other two being war driven. Given the current status of the
economic recovery and housing's role, maybe we should be hoping for another war.
Obviously no sane person would truly wish for such a thing but the fact remains that a robust economic recovery remains an elusive
thing and housing has not been able to assume its customary role in leading the rebound. Our local market is reflecting the malaise of
the national housing market with declining sales and flattening prices. While that’s both good and bad for our local market, it’s impact
nationwide is a cause for concern.
Federal Reserve Chair Janet Yellen said on 5/7 that the U.S. economy was still in need of lots of support given the "considerable slack" in
the labor market, adding that the housing sector's weakness and geopolitical tensions posed risks. Yellen said she expected
the economy to expand at a "somewhat" faster pace than last year, but flagged weakness in the nation's housing sector and the
possibility of heightened geopolitical tensions or the re-emergence of financial stress in emerging markets as potential risks. "The recent
flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,"
she said.
So why is the market flattening at a time when, from a historical perspective, it should be soaring? In a word – GOVERNMENT!
Consistent inconsistency, conflicting agenda’s, unnecessary and restrictive knee-jerk regulation, market manipulation and sinking
consumer confidence have been the hallmarks of this administration for the past 6 years – and I’m not just pointing the finger at Pres.
Obama. Both Republicans and Democrats have provided mixed signals on everything from the future of the GSE’s to mortgage interest
deductibility, short sale debt relief, flood insurance and interest rates. It’s in, it’s out, they’re here, they’re gone, you’re covered, you’re
not – how’s a consumer to feel any degree of confidence when our leaders waffle more than IHOP?
Need more evidence? The Federal Reserve Board recently released its April 2014 Senior Loan Officer Opinion Survey on Bank Lending
Practices. The survey addresses changes in the standards and terms on, and demand for, bank loans to businesses and households
over the past three months.
According to the household component of the April survey results, banks eased their lending standards for auto loans and credit cards.
At the same time, a net share of bank officers reported having observed rising demand for auto loans and credit cards. In contrast, a net
share of bank officers reported that their bank had tightened lending standards on prime residential mortgages and a net share reported
having observed a decline in demand for prime residential mortgages.
DUH! Right now there’s an office full of highly paid people sitting in D.C. trying to figure out what that means.
At the same time, the GSE’s (remember that stands for Government Sponsored Enterprises) have aggressively reduced the cap rate for
conforming loan limits. Riverside County was one of the most heavily impacted by this with a drop of nearly 30% meaning that buyers in
Temecula, Murrieta and Canyon Lake can no longer purchase a median price home in our community with a GSE conforming loan. That
worked real well the last time that happened.
At the same time, some in government are bemoaning the fact that minorities who were disproportionately impacted by the housing
crash have also benefitted the least from the nascent recovery. They’re arguing that lending standards should be relaxed, down payment
requirements should be waived, and credit scores and ability to repay should not be part of the consideration. That also worked real well
last time.
At the same time, the FHA (a government entity) is deciding whether it should play by different rules than Fannie & Freddie when it
comes to condo purchases. Currently about 72% of the 26 million condo housing units nationwide have some form of transfer tax. Unlike
most private transfer taxes, or fees, which have no nexus to the housing stock and simply benefit some group or another, most condo
transfer fees are tied to the association for the benefit of the development. Fannie & Freddie recognize this but FHA is set to implement
rules, possibly as early as June, which would restrict FHA financing for condo purchases with a transfer fee attached. Already impacted
by the inability to purchase in many developments due to rental ratio restrictions, this puts homeownership further out of reach for many
first time buyers and seniors. That’ll work well.
So, when will housing recover? Next week I’ll be in Washington D.C. and have the opportunity to talk with many of the best and brightest
our industry has to offer including our own Chief Economist. You may look forward to my next report with the full knowledge that I will
have all the answers and be able to forecast with great certainty exactly where we’re going.
Or not.

2. What’s happening locally?
OK, now that I got that off my chest – lets talk about the only market you and I really care about on a daily
basis, the one in our own back yard.
Sales bumped up every so slightly in April, just 3% from March but still down over 9% from last April.
Temecula sold 4 fewer homes in April than March, Murrieta sold 21 more, most other cities were flat month
to month and a few units under last April.
Home prices for the region dipped 2% in April. That’s the 2nd time this year regional prices have declined.
After dropping in February they bounced back in March only to drop again in April. After posting 20%+ year-
over-year increases for much of 2013, we started the year with January up 20% year-over-year but that’s slid
to 16% in April. We’ll likely see more sliding as the year progresses as national and state prognosticators are
forecasting just 3% to 7% price appreciation for 2014.
Hefty year-over-year increases will be particularly difficult to sustain in cities like Temecula, which topped the
$400,000 peak last May and only dipped below it twice since. Their median of $415,852 in May 2013 was
actually 2% higher than their $406,240 April 2014. And while most of our cities increased 12% to 16%
between January and April of 2013, this year’s median for the same period are relatively flat and a couple
have even declined.
Also keep in mind as you evaluate these median prices, both Temecula and Murrieta have benefitted from
increased sales of million dollar homes – 7 in Temecula last month and 6 in Murrieta. That boosts the median
price nicely but doesn’t necessarily translate to an across the board increase on the average family home. That
rising tide does not float all boats equally. However, we have seen increases across the broad range of homes
with price points generally moving up and the lower price offerings disappearing. A 21% increase in Menifee
or a 16% increase in Lake Elsinore is a genuine surge in median home value as they have not yet seen a
resurgence of sales over $700,000.
So in addition to the governmental causations attributed on page 1, what else is contributing to the
softening? Well, inventory is up 66% from it’s lowest point in December 2012 (581/1,751). Our unsold
inventory has climbed from 1.1 months just a year ago to 3.2 months. That’s still just half of what is
considered to be a balanced market and should still be tilted in the Sellers favor. But demand is down. There
were months in 2013 when we were selling 650 – 700 homes every month, selling 2-3 homes for every new
home that came on the market. Our best month was May 2012 when a total of 796 homes were sold and
there were only 974 homes for sale – we sold 82% of our entire inventory that month. Last month we sold just
33% of our standing inventory. And while we’re still absorbing 8 of 10 new listings, last year we were selling
20 – 30 homes for every 10 new listing. Demand is still decent but not stellar.
And some of that is good. We could not sustain 20% - 25% year-over-year increases indefinitely so some
moderation of that process is welcome. We have also seen a fall-off in the number of first time buyers and
investors in the market. First time buyers are at a 20 year low in terms of homeownership driven back by
rising interest rates and increased home prices. Investors who buoyed the market for 2 years have also
withdrawn because rising prices make it more difficult to pencil out a rental return and the great bargains for
flippers are becoming more rare by the day.
We are still very much a market in transition from the depressed market of 2007-2008 to the
more robust market of 2012-2013 to what will become the new normal market for the next
few years. Standard sales and standard buyers are defining the market today. Were it not for
the unprecedented involvement of government in virtually every aspect of the housing market
today, it would be easier to determine the road ahead and the trajectory the market would
follow for the next few years. With the continued uncertainty injected by legislative and
regulatory bodies into the housing and lending industries, that is much more precarious.

3. SW Market @ A Glance
Southwest
California Reporting
Period
Current
Period
Last
Period
Year
Ago
Change
from
Last
Period
Change
from
Year Ago
Existing Home Sales
(SFR Detached)
April
2014
579 559 639 3% 9%
Median Home Price $341,630 $347,265 $293,386 2% 16%
Unsold Inventory
Index (SFR Units) 1,751 1,557 693 11% 60%
Unsold Inventory
Index (Months) 3.2 3.1 1.1 3% 66%
Median Time on
Market (Days) 67 71 54 6% 19%
Source: CRMLS

4. 0
50
100
150
200
250
3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes
Single Family Homes
Unit Sales
April Transaction Value*:
Temecula $57,686,056 Lake Elsinore $22,453,652
Murrieta $61,630,355 Wildomar $8,386,650
Menifee $36,956,917 Canyon Lake $11,450,500
* Revenue generated by single family residential transactions for the month.
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes
Single Family Homes
Median Price

5. 0
20
40
60
80
100
120
140
160
180
200
3/13 6/13 9/13 12/13 3/14
Hemet/San Jacinto 2014 Unit Sales
Single Family Residential
Hemet San Jacinto
$0
$50,000
$100,000
$150,000
$200,000
$250,000
3/13 6/13 9/13 12/13 3/14
Hemet/San Jacinto 2014
Single Family Residential Median Price
Hemet San Jacinto
April Transaction Value:
Hemet $28,997,863 San Jacinto $9,950,350
* Revenue generated by single family residential transactions for the month.

6. April Median Price:
2013 2014 %
Temecula $387,507 $406,240 7%
Murrieta $346,850 $382,797 9%
Menifee $207,899 $263,976 21%
Lake Elsinore $232,607 $277,206 16%
Wildomar $265,576 $310,617 15%
Canyon Lake $319,926 $408,946 22%
Southwest California $ 293,386 $341,630 14%
Hemet $172,905 $187,083 8%
San Jacinto $155,674 $180,915 14%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14
Southwest California Murrieta Temecula
Southwest California Median Price

7. 0
50
100
150
200
250
300
350
400
450
500
On Market
(Supply)
Pending Closed (Demand) Days on Market Months Supply Absorption rate *
4
7
4
1
7
9
1
6
1
6
7
2
.
9
8
1
%
4
9
2
1
8
5 1
4
2
5
9
3
.
5
7
0
%
3
9
9
1
8
5
1
5
5
6
2
2
.
6
1
3
6
%
3
2
5
1
9
5
1
4
0
5
9
2
.
3
9
8
%
2
5
7
1
4
0
8
1
7
1
3
.
2
6
3
%
1
5
6
7
6 5
5
5
9
2
.
8
6
1
%
1
3
1
2
0
2
8
9
5
4
.
7
5
7
%
7
2
2
9
2
7
5
2 2
.
7
1
0
0
%
Murrieta Temecula Hemet Menifee Lake Elsininore San Jacinto Canyon Lake Wildomar
* Absorption rate - # of new listings for the month/# of sold listings for the month
April Demand Chart
0
500
1000
1500
2000
2500
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4
1
9
9
7
2
2
4
0
1
4
1
9
1
1
8
8
9
7
4
8
6
2
8
4
1
7
9
5
7
7
8
7
2
5
7
8
2
5
8
1
6
7
9
6
1
7
6
0
2
6
3
9
6
7
7
8
6
3
1
0
9
8
1
2
2
7
1
3
6
1
1
5
0
2
1
4
0
9
1
3
4
5
1
4
4
8
1
5
0
7
1
5
5
7
1
7
5
1
On Market 11%
Pending 9%
Closed 3%
Days on Market 6%
Months Inventory 3%
Absorption 10%
Month over Month
Southwest California Inventory
2012 2013

8. April Market Activity
By Sales Type
Standard Sale Bank Owned Short Sale
Active
% of
MKT Sold
% of
MKT Active
%
of
MKT Sold
% of
MKT Active
% of
MKT Sold
% of
MKT
Temecula 462 94% 127 89% 15 3% 7 5% 12 2% 7 5%
Murrieta 427 89% 139 86% 12 3% 10 6% 31 6% 10 6%
Wildomar 64 89% 25 93% 0 0% 1 4% 7 10% 1 4%
Lake Elsinore 219 85% 70 86% 9 4% 3 4% 28 11% 7 9%
Menifee 289 89% 114 81% 15 5% 11 8% 19 6% 11 8%
Canyon Lake 121 92% 23 82% 2 2% 1 4% 8 6% 2 7%
Hemet 346 87% 127 82% 26 7% 11 7% 26 7% 15 10%
San Jacinto 129 83% 44 80% 6 4% 6 11% 19 12% 4 7%
Regional
Average 2057 89% 669 85% 85 4% 50 6% 150 6% 57 7%
Remember how long California claimed the title of highest rate of foreclosures in
percentage, in completed foreclosures and in raw volume of REO properties with
our region among the top performers in those categories for the state? Though
based on our population we still rank among the highest in completed foreclosures,
we’re no longer #1 in any category and post just 1/3 the volume of Florida.
Thirty-seven states show declines in year-over-year foreclosure inventory of greater
than 30 percent with Arizona, California and Utah experiencing declines greater
than 50 percent.
The five states with the highest number of completed foreclosures for the 12
months ending in March 2014 were Florida (122,000), Michigan (49,000), Texas
(39,000), California (34,000) and Georgia (33,000).These five states account for
almost half of all completed foreclosures nationally.

9. California ranks 10th best in percentage of homes in foreclosure. As a state and as a
region we’ve gone from top 10 worst to top 10 best in the past 3 years.
The California Association of Realtors® has fought hard to keep California a non-
judicial foreclosure state thus improving the timeliness of completing foreclosures
and allowing us to return to a more stable market more quickly.
Judicial foreclosure states requiring nearly 3-4 times as long to process a
transaction are still working through the backlog of foreclosures while more recent
filings continue to pile on top. Of course law firms love the work and many are
building their retirement on the backs of the foreclosed. Think California attorneys
were salivating over the possibility of getting their hands on this windfall in our
state? Yeah, probably not.
Courtesy of CoreLogic Market Trends.

10. Courtesy of CoreLogic Market Trends.

11. This graphic illustrates what I was talking about on Page 1 –
IF housing was following it’s customary trajectory in an economic
recovery, our contribution to jobs and the GDP would be significant.
As an industry, it is disappointing to us that we have thus far been
constrained in our efforts to provide the full measure of support that
has historically been our role.
…AND MILLIONS MORE INDIRECT JOBS

12. The Last Word…
Wanted: More Jobs and Wages, Less Robin Hood
Instead of advancing policies to remedy the weakest recovery in the post-World War II era, this
administration’s focus is on advancing more regulations to tie the economy even further in
knots while attempting a distraction with its income inequality pivot. Is income inequality
important? Sure. But those fruitlessly looking for work month after month, and for those
whose incomes have stagnated all these years, a job and a strong job-creating wage-boosting
economy is a heck of a lot more important. Just apparently not to this administration.
Fannie Mae: Americans Optimistic About Housing Market
With concerns about employment easing, Americans are increasingly optimistic about the
housing market, reports Fannie Mae in its April National Housing Survey. And, according to the
mortgage buyer, this climbing optimism may foreshadow an upswing in housing activity
through the summer months.
All-Cash Residential Sales Reach New High
The share of all-cash sales reached a new high in the first quarter of 2014, even as the total
share of institutional investor purchases dropped to near-record lows. All-cash sales made up
42.7 percent of all U.S. residential property sales for Q1, up from 37.8 percent from the
previous quarter, according to RealtyTrac’s U.S. Institutional Investor and Cash Sales Report
Mortgage Delinquency Rate Continues to Drop
The mortgage delinquency rate declined to 3.61 percent at the end of the first quarter of 2014,
according to TransUnion's latest mortgage report. Overall, the mortgage delinquency rate has
dropped 24 percent in the last year, and has experienced nine consecutive quarters of decline