October Housing Report for Southwest California

1. What lies ahead?
No, that is not a reference to the President’s latest pronouncements on the Affordable
Care Act. I’ve just returned from our state and national association’s year-end meetings
where we were apprised by numerous economic and political prognosticators on the state
of the state and nation, especially the state of housing. And it’s mostly good news with
some being more optimistic than others. I’ve included several charts and graphs from a
variety of sources making this a pretty long report, but hopefully with data you can use.
Our region is performing very similarly to the rest of the state and better than most of the
country, although much of the country is mirroring our market. Inventory had declined
precipitously in most market but has started to increase again, as it has in ours. After
experiencing heavy demand and rapid upward price pressure early in the year, sales have
slowed and price appreciation has moderated nationally, again as it has in ours. Sales
have slowed due to increased interest rates coming on the heels of a government shutdown that rattled consumer confidence even though the fiscal impact was minimal.
The outlook for 2014 is more of the same – slow sales growth and moderate price
increases as the market sorts itself out. Heck, we might even throw in another
government shut-down just to help keep economic growth stagnant. As one wag put it,
‘half the people in D.C. are raising hell about stuff that really doesn’t matter at all while
the other half aren’t saying anything at all about stuff that really does matter.’
Overall the percentage of homeownership will decline modestly primarily due to the
ongoing lack of new home construction and a demographic shift in ownership
characteristics. California will suffer disproportionately from the lack of new homes being
built. Part of that is due to a lack of available funding for private builders but part of it
continues to be regulatory concerns unique to California. For example, did you know that
it costs as much to permit and entitle a home in Carlsbad as it does to build the entire
house in Houston? Perhaps that’s one reason why they’ve built as many homes in Houston
this year as we have in the entire state of California.
According to our Chief Economist, the inventory of new homes must increase to 1.5
million from their current rate of just over 900,000, or our housing shortage will become
persistent, especially in some areas (California being one). This decline in home
ownership will lead to even more unequal distribution of wealth since owning a home is
the primary determinant of wealth in the country today. I’ve included a summary of Dr.
Lawrence Yun’s remarks at our forum last week where both he and John Krainer, Senior
Economist at the San Francisco Federal Reserve, noted significant disconnects in today’s
market, the lagging pace of the recovery and disconnects between the economy, housing
and consumer confidence.
After spiking in 2009 and 2010, the ownership rate for 1st time homebuyers has declined
to its lowest level since 2006. Increasing prices and interest rates will continue that trend.
Today, 40% of homes are owned by people 55 and over and that percentage will likely
increase until us ‘boomers’ start shuffling off the planet.
If there’s any good news I guess that’s it.

2. SW Market @ A Glance
Southwest California Reporting
Period
Existing Home Sales
October 2013
(SFR Detached)
Current
Period
Last Period Y ear Ago
Change
from Last
Period
Change
from Year
Ago
592
588
642
1%
8%
Median Home Price
October 2013
$332,593
$327,460
$263,271
2%
20%
Unsold Inventory
Index (SFR Units)
October 2013
1,502
1,361
725
10%
52%
Unsold Inventory
Index (Months)
October 2013
2.8
2.5
1.3
11%
54%
Median Time on
Market (Days)
October 2013
50
49
82
2%
40%
Source: CRMLS
October Market Activity
By Sales Type
Standard Sale
Bank Owned
Short Sale
Active
Temecula
Murrieta
Wildomar
Lake Elsinore
% of
MKT
% of
Sold MKT
372
92%
126
88%
12
3%
2
1%
16
4%
12
8%
348
88%
119
80%
17
4%
6
4%
27
7%
22
15%
53
85%
23
85%
6
10%
0
0%
3
5%
3
11%
Active
% of
% of
MKT Sold MKT
Active
% of
% of
MKT Sold MKT
Menifee
190
83%
74
74%
10
4%
8
8%
25
11%
14
14%
253
86%
136
87%
17
6%
4
3%
20
7%
19
12%
Canyon Lake
110
95%
19
83%
1
1%
1
4%
3
3%
2
9%
Regional
Average
1326
88%
497
83%
63
4%
21
4%
94
6%
72
12%

3. 250
Southwest California Homes
Single Family Homes
Unit Sales
200
150
100
50
0
3/11
6/11
9/11
Temecula
12/11
Murrieta
3/12
Lake Elsinore
6/12
9/12
Menifee
12/12
3/13
Wildomar
6/13
9/13
Canyon Lake
October Transaction Value:
Temecula $62,113,780
Murrieta
$450,000
$56,433,897
Wildomar
$8,280,336
Menifee
$500,000
Lake Elsinore
$25,957,256
$39,413,176
Canyon Lake
$8,619,582
Southwest California Homes
Single Family Homes
Median Price
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
3/11
6/11
Temecula
9/11
Murrieta
12/11
3/12
Lake Elsinore
6/12
9/12
Menifee
12/12
Wildomar
3/13
6/13
Canyon Lake
9/13

4. $450,000
$400,000
$350,000
Southwest California Homes
Single Family Homes
Year-Over-Year Median Price
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
3/12
6/12
9/12
Southwest California
12/12
Murrieta
3/13
6/13
Temecula
It should be noted that just because the median price of homes in the area has increased by
20+%, that doesn’t necessarily mean the price of your home has increased by 20+%. The
increase in median price also factors in the mix of homes sold as we’ve noted before. With
the disappearance of homes priced under $100,000 and increased sales of homes over
$700,000 that we’ve experienced the past two years, the median price level increase may be
disproportionate to the actual selling price of your home. As an indicator, the median may be
inaccurate but it is consistent.
October Median Price:
2012
2013
%
Temecula
$341,442
$434,362 21%
Murrieta
$294,826
$381,669 23%
Menifee
$186,662
$238,868 22%
$198,995
$259,573 23%
Wildomar
$227,357
$306,679 26%
Canyon Lake
$330,143
$374,764 12%
Southwest California $263,271
$332,593 21%
Lake Elsinore

5. 450
October Demand Chart
400
34 2
90 9
63 25
3
0
350
300
250
1
1
6
200
150
100
6
2
1
1 1
8
6 6
1
61 5
0
1
11 1
44 5
1
83 1
0
0
3
1
7
8
50
0
On Market
(Supply)
22
37
Pending
Murrieta
Closed (Demand)
Temecula
Lake Elsininore
7
5
4 4314
8647 4
Days on Market
Menifee
1
1
.
. . . .
. 9
8 821
5 8
4 6
9
222252
. . . . . .
783003
Months Supply
Canyon Lake
Absorption rate *
Wildomar
* Absorption rate - # of new listings for the month/# of sold listings for the month
Sales levels are anticipated to remain slower through year-end as indicated by the number of pending homes
coming into November. Months supply has climbed from a low of 1 month in March to 2.8 months in October –
a significant increase but still well below the 6 months considered to indicate a ‘normal’ balanced market.
Buyers are now absorbing new listings at a much slower pace as well buying just 93% of homes listed during
the month compared to 274% of new listings in March.
2500
2000
1500
1
4
6
2
1
4
4
6
2 2 2
1
0 1 1
1
1 1 9 7 9 5
7 6
7
1 7
2 7 4
1
6
4 9 3
5
7 4 6 4 4
6
2
9
2
1
7
1
2
2
2
4
2
2
4
0
2
0
4
5
2
1
2
0
2
0
8
7
2
0
0
9
1
9
9
7
2
0
0
9
2
1
1
1 1
9
1 9
3 8
7
8 9
2 8
8
1 7
2
2
1000
2
2
4
0
1
4
1
1
1
1
0
9
8 9
9
8
8 7 8 8
7 7
7
8
7
6
6 6
4 6 4 9 7
8 5
6 6 6
2
3
2 1
7
3 7
5 8
5 2 8 9 1 0
7
7 2 9
1
1
1 5
1 3 0
2 6 2
2 1
7
500
0
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 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10
2010
2011
2012
2013

6. National Flood Insurance Program
Last year Realtors won a victory by getting a 5 year extension of the NFIP. We had fought for this
for 7 years in part because the 90 day – 6 month extensions and frequent lapses caused great
turmoil in coastal markets. However, the passage of the Biggert-Waters Act coincided with a
massive revision by the EPA of national flood plain maps.
The impact thus far has been minimal on our local market although the new EPA/FEMA flood maps
have added areas of Temecula to flood plains that heretofore did not exist. However, as many as
35% of Florida homes have been impacted and the coastal housing market has all but dried up as
people have seen their flood insurance bills increase from $1,500/yr to as much as $30,000. People
from Louisiana to Washington can’t afford the insurance thereby can’t comply with the terms of
their mortgage but can’t sell their homes either because the cost of insurance is higher than a
mortgage payment. It’s a mess.
There has to be some happy medium. FEMA was at least partially correct in positing that people
have built homes in high risk areas in part because of the heavily subsidized flood insurance.

7. I’ve just
year-end
forecasts
economy
beyond.
returned from both our state and national
meetings and wanted to provide the latest
from our panels of experts on where the
and housing markets are headed in 2014 and

8. Home Sales to Hold Steady in 2014, but Prices will Continue to Rise
SAN FRANCISCO (November 8, 2012) – Existing-home sales are expected to retain the healthy gains seen this year, while prices will
stay on an uptrend in 2014, according to a forecast presentation at a residential forum during the 2013 Realtors® Conference &
Expo.
Lawrence Yun, chief economist of the National Association of Realtors®, said existing-home sales have shown a 20 percent
cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the
same timeframe.
“We’ve come off of record high housing affordability conditions in the past year, and are now at a five-year low, but conditions are
still the fifth best in the past 40 years,” Yun said. “While the median-income family in many areas will still be well positioned to buy a
home in 2014, income is barely budging given growth in consumer prices.”
Yun said the other headwinds moving forward include limited inventory conditions in many areas and mortgage lending standards
that are still unnecessarily stringent. “Although home sales have recovered over the past two years, mortgage purchase applications
have been flat for the past four years, even with rising sales,” he said.
With higher mortgage interest rates, he expects refinancings to collapse in 2014 to the lowest level in at least 15 years, and hopes
purchase applications will begin to rise. “This is an incentive for banks to increase mortgage origination, especially considering the
low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for
over 30 percent of sales,” Yun noted.
Beyond bank motivation, Yun said Washington policies for mortgage lending have been too restrictive. He cited rising fees for
Fannie Mae and Freddie Mac, higher Federal Housing Administration premiums, as well as Dodd-Frank banking regulations, which
have been strangling community banks. In addition, Yun said banks are holding onto funds for potential Department of Justice
lawsuits, rather than making them available to mortgage borrowers.
He said job creation, and hopefully a relaxation in stringent lending standards, will offset higher mortgage interest rates. Existinghome sales this year are forecast to rise 10 percent to nearly 5.13 million, but should hold fairly even at about 5.12 million in 2014.
Limited supplies were the biggest factor in price performance in the past year, with inventory bouncing around 13-year lows, and
seriously delinquent mortgages have been trending steadily down. The national median existing-home price for all of 2013 will be
up just over 11 percent, to about $197,000; then increase nearly 6 percent next year.
Yun expects the inventory shortages to be felt again next spring. “Housing starts are the only way to alleviate inventory shortages,”
he said. “Housing starts need to rise 50 percent to meet underlying demand.”
Housing starts are forecast to hit 917,000 this year and reach 1.13 million in 2014, which is still well below the underlying demand of
about 1.5 million. New-home sales are likely to total 429,000 in 2013, and grow to 508,000 next year.
Inflationary pressure may begin to build during the course of 2014, with consumer prices projected to rise 2.7 percent, but Yun said
inflation could reach 4 to 6 percent in 2015. Mortgage interest rates are expected to trend upward and reach 5.4 by the end of next
year.
Yun projects growth in Gross Domestic Product to be 1.7 percent this year and 2.5 percent in 2014. “If not for the housing recovery,
we could be on the verge of a recession,” Yun noted. “The rent component of inflation is rising, so the only way to tame price
growth is new home inventory.”
Since the economic downturn, 8.8 million jobs were lost, but only 7 million have been regained. “We need another 6 to 8 million
jobs to get back to normal,” Yun said. The states with the fastest job growth are North Dakota, Utah Idaho, Texas, Colorado,
Minnesota, Georgia, Washington, Arizona and New Jersey. The unemployment rate is projected to decline to about 6.7 percent
around the end of next year.
Based on the forecast, the top 10 markets to watch for a housing turnaround in 2014 are Salt Lake City; Naples, Fla.; Tampa, Fla.;
Atlanta; Boise, Idaho; Houston; Charlotte, N.C.; Denver; Seattle; and Tucson, Ariz.
Also speaking was John Krainer, senior economist at the Federal Reserve Bank of San Francisco, who said near-term economic
momentum is weakening, but improvement in growth is expected going forward. “Inflation has been subdued, and is expected to
remain below the Fed’s 2 percent target over the next few years,” he said. “Despite improvement in the labor market, the
unemployment rate remains elevated but will be falling slowly.”
Krainer notes improved household net worth, aided by rising home values, is supporting consumption spending, but home sales and
inventories are not growing as expected. “New-home sales are significantly underperforming, and have been bouncing around
World War II lows,” he said.
“There is a big disconnect between rising home prices and inventory slowing down,” Krainer said. Normally, higher levels of new
construction would be expected in a rising sales environment.
Krainer notes there is a relationship between the share of underwater mortgages and the number of homes for sale. “In markets
where we saw a high percentage of underwater home owners, we also saw lower inventory levels.

9. Political Experts Offer Divergent Views on Fannie, Freddie Reform
SAN FRANCISCO (November 9, 2013) – The contentious debate over the future of Fannie Mae, Freddie Mac
and the Federal Housing Administration single-family mortgage insurance program may grow to a fever pitch
in the coming months, but no meaningful Congressional action is in sight according to two of the nation’s
leading housing finance policy experts.
Realtors® who attended a legislative and political forum at the 2013 Realtors® Conference and Expo weighed
the divergent perspectives of Peter Wallison, former general counsel of the U.S. Treasury Department under
President Reagan, and David Min, former Senate Banking Committee counsel to Sen. Chuck Schumer, D-N.Y.
Wallison and Min traded opinions about the potential impact of federal policy decisions on the role, mission,
and purpose of the government-sponsored enterprises.
“The government is the principle enemy of the housing finance market,” said Wallison. He said that the key to
bringing stability to the housing finance market is strong underwriting standards, not a government guarantee.
“Whenever government agencies are guaranteeing mortgages, there will always be the urge to extend the
benefit as broadly as possible, which means that the standards for mortgages are degraded substantially.”
In stark contrast, Min attributed the post-Depression era stability of the housing finance market to the federal
government’s role, which he said also contributed to an unprecedented era of fiscal success and the creation
and popularization of the 30-year fixed-rate mortgage.
Min raised concerns about liquidity without a government guarantee from Fannie Mae and Freddie Mac.
“Since the financial crisis, the federal government has backstopped more than 90 percent of mortgages,
where would we be without that?” he asked.
Journalist Ken Harney moderated the forum and asked both speakers whether or not they supported
legislation like the PATH Act, introduced by House Financial Services Committee Chairman Jeb Hensarling, RTexas, which would eliminate Fannie and Freddie and the government guarantee.
“It would be better for everyone if we just had a private real estate market,” said Wallison, who called on
Realtors® to support the bill.
NAR strongly opposes the PATH Act because it would create significant obstacles to homeownership for
most Americans. The legislation would reduce the availability of safe, reliable mortgage products like the 30year fixed-rate loan, and limit access to capital during economic downturns when private lenders tend to flee
the market.
While Min opposes the legislation he agrees that it’s time to wind down Fannie and Freddie. “What I worry
about is that they are a private-public model that is chasing profits and market share,” he said. “Right now
they are bleeding infrastructure, which will ultimately lead to poor performance.”
Instead of the PATH Act, Min supports the Housing Finance Reform and Protection Act, introduced by Senators
Bob Corker, R-Tenn., and Mark Warner, D-V.A., which would also phase out Fannie and Freddie, but the federal
government would remain as an insurer of last resort, much like how the Federal Deposit Insurance
Corporation acts as the insurer of last resort for troubled banks. NAR has long called for replacing Fannie and
Freddie but maintaining an explicit federal presence in the market to ensure continued mortgage market
liquidity.
Both Wallison and Minn agreed that while the bipartisan Senate bill may pass the upper chamber, it is
extremely unlikely that either bill will make it to the President’s desk this year.
Bottom line: Business as usual with neither federal proposal
passing anytime soon. By Q1 ‘14, both Fannie & Freddie will have
repaid their government bail-outs and remain highly profitable
removing much of the knee-jerk calls for elimination.

10. Gross Domestic Product: Growth is Stalling
• 2012: 2.2%; 2013 Q2: 1.7%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $
5%
ANNUALLY
QUARTERLY
4%
3%
1.7%
2%
1%
0%
-1%
-2%
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
-4%
2005
2006
2007
2008
2009
2010
2011
2012
-3%
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

11. Unemployment: Cyclical & Structural
Heading Down: Lowest since 2008
14%
CA
US
12%
9.4%
10%
8%
7.6%
6%
4%
2%
SERIES: Unemployment Rate
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
0%

12. Silicon Valley Leads in Job Growth
August 2013: CA +1.5%, +233,900
ANNUAL PERCENT CHANGE
San Jose
3.1%
Orange County
2.3%
San Francisco
1.8%
Ventura
1.7%
Los Angeles
1.4%
San Diego
1.2%
Fresno MSA
1.1%
Stockton MSA
1.0%
Bakersfield
0.9%
Inland Empire
Oakland
Sacramento
Modesto
0.0%
0.7%
0.4%
0.3%
0.3%
0.5%
1.0%
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division
1.5%
2.0%
2.5%
3.0%
3.5%

13. Mortgage Rates Up 1% Since May
Tapering in 2014?
8%
FRM
ARM
Federal Funds
7%
6%
5%
4.5%
4%
3%
2.6%
2%
1%
SERIES: 30Yr FRM, 1Yr ARM, Federal Funds
SOURCE: Federal Home Loan Mortgage Corporation
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
0%

14. US Sales of Existing Homes
Aug.2013 Sales: 5,480,000 Units,
+12.1% YTD, +13.2% YTY
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
SERIES: Existing Home Sales
SOURCE: NATIONAL ASSOCIATION OF REALTORS®
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
0

15. US Median Price of Existing Homes
US, August 2013: $213,500, Up 14.7% YTY
$250,000
$200,000
$150,000
$100,000
$50,000
SERIES: Existing Home Sales
SOURCE: NATIONAL ASSOCIATION OF REALTORS®
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
$0

16. CA Housing Affordability Index
What Will Happen When Mortgage Rates Increase?
% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT
Q2-2013 Median Price $415,770
50%
45%
20% Downpayment
39%
40%
37%
35%
33%
35%
31%
29%
30%
27%
25%
25%
20%
15%
10%
5%
0%
3.0%
3.5%
4.0%
4.5%
5.0%
INTEREST RATE
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
5.5%
6.0%
6.5%

17. CA Median Monthly Mortgage Payment
What Will Happen When Mortgage Rates Increase?
Q2-2013 Median Price $415,770
20% Downpayment
MONTHLY MORTGAGE
$1,889
$2,000
$2,102
$1,786
$1,588
$1,600
$1,994
$1,685
$1,494
$1,402
$1,200
$800
$400
$0
3.0%
3.5%
4.0%
4.5%
5.0%
INTEREST RATE
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
5.5%
6.0%
6.5%

18. Fannie & Freddie are the Market
Source:
LPS
…and these products are the ones proposed to be eliminated by
the PATH Act to rely on originations by ‘other’ to fill in the gap.
Yeah, that could happen.

19. CA Underwater Mortgages Dropping Sharply
40%
Negative Equity Share in CA
Near Negative Equity Share in CA
35%
30%
25%
20%
15%
15.4%
10%
5%
0%
SERIES: Underwater Mortgages
SOURCE: CoreLogic
2.6%

20. CA New Housing Permits
Still Falling Short
300,000
250,000
Single Family
Multi-Family
Household Growth: 220,000-250,000/yr
200,000
150,000
100,000
50,000
0
SERIES: New Housing Permits
SOURCE: Construction Industry Research Board

21. Share of Cash Buyers decreases for the first
time after 7 years of continuous Increase
% of All Cash Sales
35%
27%
30%
25%
20%
15%
5%
SERIES: 2013 Housing Market Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
2013
2012
2011
2010
2009
2008
2007
0%
2005
• The share of all cash buyers has
been on the rise since 2006
10%
2006
• Almost one-third of buyers paid
with all cash

22. Share of First-Time Buyers is the
Lowest Since 2006
% First-Time Home Buyers
Long Run Average
50%
40%
Long Run Average = 38%
30%
28%
20%
10%
0%
2005
2006
2007
2008
Q. Was the buyer a first-time buyer?
SERIES: 2013 Housing Market Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
2009
2010
2011
2012
2013

23. California Housing Market Outlook
Indicator
2008 2009 2010 2011 2012 2013p 2014f
SFH Resales (000s)
381.4
474.9
416.5 422.6
% Change
30.4% 24.5% -12.3%
1.4%
439.4
430.3
444.0
4.0%
-2.1%
3.2%
Median Price ($000s) $348.5 $275.0 $305.0 $286.0 $319.3 $408.6 $432.8
% Change
-37.8% -21.1% 10.9% -6.2%
11.6%
28.0%
6.0%
30-Yr FRM
6.0%
5.0%
4.7%
4.5%
3.7%
4.1%
5.3%
1-Yr ARM
5.2%
4.7%
3.8%
3.0%
2.7%
2.7%
3.1%
SERIES: CA Housing Market Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

24. CA: Dollar Volume Steadily Improving
Up 25.3% in 2013, Up 9.3% in 2014
%
Change
$ in
Billion
$400
30%
$ Volume of Sales
Percent Change
$350
$300
20%
$301
-60%
10%
$244
$250
0%
$200
$176
$164
$150
$133
$131
$127
$192
$140
-10%
$121
-20%
$100
$50
-30%
$0
-40%
2005
2006
2007
2008
SERIES: CA Housing Market Outlook
SOURCE: CALIFORNIA ASSOCIATION OF
REALTORS®
2009
2010
2011
2012
2013f 2014f