It’s a Wrap!

To paraphrase Charles Dickens, it wasn’t the best of times, it wasn’t the worst of times. 2015 ended just in time, not

with a bang, but a whimper. As forecast, December sales volumes for the region spiked up 24% over November

pulling the year up 9% over 2014 ( 9,932/10,916) and a scant 1% ahead of 2013 (10,764). Median price also bumped

up for the region by 1%, moving the needle enough to finish the year 6% ahead of 2014 ($300,111/$319,103).

Revenue from single family real estate transactions contributed a hefty $3.5 billion dollars to local revenue streams in

2015, a 15% increase over the $2.9 billion in 2014. 560 condominium sales added another $116 million.

The attached graphs and charts break it all down for you with an interesting look back at our local market for the past

13 years. We’ve clawed our way back pretty well from the sales bust of 2007 when we only sold 5,640 homes. As a

region, we’ve still got a ways to go to catch our best ever year in 2009 when 15,835 homes sold. Our regional median

price has also recovered nearly 37% from our 2009 trough ($201,264/$319,103), though still nearly 30% off our 2006

peak ($448,894). Some cities have fared better than others with Temecula pulling within 17% of it’s peak price

($449,651/$543,545).

So now we’ve got another year behind us, what’s next for 2016? Well, as some of the attached prognostications

surmise, we’re in for more of the same - slow, steady growth. Maybe a little slower than 2015. UC Riverside’s Chris

Thornberg claims “the roller coaster ride is over…there will be no big surprises in 2016. We’re nowhere near the top of

the cycle. This market has a ways to go.” CoreLogic Chief Economist Dr. Frank Nothaft says “…home price growth

remains in its sweet spot.” NAR’s Dr. Lawrence Yun is also on board with increases in the 5%-6% range for 2016 with

sales climbing back to pre-recession levels.

We’ll know in the next 90 days if these positive vibes actually play out against a less certain backdrop.

At the national level, with manufacturing off significantly last quarter, will the US continue to add jobs at a rate that

inspires consumer confidence and support home buyers? And will that finally be reflected in a GDP closer to 3% than

2%? The Fed is expected to continue ratcheting up rates for the next 12-18 months assuming everything doesn’t grind

to a halt in the meanwhile. At some point that will start impacting mortgage rates. Health care costs have already

jumped, offset to some degree by falling gas prices. And what of the economists who caution that we are entering the

seventh year of our economic recovery cycle, which tend to cycle every 6-8 years?

Internationally, what happens if the Mid-East continues to conflagrate and gas prices jump? What happens if the EU

disintegrates, or Europe's economy continues to falter under the onslaught of refugees and China’s economy tanks?

Closer to home, we are dealing with a shrinking housing inventory, declining affordability and a political climate that is

discouraging home building. A recent study conducted by Chapman University’s Center for Demographics and Policy

pointed out a number of concerns about our housing market. California’s rate of issuing building permits per 1,000

residents is 2.2. Los Angeles issues just 1.7 permits per 1,000 and the Inland Empire comes in at 2.3. Contrast this to

the Dallas-Fort Worth area where the average was 6.3 permits and the number of permits issued was roughly double

the number for Los Angeles-Orange County, which boasts nearly three times the population.

As I’ve cautioned before, our housing shortage in California is reaching crisis levels. Regulatory, environmental and

infrastructure issues restrict our ability to build and limit the affordability of the products we do build – even in our area.

As Joel Kotkin, an R.C. Hobbs Presidential Fellow in Urban Studies at Chapman University recently pointed out,

“Progressive housing policy – so beloved by our political leaders – turns out to be very regressive, indeed.” Assuming

that millenial buyers enter the housing market at some point, even if it’s just multi-family housing, the demand for a

rare commodity will skyrocket, affordability will be further reduced and we enter another cycle of housing bust even

before we fully enjoyed a boom.

Oh well, our housing market was better in 2015 than 2014, prices have been appreciating in a moderately sustainable

fashion for 4 years, the recovery, though anemic, appears to be continuing and we’re getting some rain. No use

worrying about things we have no control over – just try to make the best of it and have a

HAPPY NEW YEAR!

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Temecula 2,181 2,282 2,305 1,988 1,162 1,982 2,090 2,013 1,933 2,112 1,880 1,837 2,007

Murrieta 1,799 1,983 2,272 1,730 1,047 2,668 2,554 2,202 2,014 2,135 1,908 1,807 1,962

Menifee 1,158 1,587 1,885 1,409 951 1,721 2,310 1,979 1,696 1,860 1,801 1,692 1,833

Hemet 1,714 2,338 2,427 1,274 761 1,724 2,263 1,740 1,527 1,614 1,669 1,464 1,779

Lake Elsinore 962 1,038 1,287 999 494 1,405 1,805 1,405 1,270 1,165 1,072 1,022 1,091

Perris 946 1,088 1,519 1,288 576 1,728 2,493 1,720 1,525 1,220 1,031 935 906

San Jacinto 482 739 828 486 288 939 1,414 1,004 813 718 703 569 708

Wildomar 367 408 404 296 224 442 570 390 395 418 376 350 365

Canyon Lake 390 394 322 232 137 232 336 275 288 314 324 266 265

Southwest California Homes

Single Family Home Sales History

9999 9575 13249 9702 5640 12841 15835 12728 11461 11556 10764 9932 10916

It’s been an interesting ride for our regional housing market over the past dozen years. While

a few cities enjoyed peak sales years prior to the 2007 bust, most hit their mark afterwards.

Those who peaked earlier had the best of both worlds because their peak hit at a time when

prices were also high. Those hitting their peak sales years subsequent to 2007 weren’t quite

as lucky because a 2009 sales peak coincided with a 2009 price trough.

But while everybody experience their sales peaks at different times, every city hit bottom at

the same time in 2007. Over the next two years, sales doubled or tripled in most cases until

all the distressed inventory had been swallowed up by first time buyers and investors. Prices

started back up and sales moderated spending much of the past five years fluctuating within

a 5% range. If current growth estimates are accurate, 2016 sales volume will return to 2011-

2012 levels.

The only safe forecast is that predicated in pending sales, January 2016 volume is going to

suuuuck.

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Temecula $355,044 $457,853 $517,997 $543,545 $524,488 $348,560 $302,326 $316,322 $308,969 $322,359 $403,283 $426,969 $449,651

Canyon Lake $401,812 $516,796 $586,647 $660,933 $566,466 $336,049 $272,077 $297,058 $281,845 $334,257 $350,574 $415,807 $409,821

Murrieta $342,637 $447,197 $504,615 $532,902 $495,641 $311,028 $263,726 $279,604 $273,752 $282,698 $352,149 $375,694 $389,708

Wildomar $282,148 $367,429 $424,153 $460,368 $416,309 $279,755 $221,945 $222,293 $221,386 $228,803 $282,241 $314,198 $341,374

Lake Elsinore $230,115 $323,681 $391,725 $433,996 $377,597 $230,459 $174,666 $187,347 $180,856 $187,696 $247,758 $281,742 $300,432

Menifee $231,514 $291,231 $343,484 $363,137 $336,828 $227,080 $175,103 $183,261 $181,818 $183,419 $231,840 $267,120 $289,151

Perris $176,557 $256,636 $334,164 $375,828 $336,709 $190,775 $143,821 $152,195 $146,934 $152,069 $194,602 $225,408 $256,01

San Jacinto $178,260 $245,545 $302,114 $342,280 $310,221 $181,695 $135,028 $140,263 $129,730 $136,171 $170,609 $195,372 $211,574

Hemet $190,308 $241,186 $302,326 $327,060 $284,720 $179,819 $122,685 $127,187 $122,958 $129,970 $167,739 $188,717 $203,036

Southwest California Homes

Single Family Home Median Price History

On a similar note, most of our region tanked pricewise in 2009. From its peak in 2006 our region lost nearly 2/3 of homeowner equity in just two years. Some of you remember the market in free-fall with prices dropping 2% - 3% a month and brown lawns sprouting up throughout the region. And while prices have recovered to a greater or lesser degree, some of our communities have not benefitted and continue to struggle with reduced revenue and the aftermath of criminal activity brought on by the blight of distressed homes.

The upside, if it can be looked at that way, is that we still do have quite a ways to go before we hit those peak pricing levels again. Some cities will reach it faster than others but if our current trajectory continues our region will be back to 2006 levels within 3-5 years, some sooner. From a peak of 60+% of homeowners being underwater, we’re down to about 20% which will allow more people the luxury of being able to move if they want to. We’re also into the third year of waiting for that pent-up demand caused by millenials entering the market and ‘boomerang buyers’, those folks who lost their homes 2007-2009 and are now able to purchase again. National studies indicate that as many as 70% of these people want to become homeowners again and, as rents continue to rise, will be forced into that decision sooner rather than later.

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)

December 2015

904 700 865 23% 4%

Median Home Price

$324,080 $320,421 $305,160 1% 6%

Unsold Inventory Index (SFR Units)

1,903 2,239 2,216 15% 14%

Unsold Inventory Index (Months)

2.4 3.4 3.3 29% 27%

Median Time on Market (Days)

77 77 72 --% 6%

Source: CRMLS

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Temecula Murrieta Lake Elsinore Wildomar

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Southwest California Homes I-215 Corridor

Single Family Home Sales

Southwest California Homes I-15 Corridor

Single Family Home Sales

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Southwest California Homes I-15 Corridor

Single Family Home Median Price

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Southwest California Homes I-215 Corridor

Single Family Home Median Price

December 2015 Transaction Value*:

Temecula $72,290,856 Lake Elsinore $34,638,585

Murrieta $56,566,110 Wildomar $10,030,200

Menifee $53,367,788 Canyon Lake $6,713,900

Hemet $29,341,504 San Jacinto $11,022,650

Perris $18,934,509 Total $292,908,102

* Revenue generated by single family residential transactions for the month.

November 2015 Transaction Value*:

Temecula $47,060,232 Lake Elsinore $19,017,514

Murrieta $56,152,588 Wildomar $6,251,180

Menifee $38,084,387 Canyon Lake $9,426,900

Hemet $23,043,890 San Jacinto $8,503,084

Perris $17,211,459 Total $233,661,234

* Revenue generated by single family residential transactions for the month.

2015 Transaction Value*:

Temecula $902,450,232 Lake Elsinore $327,759,872

Murrieta $764,608,053 Wildomar $124,601,612

Menifee $430,014,333 Canyon Lake $109,602,585

Hemet $361,201,334 San Jacinto $149,583,106

Perris $231,935,449 Total $3,416,716,634

* Revenue generated by single family residential transactions for the year.

2015 Condominium Sales

City # Sold Median $ Transaction

Value

Temecula 136 $258,810 $35,199,156

Murrieta 237 $235,550 $55,825,342

Menifee 62 $123,857 $7,679,157

Lake Elsinore 56 $178,985 $10,021,540

Wildomar 0 $0 0

Canyon Lake 5 $258,700 $1,293,500

Hemet 47 $81,016 $3,807,749

San Jacinto 14 $78,753 $1,102,538

Perris 7 $171,071 $1,197,508

Total 564 $116,126,490

December Median Price:

2014 2015 %

Temecula $432,855 $486,139 11%

Murrieta $404,865 $401,178 1%

Menifee $277,976 $294,850 6%

Lake Elsinore $291,535 $312,465 7%

Wildomar $316,386 $343,720 8%

Canyon Lake $379,909 $394,935 4%

Hemet $202,661 $200,969 1%

San Jacinto $199,366 $211,974 6%

Perris $228,559 $270,493 15%

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Pending Closed (Demand) Days on Market Months Supply Absorption rate *

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Murrieta Temecula Hemet Menifee Lake Elsininore Perris San Jacinto Canyon Lake Wildomar

* Absorption rate - # of new listings for the month/# of sold listings for the month

December Demand On Market 15% Pending Sales 15% Closed 23% Days on Market --% Months Inventory (3.4 – 2.4) 29% Absorption 35%

Month over Month

Every city in the region

sold more homes than

were listed in December.

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1/12 3/12 5/12 7/12 9/12 11/12 1/13 3/13 5/13 7/13 9/13 11/13 1/14 3/14 5/15 7/14 9/14 11/14 1/15 3/15 5/15 7/15 9/15 11/15

Inventory Sales

December 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 311 94% 140 93% 6 2% 2 1% 13 4% 5 3%

Murrieta 300 90% 126 89% 13 4% 8 6% 18 5% 6 4%

Wildomar 53 90% 32 91% 2 3% 3 9% 3 5% 0 0%

Lake Elsinore 192 82% 97 87% 8 3% 6 5% 8 3% 6 5%

Menifee 241 88% 163 90% 11 4% 9 5% 15 5% 6 3%

Canyon Lake 68 94% 16 94% 0 0% 1 6% 4 6% 0 0%

Hemet 373 93% 124 85% 14 4% 9 6% 12 3% 9 6%

San Jacinto 130 84% 45 85% 7 5% 4 8% 15 10% 3 6%

Perris 129 90% 59 84% 2 1% 1 1% 10 7% 9 13%

Regional Average 1797 90% 802 89% 63 3% 43 5% 98 5% 44 5%

Inventory v. Sales

Graphics courtesy of CoreLogic