“…the light at the end of a very long tunnel” CoreLogic® has just published their most recent Home Price Index showing a 3.8% rise in home prices for July marking the 5th consecutive month of year-over-year increases. They are forecasting an increase of 4.6% in August and are now anticipating that we will see a gain for the full year. "It's been six years since the housing market last experienced the gains that we saw in July, with indications the summer will finish up on a strong note," said Anand Nallathambi, president and CEO of CoreLogic. "Although we expect some slowing in price gains over the balance of 2012, we are clearly seeing the light at the end of a very long tunnel.“

As you’ll see in this report, activity in Southwest California is running slightly ahead of these national numbers with year-over-year increases of 6% in both July and August putting us ahead of 2011 median price by 5% year to date. Temecula posted its 6th consecutive monthly median over $300,000 and its highest month since April 2008.

Sales were generally down again in August, at least in part due to our increasingly severe inventory shortage. Demand activity remains strong and if we had more homes to sell, they would be selling. Year-to-date sales are 9% ahead of 2011 and still running 4% ahead of 2010 keeping us on pace to set a new high water mark for the region.

Back in June, I updated you on a bill H.R. 5823, authored by California Congressman Gary Miller called the “Saving Taxpayers from Unnecessary GSE Bulk Sales Act of 2012”. This bill followed months of direct lobbying to the FHFA and others to carve California out of their proposed pilot program to remove hundreds of homes from our inventory and convert them to rentals for 5 years in an ‘effort to stabilize the market’.

Well, the bill is still languishing in committee. Meanwhile the FHFA has announced its intention to proceed with the program and remove 500 for-sale homes in LA and Riverside County to fire-sale to an investor as rentals by year-end. Even if we knew how they were selecting these homes, where they were located and who they were going to sell them to, this would still be a bad program. The fact that we don’t know any of those things only makes it worse.

I would like to thank the Riverside County Board of Supervisors, the Southwest California Legislative Council and the Cities of Temecula and Murrieta (so far) for joining us in SUPPORTING H.R. 5823 and opposing this FHFA program. Simply stated, the goal of this program is to stabilize the market by removing ‘excess inventory’. But our region has no excess inventory, there is strong demand for the properties we have and our prices have been stable for 3+ years and have recently started to appreciate. This program would make it even more difficult for qualified buyers to find a home in our communities while exposing our neighborhoods to numerous rentals owned by an absentee landlord (hedge fund) just waiting out their 5 years to dump them back onto the market.

If you would like to join the coalition supporting H.R. 5823, follow this link, save the file to your computer and fax and/or send it to the parties copied on the second page. Thank you.

I SUPPORT H.R. 5823.

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Southwest California Homes Single Family Homes

Unit Sales

Sales are remaining robust into the 3rd quarter of the year with year-to-date sales tracking 9% ahead of last year ((4,963/5,454). Temecula sales are up 14% (1,242/1,446) as is Canyon Lake (168/195). Menifee is up 12% (1,126/1,279) and Murrieta sales have bumped 8% (1,324/1,445). Median prices continue to improve slowly, up 5% year to date. Canyon Lake median increased 18% year to date ($235,704/$286,778), Temecula was up 3% ($301,376/$310,521), Murrieta up 4% ($267,361/$277,182), Lake Elsinore up 3% ($175,336/$180,176) and if you live in Wildomar, your home is worth $615 more than last year. Menifee prices are off about 3% ($185,035/$179,751).

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Median Price

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Murrieta Temecula Lake Elsininore * Absorption rate - # of new listings for the month/# of sold listings for the month

Inventory of available homes continues to shrink. Last month we were down to 841, this month we’re at just 795 single family homes available for sale. That’s down 65% in the past 6 months. Across the region we sold just 97 homes fewer than our total inventory putting our months supply at 1.3 months. A healthy inventory is considered to be 6 – 7 months yet the FHFA believes we have an excess supply of inventory and wants to subtract another 500 homes so they can help ‘stabilize’ our market.

This month, like last month, we sold nearly 3 homes for every new listing coming on the market. Lake Elsinore sold 4.25 homes for every new listing, Temecula, Wildomar and Menifee sold about 3.25 and Murrieta sold 2.5 for every new listing.

How long the supply of available housing holds out at this rate of absorption is anybody’s guess but it does create problems. First time homebuyers are increasingly frustrated finding affordable homes as many of these properties on the lower end of the price scale are snapped up by cash buyers and investors. Fortunately many of the investors are purchasing for resale which is a big help for new buyers entering the market who would otherwise find their options even more limited.

August Demand Chart

August Market Activity By Sales Type

Standard Sale Bank Owned Short Sale

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Temecula 161 77% 103 54% 11 5% 25 13% 35 17% 62 32% Murrieta 169 73% 86 49% 15 6% 21 12% 45 19% 66 38% Wildomar 20 59% 9 33% 5 15% 4 15% 9 26% 14 52% Lake Elsinore 60 61% 33 32% 12 12% 20 20% 24 24% 46 45% Menifee 96 130% 74 43% 13 18% 37 22% 35 47% 55 32% Canyon Lake 57 39% 19 61% 4 3% 5 16% 13 9% 7 23%

Regional 563 72% 324 46% 60 7% 112 16% 161 21% 250 37%

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Current inventory levels

Market mix has stayed about the same the past couple months with standard sales making up nearly ¾ of the active listings. Because standard sales have a higher percentage of more expensive homes, they are selling at a lower rate than distressed properties, having a probability of 58% depending on price. We’re selling 1.8 bank owned homes for every one on the market and 1.5 short sales. The fact that banks are becoming more adept at short sales is a boon to the market, helping keep prices up and homes in better condition than the REO market

August Sales by Median Price & Average Days on Market Standard Bank Owned Short Sale

ADOM Median ADOM Median ADOM Median Tem 46 $387 27 $302 159 $303 Mur 43 $336 33 $300 154 $255 Wil 70 $278 26 $185 78 $199 LE 59 $194 27 $186 154 $184 Men 44 $208 46 $169 160 $185 Cyn 73 $299 39 $256 120 $202 56 $284 33 $233 138 $221

We hear so much about the bank owned homes and short sales driving prices down. You can see the trend in the chart above. But keep in mind that standard sale homes have a greater proportion of upper end properties which will inevitably drive the price higher. For a more accurate comparison you would have to look at each category with all the variables broken out – things like $/square foot, amenities and acreage. I don’t have time to do that. Sorry.

So instead I’ll give you some other insights. Backing Canyon Lake out due to its volatility (with apologies), standard sales sell for 20% higher than short sales, on average, 15% higher than REO’s. They also sell in an average of 52 days whereas an REO will sell in 30 days and a short sale will take 141 days. Again keep in mind that standard sales include more upper end homes which bring nearly double the price per square foot of a tract home which comprise the lions share of distressed properties.

In the past 6 months the median price of a standard sale has risen 11% across the region, REO prices are up 6% and short sales are up 7%. For this particular snapshot, Temecula median for a standard sale has jumped from $318,000 to $387,000 and Murrieta from $298,000 to $336,000 but Menifee has dropped from $208,000 to $185,000 and Lake Elsinore has dipped from $205,000 to $194,000. Distressed properties have not varied by a significant amount over that time.

Again, part of the reason for this differential is because Temecula and Murrieta have more $1 million+ homes listed and sold, which skews the median for standard sales. This also accounts for the extreme volatility in the Canyon Lake market as a single $1 million sale could double their overall median. If/When this market segment picks back up there will be an immediate and positive impact to regional median price.

Time on market has also declined substantially, dropping 31% on standard sales (75 days to 52 days). REO’s and short sale cycles have fallen by 26%, 43 days to 32 for REO’s and 168 to 141 days for short sales. Still not exactly short, but nearly a month less than they were. That’s progress.

From CoreLogic. The Home Price Index (HPI) showed that home prices nationwide, including distressed sales, increased on a year-over-year basis by 3.8 percent in July 2012 compared to July 2011. This was the biggest year-over-year increase since August 2006. On a month-over-month basis, including distressed sales, home prices increased by 1.3 percent in July 2012 compared to June 2012*. The July 2012 figures mark the fifth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis. Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.3 percent in July 2012 compared to July 2011. On a month-over-month basis excluding distressed sales, home prices increased 1.7 percent in July 2012 compared to June 2012, also the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions. The CoreLogic Pending HPI indicates that August home prices, including distressed sales, will rise by 4.6 percent on a year-over-year basis from August 2011 and at least 0.6 percent on a month-over-month basis from July 2012. Excluding distressed sales, August house prices are also poised to rise 6.0 percent year-over-year from August 2011 and by 1.3 percent month-over-month from July 2012. The CoreLogic Pending HPI is a proprietary and exclusive metric that provides the most current indication of trends in home prices. It is based on Multiple Listing Service (MLS) data that measure price changes in the most recent month. Highlights as of July 2012 Including distressed sales, the five states with the highest appreciation were: Arizona (+16.6 percent), Idaho (10.0 percent), Utah (+9.3 percent), South Dakota (+8.3 percent) and Colorado (+7.3 percent). Including distressed sales, the five states with the greatest depreciation were: Delaware (-4.8 percent), Alabama (-4.6 percent), Rhode Island (-2.2 percent), Connecticut (-1.7 percent) and Illinois (-1.7 percent). Excluding distressed sales, the five states with the highest appreciation were: Arizona (+11.3 percent), Utah (+10.5 percent), Montana (+9.1 percent), South Dakota (+8.6 percent) and North Dakota (+6.9 percent). Excluding distressed sales, the five states with the greatest depreciation were: Delaware (-3.5 percent), Alabama (-2.4 percent), New Jersey (-1.2 percent), West Virginia (-0.5 percent) and Connecticut (-0.2 percent).

We’re not among the best but we’re no longer among the worst either. That’s progress.

The Last Word