Where Have All The Buyers Gone? (With apologies to Pete Seeger)

We’re still waiting for the onslaught of buyers that traditionally emerge this time of year. We appear to be building momentum gradually but certainly slower than in some past years. Single family sales have been on the increase generally since our January trough. Through the first half we’re running about 10% behind last year’s pace, which was not a barn burner itself. In fact this first half posted the lowest sales in the past 5 years – down about 17% from 2012. SFR sales in June were up 5% over May but still 4% under last June.

On a positive note, median prices continue to appreciate. As anticipated, the rate of appreciation has slowed considerably from last years 22+%, but we’re still up 5% over last June and up 15% 1st half to 1st half. Regionally our prices did dip from the previous month with declines in Temecula, Wildomar, Lake Elsinore and a significant drop in Canyon Lake. Again, keep in mind that with the volume of home sales in Canyon Lake, a single sale of $1 million+ can have a major impact on median pricing. Declines in the other cities were in the 2% - 3% range.

Inventory continues to climb with the 6 city inventory of available homes climbing over 2,000 for the first time since February of 2011, up another 8% from May. We’re holding at about a 3 month inventory of homes for the region which is still well off the 6-7 months considered a balanced market. Menifee and Wildomar sold more homes last month than they listed and both cities show inventory levels at just 2.3 months. In general, homes are staying on the market less time too. After hitting a peak of 71 days in March, homes stayed on the market just 57 days in June.

Standard sale homes make up 90% of our active listings and rose to 88% of sold homes in June, up from about 80% the first of the year. While some parts of the country are seeing increases in bank owned homes coming to market again, our region is not. Having added 33% to our median price since 2009 ($229,505/$342,122), we have far fewer homeowners underwater today than we did during the crash and those that have held on are in much less danger of losing their home.

The states that are seeing the biggest bump in REO’s are the judicial foreclosure states that were seriously overwhelmed for years and are finally starting to process the backlog. We still have anecdotal stories in the local market of homeowners living rent-free for 2 or 3 years or more, but they are increasingly rare. This isn’t to suggest that we’re completely out of the woods yet as our local market is still some 30% under the median price in 2006 ($489,311/$342,122). Foreclosure filings are up slightly in California after years of steady decline, but the increase is statistically insignificant at this point.

There are a lot of reasons why the market is stalled out, some of which I’ve gone into before, a few I’ll touch on in The Last Word. Suffice it to say if things continue this way, this will not be a stellar year for home sales in Southwest County, in California or across the nation. We may not, as some have predicted, slide into another housing recession but we are continuing in this transition phase which has been going on for the past 3-4 years.

If you talk to 5 different experts on the housing market today, you’ll wind up with at least 7 different opinions on where the market is headed all backed up with statistics and a PowerPoint presentation. It’s even more confusing trying to suss out the national market. There’s a reason we say all real estate is local – because each market is different and each locality is progressing out of this crash differently and at their own speed. Some markets haven’t started the climb yet and others, including California, are making decent progress. Trying to define the national housing market is a lot like trying to forecast tomorrow’s weather in Murrieta based on national trends, yet there’s no shortage of folks trying to do just that – and they get paid big bucks.

I’m definitely doing something wrong.

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)

June 2014 673 638 700 5% 4%

Median Home Price $341,101 $364,163 $325,088 6% 5%

Unsold Inventory Index (SFR Units) 2,063 1,902 863 8% 58%

Unsold Inventory Index (Months) 3 3.5 1.3 14% 67%

Median Time on Market (Days) 57 64 52 11% 9%

Source: CRMLS

0

50

100

150

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250

3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14 6/14

Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

Southwest California Homes SFR Unit Sales

$0

$100,000

$200,000

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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

June Transaction Value*: Temecula $81,618,981 Lake Elsinore $23,834,985

Murrieta $68,529,248 Wildomar $12,427,440

Menifee $41,686,503 Canyon Lake $10,281,500 * Revenue generated by single family residential transactions for the month.

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Hemet San Jacinto

$0

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$100,000

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3/13 6/13 9/13 12/13 3/14 Hemet San Jacinto

June Transaction Value:

Hemet $29,616,800 San Jacinto $9,424,624

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

Hemet/San Jacinto SFR Unit Sales

Hemet/San Jacinto Median Price

$0

$50,000

$100,000

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3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14 6/14

Southwest California Murrieta Temecula

June Median Price:

2013 2014 %

Temecula $415,452 $438,812 5%

Murrieta $353,095 $370,428 5%

Menifee $242,942 $285,524 15%

Lake Elsinore $245,986 $273,965 10%

Wildomar $305,114 $310,680 2%

Canyon Lake * $390,235 $367,196 -6%

Southwest California $ 325,088 $341,101 5%

Hemet $168,534 $192,317 13%

San Jacinto $177,880 $192,339 8%

Southwest California Median Price

0

100

200

300

400

500

600

700

On Market (Supply)

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

553

174

185

60

3.0

80%

622

151

187

58

3.3

80%

454

157

154

68

2.9

87%

347

171

146

56

2.4

104%

297

133

87

65

3.4

77%

159

83

49

71

3.2

74%

153

24

28

42

5.5

67%

91 3

2

40

65

2.3

143%

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

June Demand Chart

On Market 8% Pending 5% Closed 5% Days on Market 10% Months Inventory 15% Absorption 17%

Month over Month

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2500

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Inventory Sales

Inventory v Sales

0

200

400

600

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2010 2011 2012 2013 2014

Temecula Murrieta Menifee Lake Elsinore Wildomar Canyon Lake Hemet San Jacinto

1st Half Comparison SFR Unit Sales

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

2010 2011 2012 2013

Temecula Murrieta Canyon Lake Wildomar Menifee Lake Elsinore Hemet San Jacinto

1st Half Comparison Median Price

1st Half Comparison:

2013 2014 %

Sales / Median Sales / Median Sales / Median

Temecula 962 / $381,937 879 / $421,578 9% / 10%

Murrieta 949 / $332,445 901 / $369,563 5% / 10%

Menifee 901 / $212,179 830 / $263,406 8% / 20%

Lake Elsinore 566 / $230,772 460 / $276,918 19% / 17%

Wildomar 200 / $262,977 170 / $308,689 15% / 15%

Canyon Lake 183 / $325,157 132 / $412,579 28% / 21%

Southwest California 3,761 / $290,911 3,372 / $342,122 10% / 15%

Hemet 795 / $156,083 794 / $183,055 0% / 15%

San Jacinto 345 / $158,707 290 / $188,650 16% / 16%

June 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 590 95% 166 89% 13 2% 6 3% 14 2% 14 7% Murrieta 508 92% 157 85% 11 2% 13 7% 25 5% 12 6% Wildomar 77 85% 33 83% 2 2% 0 0% 10 11% 6 15%

Lake Elsinore 258 87% 76 87% 4 1% 5 6% 32 11% 4 5% Menifee 312 90% 132 90% 7 2% 8 5% 27 8% 4 3%

Canyon Lake 146 95% 25 89% 1 1% 1 4% 5 3% 2 7% Hemet 392 86% 146 95% 26 6% 15 10% 29 6% 11 7%

San Jacinto 127 80% 40 82% 10 6% 4 8% 19 12% 5 10%

Regional Average 2410 90% 775 88% 74 3% 52 6% 161 6% 58 6%

The Last Word… From CoreLogic Market Pulse:

“As is well-known, the mortgage market has been undergoing a major reset from a refinance – to purchase – driven market cycle. This reset has been gathering steam since the middle of 2013. In the first quarter of this year, we estimate that mortgage volumes were down approximately 60%. The combination of higher mortgage rates, regulatory uncertainty, severe winter weather and seasonality produced the lowest level of mortgage origination in 14 years.”

CoreLogic goes on to evaluate the current state of the market:

1. Shifting Demographics – the demographics in this country are shifting with massive medium and longer term implications for the housing market. Millenials and baby boomers are playing different roles in this economy than they have ion past economic recoveries. Usually at this point in the housing recovery we would expect to see much higher rates of young, first-time buyers exiting the rental market to become homeowners. Not this time. Millenials are getting married later, starting families later and many carry unprecedented levels of debt. They are becoming a generation of renters and will not be entering the housing purchase market for many years, in some cases.

2. The underlying health of the U.S. Homebuyer – concerns for the nature, the length and slow speed of this great repression. Real growth and the promise of a better future have long been the drivers of sustained home buying. Unfortunately rather than fundamental real demand and rising income levels, this recovery has been driven by unprecedented fiscal and monetary stimulus. Unemployment, underemployment and stagnated per capita income levels are restraining a sustainable rebound

3. The unintended consequences of low interest rates – many consumers took advantage of historically low interest rates producing a windfall both for lenders and consumers. However, many of these same homeowners will be staying out of the market, at least for the medium term, as they are unwilling to take on both higher house payments and higher interest rates. The lower rates were also less impactful than hoped for in driving new market activity coming as they did at the same time as tighter credit and underwriting standards and Dodd-Frank regulations.

4. The end of the investor ‘Gold Rush’ – While there are still pockets of investor activity around the country, the number of properties that are desirable to investors is dwindling and institutional buying is down significantly. Investors are leaving the market at a time when first-time and trade-up buyers are reluctant or unable to enter the market.

REO properties rising in many states (not so much in CA)

Ten States Still Plagued by the Housing Bubble (CA is not one of them)

Builders Say Labor Shortages Grow More Widespread (Drives up labor cost and housing prices)