Halfway Back Already? At the end of this report I have attached a letter of SUPPORT for SB 30 from Sen. Joel Anderson, the co-author of the bill. As I mentioned last month, SB 30 would provide relief to struggling homeowners by shielding them from taxes on forgiven mortgage debt after a "short sale," and bring California law into conformity with federal tax law. Unfortunately, hostile amendments "linked" SB 30 with Senate Bill 391, a bill that would impose a new $75 tax on specified real estate documents. "Linked" means that if SB 391 fails, SB 30 fails. It is important that SB 30 and SB 391 stay separate and receive up-or-down votes on their individual merits. It is unfair to use struggling Californians as leverage to pass a new tax increase that presents a new barrier to the American dream of home ownership. Please take a minute to print the letter, sign it and fax or email it to the Senator.

Last month in DC it was my privilege to listen to our mid-year forecast from NAR Chief Economist, Dr. Lawrence Yun. This year Dr. Yun was joined by LaVaughn Henry, vice president and senior regional officer at the Cincinnati branch of the Federal Reserve Bank of Cleveland. Lawrence Yun said a multiyear housing recovery is likely. “Steady job creation and household formation have been helping to unleash a pent-up demand in the housing market,” he said. “Lagging housing starts and a continuing housing shortage mean home prices are primed to rise further, by 13 percent cumulatively in 2013 and 2014, which will add more than $2 trillion to household wealth over this period.”

Existing-home sales continue to improve, although Yun said inventory constraints are preventing stronger growth. After four years of relatively flat activity from 2008 through 2011, existing home sales across the country rose 9.4 percent to almost 4.3 million in 2012 and are forecast to increase to nearly 5.0 million this year; he projects 5.3 million sales for 2014 and 5.7 million in 2015.

Realtors from around the country are reporting shortage of inventory even in previously stagnant markets. Some markets like Las Vegas and Phoenix have become even more super-heated than our own, but even areas of the mid-west and Eastern seaboard that couldn’t give homes away last year are feeling the comeback. It appears sustainable but more on that in The Last Word.

If you only care about the local market, there’s good news here as well. After breaching the $300,000 ceiling last March, Temecula’s prices have marched inexorably upward and in May cracked through the $400,000 level for the first time since February 2008. Murrieta’s median of $359,998 is their highest since March 2008. These prices helped drive the region to it’s first monthly median over $300,000 since April 2008, before it dropped to $210,317 in April 2009.

Murrieta lead the year-over-year median price increase posting a 23% bump ($276,095/$355,998). Temecula prices increased 18% ($339,228/$415,852), the regional median was up 17% ($255,199/$307,440), Wildomar and Lake Elsinore increased 22% and Menifee was up 20%. Canyon Lake was down 1%. The region is up 32% over our 4/09 trough, Murrieta is up 30% and Temecula is up 36%. At just 28% off it’s peak price, Temecula has made back more than half of the value lost during 2007-2008. Murrieta is close but still lags by 38% and the region is improving but still 39% off the peak.

Inventory, or lack thereof, continues to be the story of the day. Current active regional inventory of homes to sell stands at 677. That’s up about 6% from the prior month but down 30% from May 2012 (974) and down 68% from May 2011 (2,087). Inventories stand at just 1.1 months. In Wildomar it’s just a weeks worth. We’re selling nearly 2.45 homes for every new home that comes on the market for the region with Wildomar selling 4 to 1, Menifee selling 3.3 to 1, Murrieta selling 2.6 to 1 and Temecula selling 2 to 1.

Buy now! Ride the Next Wave in Style!

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Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

Southwest California Homes Single Family Homes

Unit Sales

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Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

Southwest California Homes Single Family Homes

Median Price

May Transaction Value:

Temecula $87,744,795 Lake Elsinore $21,210,801

Murrieta $59,039,620 Wildomar $7,824,196

Menifee $35,179,435 Canyon Lake $11,055,396

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Southwest California Murrieta Temecula

Southwest California Homes Single Family Homes

Year-Over-Year Median Price

May Median Price:

2012 2013 %

Temecula $339,228 $415,852 18%

Murrieta $276,095 $355,998 23%

Menifee $177,462 $221,254 20%

Lake Elsinore $180,976 $233,086 22%

Wildomar $217,104 $279,436 22%

Canyon Lake $340,331 $335,012 2%

SW Market @ A Glance Southwest California Reporting

Period Current Month

Previous Month

Prior Year

Change from Last

Month

Change from Year

Ago Existing Home

Sales (SFR Detached)

May-13 686 639 796 7% 14%

Median Home Price May-13 $307,440 $293,386 $255,199 5% 17%

Unsold Inventory Index (Months) May-13 1.1 1.1 1.7 35%

Average Time on Market (Days) May-13 48 53 84 9% 43%

Source: CRMLS

May 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 204 92% 163 77% 8 4% 9 4% 7 3% 34 16% Murrieta 157 92% 112 68% 8 5% 9 5% 4 2% 39 24% Wildomar 20 77% 23 82% 4 15% 2 7% 1 4% 3 11%

Lake Elsinore 83 84% 51 56% 7 7% 12 13% 7 7% 19 21% Menifee 80 86% 116 73% 5 5% 11 7% 7 8% 25 16%

Canyon Lake 61 90% 26 79% 3 4% 2 6% 2 3% 5 15% Regional Average 605 87% 491 72% 35 8% 45 7% 28 4% 125 18%

Standard sales accounted for 87% of the Active Inventory in May and nearly ¾ of the sales. Distressed properties make up just 12% of the Active market but still represent 25% of sales. Short sales are disappearing as a result of several factors – confusion over last year’s Homeowners Bill of Rights legislation and this years concerns over short sale debt forgiveness in SB30. Of course rising property values means fewer homes underwater, reduced opportunities for short sales ands even fewer foreclosures. The jury is still our as to whether or not there is a significant ‘shadow inventory’.

Here’s another fun fact – rather than selling at 15 – 20% discounts from asking price, homes today are selling within 1% of their asking price. Temecula asking price $418,373 / selling price $415,852. Murrieta asking $360,801 / selling $359,998. Lake Elsinore homes are selling over asking price – asking $231,348 / selling $233,086.

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On Market (Supply)

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

170

273

164

45

1.0

2.6

221

245

211

52

1.0

1.9

99

151 9

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51

1.1

217

93

263

159

37

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68

32

33

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55

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May Demand Chart

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Regional Inventory

The Last Word… Last month we talked about AB 30, the Calderon/Anderson bill providing debt forgiveness as a result of short sale. These bills would keep California in conformity with federal law regarding taxes due on the phantom income generated by forgiven debt from a short sale. Since 2007, a short-seller would not have to pay the IRS on this debt. Same in California until 2013. With the 2012 year-end expiration of California’s law, in-state short-sellers would now have to pay state tax. And since the measures involve tax income that the legislature would dearly love to spend, passage is by no means assured.

The bill passed out of committee but in a cruel jape at California Homeowners, the committee has decided to ‘link’ the bill to SB 391, a bill that would raise the document fees for certain real estate documents, from current $3 - $10 levels to $75. Some people will do anything to get a tax increase passed so they are holding thousands of California Homeowners hostage by this linkage. Please take a minute to affix your John Hancock to the letter from Sen. Anderson. This is some petty politics. What’s new?

As you might imagine, the tax code dominated much of the conversation at our mid-year meetings in DC a couple weeks ago. Specifically, building the coalition to defend the Mortgage Interest Deduction. Our Exec’s have been busy testifying before various committees on the benefits of homeownership, the positive impact on the economy. But while there has been great wind and noise, it remains to be seen whether there is any real political will for a comprehensive tax overhaul this year.

Meetings with local Congressmen Calvert and Hunter were generally upbeat with the widespread opinion that housing is improving nationwide, which will help spur jobs. The rest of the economy is still sputtering along but shows signs of improvement.

But as one of our speakers said – “The Government does two things exceptionally well, nothing, and overreact.”

Finally, there is a growing discussion as to whether or not we’re building another bubble in real estate.

•Some claim we aren’t and can’t because we ‘learned our lesson last time’. I just gave a whole speech on ‘lessons learned’ and came up with zilch. •Others claim there’s a bubble a’building but there are elements in the market which will temper it before the bust – things like increasing the interest rate, more homes, either standard or REO coming onto the market to lessen upward price pressure, and buyers getting priced back out of the market. •Yet others claim we are building another bubble, it’s just a matter of time until it peaks – hopefully at least another 5 years down the road.

I don’t have the answer for you. I just gave a whole speech on ‘lessons learned from the foreclosure crisis’ and came up with exactly zilch. We’re already starting to repeat the same behaviors that got us into trouble last time. Also, given California’s history, another bubble is almost inevitable. We’re not a ‘normal’ market, whatever that is, and our real estate roller coaster is an acknowledged by-product of the attraction California has to many folks across the country. On top of the current demand there is a significant pent-up demand caused by relocation, people who are finally able to sell and move up and people who lost their homes in 2007-2009 who are now able to re-enter the housing market.

While our year-over-year appreciation of 20% is not the 30%+ of our go-go years, it’s still an unsustainable rate which will top out sooner rather than later. If we can moderate that back to 8% or 10% or even 12%, we’ll be able to sustain the curve a decade or more until the next fiscal or political crisis send it plummeting again.

You know it’s going to happen – the only question is did YOU learn anything from the foreclosure crisis and how well are you prepared to deal with the next one? Good luck.

Dear Friends,

I wanted to inform you of a Legislative measure that may be of interest to you. Senate Bill 30, a bill I co-authored, would provide relief to struggling homeowners by shielding them from taxes on forgiven mortgage debt after a "short sale," and bring California law into conformity with federal tax law.

Unfortunately, hostile amendments "linked" SB 30 with Senate Bill 391, a bill that would impose a new $75 tax on specified real estate documents. "Linked" means that if SB 391 fails, SB 30 fails.

It is important that SB 30 and SB 391 stay separate and receive up-or-down votes on their individual merits. It is unfair to use struggling Californians as leverage to pass a new tax increase that presents a new barrier to the American dream of home ownership.

That is why I have introduced amendments to cut the link between SB 30 and SB 391 so that relief is delivered to struggling homeowners, regardless of what happens to the SB 391 tax increase.

If you agree, would you be willing to send a letter of support today for the amendments I have introduced? Please send your letter of support as soon as possible to Senator.Anderson@senate.ca.gov. There is still time to act, but I need your help quickly since this bill will be voted on this week.

Joel Anderson Senator, 36th District.

Yes, I will support Senator Anderson’s Amendments to cut the link between SB 30 and SB 391.

Name (Please print) Signature

Address Email Phone

Please return to Senator Anderson’s staff or you may email a scanned copy to Senator.Anderson@sen.ca.gov or fax to 916-447- 9008.

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