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February 21, 2013
With your host… Gene Wunderlich
Debt Crisis in EuroZone
Oil Price Spikes
2013: A Year of Economic Wild Cards
Arab Spring
Political Change
/ CA
supermajority
Debt Limit Ceiling &
Downgrade of US Debt
Stock Market
Volatility
Fiscal Cliff
• Federal Economic Policy • Regulations • Mortgage Interest Deduction • Strategic Foreclosures • Future of GSE’s
• Lenders • Short Sales • Foreclosures • Interest Rates • Inflation • Shadow Inventory • Global Economy • Unemployment
Unprecedented era of government involvement in housing
“Just because you don’t take an interest in politics doesn’t mean politics won’t take an interest in you.”
Pericles: 500 B.C.
If you don’t have a seat at the table… You’ll probably be on the menu.
Wunderlich Codicil: 2000 A.D.
You may still be on the menu, but hopefully we can keep you from being the main course
2012 addendum
NAR: The largest grassroots Political Action Group in this country.
"These groups are powers in Washington. The National Association of Realtors gave more money than any other group to candidates in the last election ($11+ million). Its 1.1 million members can do a lot of lobbying."
CAR: The most effective business advocacy group in Sacramento.
Red State? Blue State? Under all is the land…
Realtor® Preamble
May 2012 12,000+ Realtors® Rally for the American Dream
The Realtor® Home Washington D.C.
So how is the housing market?
0
50
100
150
200
250
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes Single Family Homes
Unit Sales
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
7,692
8,475
6,654
4,015
8,450
9,665
8,264
7,596
8,004
Southwest California Homes Annual Sales Volume
Single Family Homes
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
962 1,038
1,287
999
494
1,405
1,805
1,405 1,270
1,165
Lake Elsinore Annual Sales Volume
Single Family Homes
CA Median Price of Existing Detached Homes • November 2012: $349,300, Up 24.8% YTY
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000 P: May-07 $594,530
T: Feb-09 $245,230
-59% from peak
11/12 $349,300
+30% from trough
SOURCE: California Association of REALTORS®
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
$400,698
$461,437
$499,147
$452,888
$288,822
$234,974 $247,648 $241,438
256,539
Southwest California Homes Median Price
53% drop
9% gain
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$230,115
$323,681
$391,725
$433,996
$377,597
$230,459
$174,666 $187,347 $180,856 $187,696
Lake Elsinore Median Price
60% drop
7% gain
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes Single Family Homes
Median Price
January over January prices rose
• 30% in Lake Elsinore ($162,622/$233,280), • 18% in Canyon Lake ($233,445/$284,577), • 17% in Menifee (161,143/$195639), • 15% in Temecula ($286,246/$334,928), • 12% in Murrieta ($259,975/$294,929) • 9% in Wildomar ($204,109/$225,299)
0
50
100
150
200
250
300
On Market (Supply) Pending Closed (Demand) Days on Market Months Supply Absorption rate *
169
238
139
62
1.2
1.9
186
212
111
56
1.7
1.4
116
181
100
70
1.2
2.1
118
260
142
74
0.8
2.2
64
28
30
99
2.1
.9
26
59 3
4
55
0.8
2.8
Murrieta Temecula Lake Elsininore Menifee Canyon Lake Wildomar * Absorption rate - # of new listings for the month/# of sold listings for the month
Southwest California Homes January Demand
0
500
1000
1500
2000
2500
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
Southwest California Homes Inventory levels
2010 2011 2012
Active Inventory Down 74%
Since February
0
50
100
150
200
250
300
350
3/12 6/12 9/12 12/12
317
290
253
196
149
112 112 99 95
107 121
107
-66%
Lake Elsinore Inventory Level
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
3/12 6/12 9/12 12/12
.8 .9 .9
1.7 1.6
2.8
3.7
4.3
3.4
2.4
1.8 1.6
Lake Elsinore Absorption Rate
January 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 157 84% 59 53% 9 5% 15 14% 18 10% 34 31% Murrieta 138 82% 77 55% 14 8% 15 11% 16 9% 46 33% Wildomar 17 65% 13 38% 5 19% 6 18% 4 15% 14 41% Lake Elsinore 86 74% 45 45% 10 9% 14 14% 18 16% 36 36% Menifee 77 65% 73 51% 18 15% 18 13% 19 16% 46 32% Canyon Lake 55 86% 13 43% 4 6% 5 17% 4 6% 11 37% Regional Average 530 76% 280 52% 60 8% 73 14% 79 12% 187 35%
What lies ahead?
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
California
US
CA Price Trend
CA Prices Still Below Trend Line Spells Opportunity
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Pent-Up Demand for Housing is Real Household Formation will Rebound with Jobs
11,400
11,600
11,800
12,000
12,200
12,400
12,600
12,800
13,000
13,200
13,400
30,000
31,000
32,000
33,000
34,000
35,000
36,000
37,000
38,000
2000-2001
2002-2003
2004-2005
2006-2007
2008-2009
2010-2011
In th
ousa
nds
Total Population, California Number of Households, California (right axis) Projected linear estimate Projection, based on U.S. 0.55% growth rate
377K
575
When it Does CA will Start Building Again 2012(p): 52,000 units, Up 10.4% from 2011
0
50,000
100,000
150,000
200,000
250,000
2005 2006 2007 2008 2009 2010 2011 2012P
Single Family Multi-Family
Household Growth: 220,000-250,000/yr.
SOURCE: Construction Industry Research Board
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1-06 3-06 5-06 7-06 9-06 11-06 1-07 3-07 5-07 7-07 9-07 11-07 1-08 3-08 5-08 7-08 9-08 11-08 1-08 3-09 5-09 7-06 9-09 11-09 1-10 3-10 5-10 7-10 9-10 11-10 1-11 3-11 5-11 7-11 9-11 11-11 1-12 3-12 5-12 7-12 9-12 11-12
US CA RivCo Lake Elsinore Temecula Murrieta
Unemployment
There’s two ways to reduce unemployment: #1 – put people to work #2 – people quit looking for work
Current US unemployment: 7.8% % of people out of work: 14.7%
SOURCE: Federal Home Loan Mortgage Corporation
Mortgage Rates at 50 Year Lows Fed will continue QE until U=6.5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
FRM
ARM
Federal Funds
California Housing Market Outlook
Indicator 2008 2009 2010 2011 2012p 2013fSFH Resales (000s) 441.81 546.86 492.29 497.86 523.25 530
% Change 27.3% 23.8% -10.0% 1.1% 5.1% 1.3%Median Price ($000s) 348.5$ 275.0$ 305.0$ 286.0$ 317.0$ 335.0$
% Change -37.8% -21.1% 10.9% -6.2% 10.9% 5.7%
30-Yr FRM 6.0% 5.1% 4.7% 4.5% 3.8% 4.0%
1-Yr ARM 5.2% 4.7% 3.5% 3.0% 2.8% 2.8%
Signs of U.S. Housing Recovery
1. Prices have bottomed! 2. Home equity up 20% last year to $7.71Trillion
as rising prices begin to reverse negative equity
3. New and Existing Home Sales at four- year highs
4. Low inventory across the board 5. Housing starts at four-year high 6. Threat of shadow inventory fading as
delinquencies, foreclosures decline 7. Foreclosure starts at 6 year low
But there a few issues…
1. Mortgage rates are low but credit is tight 2. “Defensive” Lending is prevalent 3. Appraisals lagging today’s market 4. Listings are scarce:
– Underwater homeowners are stuck – Investors are renting instead of flipping – Some sellers still don’t get it
The Political Economy
• Fiscal Cliff Averted but Tax and Spend Decisions Await – 60 Day Deadline
• Tax Reform: •Mortgage Interest Deductibility •Mortgage Debt Forgiveness
• Future of Fannie and Freddie • Future of FHA
Opportunities at the Local Level… Coalitions!
• Murrieta-Temecula Group
• EDC of Southwest California
• Southwest California Legislative Council •Temecula Valley Chamber of Commerce
•Murrieta Chamber of Commerce
•Wildomar Chamber of Commerce
•Lake Elsinore Valley Chamber of Commerce
• Building Industry Association
• Apartment Managers Association
• Property Mangers Association
• Southern California Escrow Association
• California League of Cities
• City of Temecula
• City of Murrieta
• City of Lake Elsinore
• City of Wildomar
• City of Menifee
• City of Canyon Lake
• Riverside County
• Riverside County D.A.
• NSDAOR, TIGAR, IVAOR
• Commercial Real Estate
5 years from now
there will be people who say
“I wish I would have bought
a home in 2013.”
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