Southwest California Realtor Report for April 2011
Will Homeownership in America Become Out of Reach?That was the question being discussed with our national leadership duringour recent mid-year legislative meetings in Washington D.C.. Over 70% ofAmericans still believe that the key to the American dream is through home-ownership. It strengthens our communities, it provides security as we age,children of homeowners are better educated, neighborhoods of homeownersexperience less crime – the list is endless as are the financial benefits tocommunities.Throughout our history, Americans have believed that their children will havebetter lives. Taking away the opportunity for homeownership threatens thatbelief. Congress must act to make sure that it isn’t out of reach for our futuregenerations or that homeownership becomes restricted to just one class of people.At the end of this report I have included a recent article I wrote detailing the threatsto homeownership and private property rights currently being debated in ournations Capitol. I hope you will take a moment to read our concerns regarding:• Continuation of our mortgage interest and property tax deduction• Preservation of the 30 year fixed mortgage option – market liquidity• Allow for reasonable down payments under the Qualified Residential Mortgage proposal• Retention of the current mortgage loan limits – not roll back to 2004 levelsNationally, the housing market remains shaky. Joint presentations by National Association ofRealtors® Chief Economist Lawrence Yun and Freddie Mac Chief Economist Frank Nothaft leftlittle doubt that we’re not out of the woods yet. There are patches of good news here and therebut the overall outlook is still for very moderate growth in sales and median price levels for atleast the next two years, no growth at all in some regions of the country.Some bright spots - the number of seriously delinquent mortgages is declining – it’s stilldisturbingly high but dropping. So defaults will lessen but remain a significant market factorat least through 2013. Job growth will improve this year – Yun sees 1.5 million new jobs,Nothaft thinks 2.5 million. Dr. Yun believes the 2nd half will be better than the 1st and forecastsa 4% increase in home sales for 2011 even without the benefit of last years tax credit. Neitherbelieves we will experience the dreaded ‘double dip’.Both point to market liquidity as an underlying factor. Even with inflation fears and jobsuncertainty, the historic affordability of homes should be driving more sales. Banks arecurrently flush with cash but neither the banks nor the federal government have signaled anyloosening of lending regulations. A return to pre-boom lending standards would trigger a 15% -20% bump in sales today and light a fire under new home construction and job growth.“Sooner or later the banks have to get back to their core business of lending, ” says Yun.Finally, I have attached a foreclosure report for your city showing current inventories, filingrates, timeframes and filings by loan value and home value. As always, should you havequestions, please don’t hesitate to contact me.
250 Southwest California Unit Sales Single Family Residential 200 150 100 50 0 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11 Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon LakeWhat a ride this has been, eh? Magic Mountain’s Apocalypse has nothing onour housing market these past few months. By the numbers, April sales weredown 15% from March and 14% under April 2010.In Temecula sales were down 14% from 2010 but up 17% over 2009. Murrietawas down 18% from 2010, just 7% under 2009. Lake Elsinore was down 19%from 2010 but even with their 2009 pace.Again keep in mind that our sales started improving in June of 2009 with theintroduction of the First Time Homebuyer Tax Credit and charted prettyconsistent growth through June of 2010. The tax credit ended in April and allhomes had to close escrow by the end of June.Since then sales charted a steady decline marked by a couple of spasmodiclurches in December and March. The national forecast calls for a stronger 2ndhalf so we’ll just have to hang on for the time being.
$350,000$300,000$250,000$200,000$150,000 Southwest California Median Price$100,000 $50,000 Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake $0 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11Median prices across the region remained fairly static. The median price forthe region ($228,149) was down 4% month over month but remainedvirtually flatlined from last year ($226,778).Temecula’s median price is up 3% over the same period last year and up 8%from 2009 to $299,933. Seems like only yesterday it was a robust $575,935.Murrieta’s median is also up over the same period last year by 2% to$266,240. Remember when it hit $576,224?Canyon Lake’s year over year median is down 8% from last year to $237,061Their glory days peaked at $696,385.Menifee’s price has dropped but primarily due to the incorporation of SunCity core pricing into the mix.Wildomar has held even with 2010 median at $222,745 .Lake Elsinore median has dropped 4% from last years run rate to $172,837.
Foreclosure filings in California fell to lows not seen since the fall of 2008. Notice of Defaultfilings dropped 25.8%, and Notice of Trustee Sale filings fell 10.9% from March. On a year-over-year basis foreclosure filings were down as well, with Notice of Default filings down 28%and Notice of Trustee Sale filings falling 31% from April 2010.Foreclosure sale cancellations rose 27% from March primarily due to increased efforts bylenders to work with more short sales. Their success rate hasnt improved much but the fourmajor banks have all indicated a renewed willingness to explore short sales. Maybe theyfinally realized they clear anywhere from 15% to 22% more on a short sale than aforeclosure.Activity on the courthouse steps slowed from the prior month, with 17.2% fewer sales Backto Bank and a 15.8% drop in properties purchased by 3rd Parties, typically investors. Theaverage Time to Foreclose continued to climb, increasing 3.3% to 312 days. That’s right,people are now staying in their homes an average of 312 days without masking a payment. Ofcourse that’s the average – tales of 2 years or longer are not uncommon, especially amongpeople who have attempted a loan modification followed by an attempted short sale only towind up in foreclosure.I have included the foreclosure reports for your city as a separate attachment. These chartsnot only show the number of foreclosures, their timeframe and disposition, but a few chartsthat also tell you how many homes are being foreclosed by existing loan amount and by howmuch the current value of the property is – those are a couple of interesting bell curves.Want to know when most of the bad loans were written? There’s a report for that too. Enjoy. 500 Southwest California 450 Pre-foreclosure and Bank Owned Activity 400 350 300 250 200 150 100 50 0 Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake Pre-foreclosure Bank Owned
Will Homeownership in America Become Out of Reach?According to recent studies, it is widely perceived that we Boomers will be the firstgeneration in this country to pass on a less prosperous and bright future for ourchildren. I’ve just returned from a week in Sacramento followed by a week in WashingtonDC and nowhere is that prophecy more clearly demonstrated than by the current attackon the future of housing in our country.As National Association of Realtors (NAR) Chief Lobbyist Jerry Giovaniello phrased it, “Weare facing a perfect storm which, if brought to fruition, will bring a future in which only acertain class of people will be able to afford homes.”How so? Well, as you read this Congress is debating several key issues, none of whichthey know anything about. First and foremost is the future of your homeownership taxbenefits, you mortgage interest and property tax deductions. This breaks into three areas– your primary residence, and/or any home worth more than $1 million dollars, and/orany second home or investment property.The 2nd & 3rd options are more easily salable at this time because, as we all know, only‘THE RICH’ have homes worth more than $1 million or have a 2nd home. If they can getthat program sold, they’ll come after your primary residence somewhere down the line,you can bet on that. Home ownership strengthens our country and homeownership taxbenefits have been a cornerstone of that strength for over 100 years.Second, the future of the affordable 30 year fixed mortgage is on the line. Our President has proposed not asensible restructuring of our Government Sponsored Enterprises (GSE’s) Fannie Mae & Freddie Mac, but theirwholesale elimination. Fannie & Freddie represent secondary market liquidity. They currently hold about 60% ofthe loans made in this country - and the President wants to dump all that back into the private sector.Folks, the private sector would not have made a single loan since 2007 if not for the guaranteed liquidityprovided by Fannie & Freddie. Have you tried to get a loan on a home over $700,000 lately? Yeah, you can’t.Because those so-called ‘jumbo’ or non-conforming loans aren’t covered by Fannie & Freddie and private bankswon’t touch them. The promise of, and nostalgia for, private lending is a myth. The value of Fannie & Freddieshould be judged on the first 76 years of their performance, not the last 4 when they were under legislativepressure to ‘outperform’ private lenders in the race to see who could fund the most & worst loans.Third, the current debate arising out of last year’s Dodd-Frank Wall Street Reform and Consumer Protection Actis fierce. At over 2,300 pages, this bill is the most comprehensive financial reform act ever attempted and nobodyknows what the hell is says. It’s an attempt to compensate or overcompensate for recent excesses and as suchrepresents an attempt at risk management which could be more accurately defined as ‘cover your ass-ets’.But one problematic area (among many) arising from Dodd-Frank is the issue of the Qualified ResidentialMortgage (QRM). Because so many lenders made bad loans they could simply sell off to others with no recourseor consequence, Dodd-Frank wants everybody from now on to have ‘skin in the game.’ If a lender wants to makea home loan it must meet QRM regulations or that lender must retain 5% of the value on his own books.Sounds good, right? Except to meet QRM a borrower must put at least 20% down, have 760 or higher FICOscores and meet a variety of other criteria. That means millions of prospective good solid buyers will be bumpedout of qualifying or be forced into prohibitively expensive loan programs that only the big 4 banks can offer –because smaller lenders simply cannot afford to retain loan portfolios of 5%. Executives from B of A and WellsFargo discuss their customers not in terms of individuals but as ‘buy boxes’ and folks, if in the future you don’tfit into one of their tight little ‘buy boxes’, you ain’t going to fit into a home box of your own either.While there are still other problematic areas, the last I’ll deal with is the extension of current mortgage loanlimits. One of the reasons exotic loans, sub-prime loans and the like came into such prominence was becausethe loan limit for federally backed mortgages was just $417,000. That sounds like a lot today but remember it’sonly been a few years since a median price home in Temecula was $575,935, Murrieta was $576,224 andCanyon Lake hit $696,385. Finally just as everything was starting to collapse, the loan limits were bumped to125% of the market median, or as high as $729,000 in some high price areas like California.
Now the government is saying there’s just no demand for loans that highanymore (duh) so they want to reduce the loan limits either to $625,000 orclear back to $417,000. To a median price home buyer in Kansas where youcan pick up a McMansion for $170,000, that just sounds extravagant. ToCalifornians and New Yorkers and people in places you actually want to live,it sounds like a giant step back that will just recreate the foundation to repeatthe same old problems when prices rebound.I’ll close by quoting former New Orleans Mayor and current CEO of theNational Urban League, Marc Morial. “We are a growing nation that needs tobe housed. We cannot allow ourselves to lose sight of that and go backwards.We must maintain the primacy and value of homeownership as thecenterpiece of the American Dream.” Remind your Congressman of that ifthey’ll listen to you. And thank your Realtor® for keeping the fight alive onCapitol Hill for your rights as a homeowner in this country. We’re doingeverything we can to make sure you’re not the next endangered species.