6 realtor report


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Housing sales, median price and demand for Southwest California - May 2011

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6 realtor report

  1. 1. Housing Imperils Recovery Home prices sink to 2002 levels; Consumer confidence falls as pessimism grows. (WSJ 6/1/2011)A couple weeks ago I had the opportunity to once again attend the California Chamber of Commerce2011 Legislative Summit in Sacramento. They always line up some great speakers like ChevronChairman & CEO John Watson, Legislative Analyst Mac Taylor, Political Columnist Dan Walters,Redistricting Pro Matt Rexroad and Governor Jerry Brown. CalChamber also released their 2011 list of‘job killer’ bills, which outnumber ‘job creator’ bills 6 to 1.The Summit this year was titled ‘Creating Certainty in an Uncertain Economy’ and every speakerfocused their remarks on ways to eliminate the endemic uncertainty from our path back to productivityin California. Most addressed issues with excessive regulation, taxation, budgetary uncertainty, lack ofinvestment opportunity and those ‘job killer’ bills. Governor Brown was more succinct in his remarkssumming up what we need in just two words - more taxes.At the Sacramento Host breakfast, the Governor spoke of bringing government closer to the people –which means shifting responsibility for certain functions back to all of you. If Darrell Steinberg has hisway, you’ll not only get the responsibility but the associated costs as well as your own ability to raisetaxes on your citizens, there’s no uncertainty about that.Coincidentally, the Wall Street Journal headline the morning of the Summit read ‘Housing ImperilsRecovery’, followed the next morning by ‘Economic Outlook Darkens’. No uncertainty there. Orrather, the very uncertainty that is most damaging to a sustainable recovery. Everyone I met had thesame question – “What did you think of the housing article?”Not much, actually. Of the 14 cities they graphed with the greatest potential for ‘double dips’, not onewas in California. That in itself is pretty amazing but not unanticipated. Why? Because we hit bottomfaster and harder than most areas of the country and our housing recovery has been in place longerthan most as well. Oh, we’re not going gangbusters out here either, but while national home prices havefallen 5.1% over the past year, our region has been remarkably stable with some slight gains.They claim that nationwide home prices have now fallen to their 2002 levels. We hit that level over ayear ago when County Assessor/Recorder Larry Ward dropped tax assessments on any homespurchased since 2002. We truly have lost a decade of equity in our market but we’ve stabilized(hopefully) and are starting back. Much of the rest of the country is just getting there.One of the problems, as I’ve pointed out before, is lack of loan availability, especially for higher endproperties. Coupled with the fact that nearly ¼ of homeowners are upside-down in their mortgage, mostproperties are selling to either first time buyers or investors – the move-up market is comatose. We’veseen some limited movement back into standard sales locally but uncertainty and lack of liquidity ismaking it very difficult for all but the most daring to take the plunge. And given the variety of homes tochoose from and the historically low interest rates, that shouldnt be happening.Economists say it will be years before the housing market returns to health and it will take fastergrowth, stronger job gains and improvement in consumer confidence before that happens. Locally wehaven’t seen a spring bump yet so next months mid-year report will be interesting. Demand is stayingfairly constant throughout the region but if demand starts to falter, we could be in for some of what therest of the country is seeing. Consumer uncertainty is at an all-time high and that hampers progress.All real estate is local – and while our local market is fairing better than many, we are not immune tothe national malaise of uncertainty that has gripped both our state and out nation. Hope and changedoes not appear to be sound housing policy.
  2. 2. 250 Southwest California Homes Single Family Homes Unit Sales200150100 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 Lake We’ve been waiting for the spring bump. That hasn’t happened so now we’re waiting for the summer buying season. The next quarter will tell the tale of how our housing market is doing. May sales are off anywhere from 15% to 20% from last May in most of our markets. Last June was a peak month for housing sales so we’ll likely be well under that mark again next month. However, last June was also the last month to take advantage of the First Time Homebuyer Tax Credit so the rush was on to get homes closed in May and June. That stimulus resulted in an accelerated buying curve which pulled sales for several months into the future. But our market has now been on its own for nearly a year and has not faltered to the extent it has in some parts of the country. So while our first half sales volume will come in under last years pace, the true measure of market strength will be determined in our 3rd quarter.
  3. 3. $350,000 *$300,000$250,000$200,000$150,000$100,000 Southwest California Homes Single Family Homes Median Price $50,000 *Canyon Lake median spiked because a home sold for $1.4 million. In a market of 20 – 30 sales a month, such a sale has a significant impact on median., $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 Lake Local prices continued their minimalist fluctuations with medians being generally off a little from last month. While nationwide prices fell 4.2% in the 1st quarter compounding a 3.6% drop in the 4th quarter of lasts year, our median continues in a virtual flatline trend. After what we’ve been through, that’s OK for now. As I mentioned earlier, the rest of the country is just now hitting 2002 levels while our market reached that trough nearly 2 years ago. Some local economists believe that will insulate us from further price declines while others believe some additional correction is in our future. 3rd quarter demand will offer some insight into who’s right and who’s not. Michael Feder, CEO of Radar Logic summed it up this way: “The market showed a little stability that was largely stimulated by the tax credit, but that was very short-lived. To call this a double dip is an overstatement. The fact is, we never really started to recover.” The one market in the country that increased year over year? Washington DC. Go figure.
  4. 4. 5600 7 5 2 1 5 Southwest California Homes500 4 Single Family Homes 2 6 May Demand Chart 3 6400 9 3 0 2 7 8 8 2300 3 2 8 0 1 4 1 7 1200 5 1 0 4 1 1 5 1 1 1 2 9 9 3 9 9 1 9 8 8 8 8 8 7 2 6 3 1 6 0 7 2 6 3 3 5100 5 6 6 3 0 6 7 3 3 3 2 5 2 2 5 . . . . . . 1 4 7 3 7 7 6 0 On Market Pending Closed (Demand) Days on Market % Selling Months Supply (Supply) Murrieta Temecula Lake Elsininore Menifee Canyon Lake WildomarThis chart may be the salvation of our market. Many markets across thecountry would kill to have data like this. Our active inventory is down a littlefrom previous months but pending and closed sales are staying strong.In spite of the lead times associated with short sales, homes aren’t staying onthe market any longer than they were the first of the year, on average, andthe percentage of homes selling remains high.Months supply continues to be very low, especially if you back out the supplyof $700,000+ homes and short sales that aren’t selling. 2 1/2 to 3 ½ monthsis considered a strong buyers market and even Canyon Lake up at 5.7months supply is just edging into ‘normal’ territory of 6 – 7 months.A shortage of trade-up buyers is impacting our market just as it is othersacross the country where it is fueling price declines. But a continued strongpresence of first-time buyers and investors is keeping us afloat.
  5. 5. An update on two of the four issues I mentioned last month – the future of the GSE’s (Fannie & Freddie) andthe status of the Qualified Residential Mortgage (QRM). GSE ReformIn the beginning, early 1990s, a subprime loan was by definition one that the GSEs would not buy. The GSEs hadnothing to do with that monkey business although at the urging of lawmakers to ‘capitalize’ on the money to bemade in the mortgage market, Fannie and Freddie expanded their portfolio to include about 15% of theirportfolio in loans with FICO’s below 660 (A-minus but not subprime) and a minimal amount of AAA subprimeloans.As evidenced by the above chart, GSE loans did not begin to sour until well after the overall market collapseand even now represents less than half the REO inventory. The liquidity than the GSE’s represent cannot beeliminated from the market, especially given the dire housing projections we’ve just seen. Private lendingservicers (PLS) simply cannot step up to a level that will allow expansion of the market. QRM ProposalLast week, bipartisan groups of 160-plus members of the House of Representatives and 40 members of theSenate wrote to the six agencies -- the FDIC, SEC, HUD, the Office of the Comptroller of the Currency, theFederal Housing Finance Agency and the Federal Reserve -- urging them to focus on sound underwriting, safeloan products, and borrowers ability to repay, plus full documentation -- not down payments.The three authors of the QRM section of the Dodd-Frank law -- Sens. Kay Hagen (D-N.C.), Johnny Isakson (R-Ga.) and Mary Landrieu (D-La.) -- called the agencies pending proposal "extreme" and directly contradictory tocongressional intent.Rather than the broad set of common-sense standards needed to stabilize the mortgage and housing marketsin the wake of the excesses of the housing bust, they wrote, "regulators crafted a narrow definition (of whatconstitutes a safe loan) that could unnecessarily slow the housing recovery, increase costs to otherwisequalified homebuyers, and dampen incentives for sound underwriting.“The proposed QRM standard would push nearly a third of American borrowers out of the market, the senatorsestimated -- especially first-time home purchasers, minorities and moderate-income families, a demographicwhich ironically comprises Obama’s core supporters.One prominent trade group official said, "If they come back with anything with a down payment in it, youregoing to see a move in Congress to step in again" and amend the law to specifically prohibit down paymentcriteria as part of the final standard.” That’s good news for a change.
  6. 6. While there are those who would argue we’ve never really come out of the recession, andothers who would argue the positive job spin of a couple months ago was just that – spin – thefact is, this recession has cost more jobs for a much longer period than any downturn sinceWWII.You can argue that corporate profits are flush yet businesses aren’t hiring – they’re uncertain.You can point to the fact that productivity is up – businesses are producing more goods andmore profit with fewer workers so some of those jobs will never come back. You can make theargument that foreign outsourcing has taken a toll and corporations continue to ‘hide’ profitsoffshore to escape punitive taxes and regulation. It doesn’t matter.Until the jobs picture improves, housing will not recover to any significant degree. Due to thesymbiotic nature of the two, when jobs improve, housing improves. But the reverse is also true– when housing improves, jobs improve. Every home built adds up to three jobs for a year. Andevery home sold adds at least $60,000 to the economy.It seems clear what the focus should be. One will not improve without the other – thus has itever been.
  7. 7. Creating Certainty in Uncertain Times By Gene Wunderlich Local Chamber of Commerce executives and members recently journeyed to Sacramento to take part in the CalChamber2011 Legislative Summit. The summit was entitled ‘Creating Certainty in an Uncertain Economy’, with speakers and sessionsfocusing on how the business advocacy giant could improve the jobs picture in our state by addressing the endemicuncertainty of the budgetary, legislative and regulatory process. CalChamber President & CEO Allan Zaremberg introduced the Chambers annual list of ‘job killer’ bills by stating, “The firststep of an economic recovery program is to do no more harm to the economy. Proponents of anti-business legislation whothink California’s economy can withstand additional pressure from new regulations, taxes and legislative burdens are simplyunwilling to accept the unfortunate reality that California has the second highest unemployment rate in the country and iscurrently ranked near the bottom when it comes to business climate.”The nations economy began to recover in 2010 but in California the economy barely stirred. The best to be said is that thestate didn’t get much worse in 2010 after shedding 1.3 million jobs and seeing personal income actually retreat in 2009 – afirst-ever in modern California history. Unfortunately once again the list of ‘job killer’ bills introduced this year outnumber ‘job creator’ bills by almost 6 to 1.Legislators who vote with CalChamber Best Business bills more than 80% of the time are outnumbered by those that voteagainst jobs-friendly legislation by almost 2 to 1. (source: CalChamber.com)John Watson, CEO of Chevron Corp., spoke of his companys pride in being one of the largest employers in the state andheadquartered here for 132 years. But he pointed out that regulatory compliance issues and taxes cost $7,000 more peremployee in California than in Texas, which is why 5 businesses are leaving California every week, over 70 so far this year. He went on to state that “California needs a lesson in humility right now. We don’t always have to be the leaders, especiallywhen we’re going in the wrong direction. There are lessons to be learned about pensions and education and the environmentfrom other states if we just let ourselves.” Legislative analyst and top budget watchdog Mac Taylor opined in his remarks that he is feeling a slight degree of optimismfor the first time in years because ‘the economy is improving slightly and there just might exist some political will to makefundamental changes to the way we budget in this state.’ CalChamber also presented a series of awards for individual business advocates as well as their President’s Circle Award.Started in 2009, the President’s Circle recognizes Chambers for excellence in business advocacy as well as helping theirmembers navigate the often treacherous waters of California employment law. This year the Murrieta, Lake Elsinore Valleyand Temecula Valley Chambers were all recognized for their efforts to assist members as well as for their consistentadvocacy efforts through the Southwest California Legislative Council. President’s Circle recipients also publish legislatorvoting records, meet with & generate letters to elected officials on local business issues and participate in the CalChambercompliance product resale program. The Summit was capped by the traditional Host Breakfast address by the Governor. Governor Brown actually joined us forbreakfast this year as opposed to Arnold, who would entourage in for his remarks and quickly exit. This year Governor Brownstuck to his customary talking points – we’re facing a wall of debt that must be resolved equitably and quickly if we’re toreturn California to it’s righteous path. He presented his case for bringing the tax extensions to a vote of the people saying ‘unfortunately current polls show morethan half of you would vote no, but I’m asking for a fighting chance.’ People want the services but not the taxes to pay forthem. If we don’t extend the tax increases we’ll be faced with greatly diminished services. He summed up his job as ‘findingthe middle path.’ “I’m looking for zones of potential agreement – if I get as much push-back from Democrats as Republicans, Iknow I’m close.” Summarizing his statement, he said there’s lots of good stuff happening around the state but lots of challenges as well. Wemust bring government closer to the people. We also have to get real about business – business creates the wealth butbusiness has to understand that we need environmental regulations, social programs, schools etc. “Whatever way the peopledecide. California will prevail.” The Governor should have sat in on some of the other sessions during the Summit. I still don’t think he gets it. The California Chamber of Commerce (CalChamber) is the largest broad-based business advocate to government in California. Membership represents one-quarter of the private sector jobs in California and includes firms of all sizes and companies from every industry within the state. This article will appear in the July issue of The Valley Business Journal