1. Good News, Bad News or Just News?
According to the National Association of Realtors, it’s almost as hard to afford a house today
as it was back before the financial crisis started to hit in 2008. But is that good or bad for the
economy?
Well, maybe a little of both. As the housing market has recovered, prices are on the rise. That’s
generally seen as a positive sign. At the same time, mortgage rates have risen dramatically over
the past year. However, median household income hasn’t risen as quickly. At the end of this
report I’ve attached some of the most recent data from both our state and national associations
summarizing the impact of rising prices and interest rates on housing affordability. These
Affordability Indices are based on median household income, home prices, and interest rates.
The impact of these confluences is also detailed in recent articles from the Washington Post;
‘Buying a House is Harder Than It’s Been for Five Years’, and the Wall Street Journal;
‘Mortgage Lenders, Homebuyers Feeling Rate Squeeze’.
As I’ve reported here in the past, this housing ‘recovery’ is of recent vintage and is extremely
fragile. Concerns about federal policy regarding mortgage interest deductions for homeowners,
the proposed dissolution of Fannie & Freddie, continuing high unemployment (or
underemployment) and the end of the Fed buyback of $85 billion worth of bonds every month has
investors, lenders and homebuyers feeling very insecure. And insecurity and uncertainty are not
friends of the housing market – or the economy in general.
Keep in mind that as a result of the 5 year recession and the massive wave of distressed
properties, nearly 60% of potential home re-purchasers have been eliminated from the market for
the next 3 – 5 years. That’s an unprecedented number that has caused the rate of
homeownership to fall to its lowest rate in 18 years. We’re also seeing a pull-back by investors as
the bargains they seek have gone away. Add to that the fact that for every 1% increase in
interest rates we lose another 4-5 million prospective home buyers, especially first timers, and
you can see how the recent surge in sales fueled largely by investors and first time homebuyers
may have assuaged some of that pent-up demand and now we’re entering a different phase of the
recovery.
We’re seeing that borne out locally as sales numbers decline even as prices continue to rise. After
a 2% dip in July, median price for Southwest California rose 4% in August keeping us 24% ahead
of last August. Year-to-date median price is averaging a 19% gain over last year. That’s healthy
but not rampant and with the increase in inventory, should continue to moderate through
yearend.
Sales dropped 13% month-over-month and are currently running 6% behind the year-over-year
run rate. Historically the next few months should continue to see slower sales activity which will
also decrease pressure on pricing. At the current run rate, 2013 will end up about the same level
of sales as 2011 (7,596), which wasn’t bad.
Standard sales accounted for 90% of the active listings on the market again in August and nearly
80% of sold properties.
I agree with the conclusions reached by our state association in the newsletter attached at the
end of this report which suggests that none of these changes to the housing market in California
indicates that the recovery is in jeopardy. On the contrary, real estate markets are moving into a
state of a more measured and sustainable housing recovery in which traditional buyers and sellers
will play a greater role. Of course we still have the government to worry about…

2. SW Market @ A Glance
Southwest
California
Reporting
Period
Current
Period Last Period Y ear Ago
Change
from Last
Period
Change
from Year
Ago
Existing Home Sales
(SFR Detached)
August
2013
640 735 698 13% 8%
Median Home Price
August
2013
$331,081 $318,312 $253,328 4% 24%
Unsold Inventory
Index (SFR Units)
August
2013
1,227 1,098 795 11% 35%
Unsold Inventory
Index (Months)
August
2013
1.9 1.8 1.3 5% 32%
Median Time on
Market (Days)
August
2013
48 46 81 4% 41%
Source: CRMLS
August 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 311 94% 123 83% 8 2% 7 5% 7 2% 19 13%
Murrieta 303 90% 136 81% 11 3% 4 2% 19 6% 23 14%
Wildomar 31 78% 26 87% 5 13% 2 7% 3 8% 2 7%
Lake Elsinore 156 86% 67 80% 7 4% 1 1% 14 8% 15 18%
Menifee 197 86% 124 75% 12 5% 2 1% 15 7% 28 17%
Canyon Lake 97 99% 30 70% 0 0% 3 7% 0 0% 9 21%
Regional
Average
1095 90% 506 79% 43 4% 19 3% 58 5% 96 15%

3. 0
50
100
150
200
250
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12 3/13 6/13
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes
Single Family Homes
Unit Sales
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12 3/13 6/13
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Southwest California Homes
Single Family Homes
Median Price
August Transaction Value:
Temecula $59,210,456 Lake Elsinore $23,145,897
Murrieta $60,933,120 Wildomar $9,374,500
Menifee $40,264,802 Canyon Lake $17,020,050

4. $0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
3/12 6/12 9/12 12/12 3/13 6/13
Southwest California Murrieta Temecula
August Median Price:
2012 2013 %
Temecula $347,985 $397,386 12%
Murrieta $299,964 $362,697 17%
Menifee $191,395 $242,559 21%
Lake Elsinore $187,216 $275,546 32%
Wildomar $223,344 $312,483 29%
Canyon Lake $270,342 $395,815 32%
Southwest California $253,328 $331,081 23%
Southwest California Homes
Single Family Homes
Year-Over-Year Median Price

5. 0
500
1000
1500
2000
2500
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6
1
4
6
2
1
4
4
6
1
7
6
7
1
4
6
9
1
5
6
2
1
7
4
4
1
7
9
4
1
9
6
3
2
0
7
2
2
1
9
7
2
1
5
4
2
1
7
1
2
2
2
4
2
2
4
0
2
0
4
5
2
1
2
0
2
0
8
7
2
0
0
9
1
9
9
7
2
0
0
9
1
9
7
8
2
1
3
2
1
8
8
2
1
8
1
2
1
9
9
7
2
2
4
0
1
4
1
9
1
1
8
8
9
7
4
8
6
2
8
4
1
7
9
5
7
7
8
7
2
5
7
8
2
5
8
1
6
7
9
6
1
7
6
0
2
6
3
9
6
7
7
8
6
3
1
0
9
8
1
2
2
7
0
50
100
150
200
250
300
350
On Market
(Supply)
Pending Closed (Demand) Days on Market Months Supply Absorption rate *
3
3
7
1
9
5
1
6
8
4
5
2
.
0
1
.
2
3
3
0 1
8
9
1
4
9
4
3
2
.
2
1
.
0
1
9
2 1
4
4
8
4
4
2
2
.
3
1
.
0
2
3
0
2
1
9 1
6
6
3
9
1
.
4
1
.
5
9
8
2
4
4
3
8
0
2
.
3
1
.
5
4
0
4
7 3
0
3
7
1
.
3
1
.
4
Murrieta Temecula Lake Elsininore Menifee Canyon Lake Wildomar
* Absorption rate - # of new listings for the month/# of sold listings for the month
August Demand Chart
All signs point to a healthy market. Inventory levels are continuing to increase and, while not
back to a ‘healthy’ 6.5 month level (as dictated by national standards), we’re back up to 2
months worth of homes. With buyer demand down last month, we added another 200 homes
to our inventory, which has increased some 45% since May (677/1,227).
Pending sales, that precursor of market health, is still strong but has dropped off some
indicating that September sales will likely be close to August numbers.

6. California real estate markets in 2013 have so far
been riding on a fast and furious road to recovery.
Housing prices rose so precipitously in some
markets, particularity in the Bay Area, that some
experts even started talking about reoccurrence of a
bubble. Dramatic increase in prices however was
largely driven by lack of available inventory of homes
for sale, as well as significant presence of investors
and cash buyers. Tight market conditions led to a
substantial rise in multiple offers, sales occurring on
the day of listing, and selling prices far above the
asking ones. While market conditions are clearly
favoring sellers, there are indications that some of
the California’s real estate markets may be at a
turning point.
Rising mortgage rates initially presented a sticker
shock for many potential buyers who may have
already been discouraged by fiercely competitive
bidding wars and the number of cash offers. Their
first reaction was to postpone their home purchase.
The slowdown is suggested by a slight decrease in
the buyer traffic reported in the REALTORS®
Confidence Index. Rapidly increasing home prices
also put a dent in affordability. The percentage of
home buyers who could afford to purchase a
median-priced home in California dropped to 36
percent in Q2 2013, down from 44 percent in Q1
2013 and from 51 percent in Q2 2012.
However, as everyone realizes that mortgage rates
will most likely not be coming down to levels
observed last year, and that housing is still relatively
affordable by historical measures, buyers are slowly
readjusting their expectations and coming back to
the market.
Other indicators also suggest that real estate in
California may be at a turning point. Fewer listings
are under contract within a week or two than what
we saw just couple months ago. The statewide
median time on the market started inching up in
June and again in July, after continuously declining
since January 2012.
Additionally, investors are playing a smaller role.
Rising prices and interest rates have shrunk
investors’ profit margins and the share of investors
decreased to 16 percent in July from 22 percent at
the beginning of 2013. Investors are also hard-
pressed to find any supply of distressed properties,
which has dwindled to less than a month of
inventory. Distressed sales as a share of total sales
have also come down dramatically to 17 percent,
which was the lowest level since the end of 2007.
Fortunately, however, supply of inventory of equity
sales has increase 9 percent from June to July, and
almost 20 percent from the year before. Increase in
inventory is a much needed development and will
aid the market to continue to grow going forward.
None of these changes to the housing market in
California suggests that the recovery is in jeopardy.
On the contrary, real estate markets are moving into
a state of more measured and sustainable housing
recovery in which traditional buyers and sellers will
play a greater role. The sharp rise in interest rates
did cause a pause in the market but continued
recovery is on the way as everyone adjusts to new
norms.
Is California’s Housing Market at a Tipping Point?

8. The Last Word
In a shameful display of political gamesmanship, when our state legislature ends it’s session this
Friday one bill that will likely not see the light of day is SB 30. SB 30 is the bill jointly authored by
Senators Ron Calderon (D) and Joel Anderson (R) and sponsored by the California Association of
Realtors®. SB 30 would have granted tax relief on phantom income to thousands of California
homeowners who short-sold their home this year.
SB 30 started life as a bi-partisan bill which was expected to sail through the process and be signed as
an urgency measure. After all, we had a similar bill poised to do just that last year just waiting for
Congress to extend their tax relief provision so we could keep California in compliance with federal
regulation.
But the feds delayed passage last year only sneaking it through as a provision in their last minute
budget bill which was not passed until the early hours of 2013. So California had to introduce this as
a new bill for our 2013 session. Still, nobody was expecting any problems.
But somewhere along the way things got messy. First, Democratic Senators who never met a tax they
didn’t love, decided that linking SB 30 – a tax relief bill, to SB 391 – a tax increase bill, was a great
idea. SB 391 would raise ‘fees’ on real estate transaction by $75 per document (from the current $3 –
$10), which would be siphoned into some pet projects and ‘affordable housing’. That bill, and similar
predecessors, has met defeat either in the legislature or by the Governor several times in the past
and has always been opposed by Realtors as it increases the cost to a select group of individuals
(homebuyers) to give money to another group. There is no nexus and it’s not fair.
So this year they thought if they linked it to our bill, we would be forced to support it, giving a
(supposed) $50 million tax break to some (SB30) while increasing taxes by an estimated $500 million
on others (SB391).
WRONG!
But as we fought to get the bills de-linked, another issue came up – the Central California Senate race
pitting Republican Andy Vidak again Democrat Leticia Perez. Now the California Association of
Realtors is notoriously bi-partisan in our support of candidates but the decision was made to support
Vidak in this race against Perez, who was the anointed candidate of Senate Pro-Tem Darrell Steinberg.
Needless to say, when the dust settled on this very costly and largely negative campaign, Vidak won.
(http://www.fresnobee.com/2013/07/04/3374710/vidak-perez-race-features-negative.html)
Not one to take defeat gracefully, Steinberg has pulled out all the stops to see that our bill does not
progress. Under the watchful eye of Assemblymember Mike Gatto, SB 30 has been stalled in
committee where it will likely perish at the close of business Friday.
What this means is that any California homeowner who short sold their home in 2013 will get a tax
bill from California for the amount of forgiven debt. If you owed $300,000 on your home and sold it
for $200,000, that $100,000 in forgiven debt will be considered regular income by the state of
California and you will pay taxes on it to the state but not to the IRS.
This is a shameful display or political ‘gotcha’ with California’s beleaguered homeowners squarely in
the crosshairs. There’s an outside chance we can get a retroactive bill through next session but with
Steinberg still at the helm for another year, chances are slim.