1. It was just a matter of time…
During the past year, as I’ve reported on shrinking housing inventories coupled with strong demand, many of
you have asked me the same question – ‘why aren’t prices going up?’ There was no answer other than – ‘they
should be’. Even the government can contravene the laws of nature for just so long.
So after 4 years of relatively stable pricing, where annual medians for the region rose a scant 9% from 2009 –
2012 ($234,974/$256,539), suddenly this year prices have started posted significant gains over last year.
January’s median price was up 19% over last January ($217,924/$262,930) and February’s was up 14% over
last year ($237,842/$274,353). This is the highest median price we’ve seen for the region since August 2008
when our median price dropped through $280,662 on its way to our low of $210,317 in April, 2009. We’re up
23% from there.
Most cities are scoring well with Temecula prices up 21% year over year $(279,009/$355,950), Murrieta up
19% ($261,199/$322,574), Wildomar up 17% ($205,941/$246,302), Lake Elsinore up 17%
($179,136/$215,502) and Menifee up 14% ($171,6245/$199,165). For the region only Canyon Lake had a year
over year decrease of 7% ($330,140/$306,625) but with the wildest gyrations in the region, Canyon Lake could
easily post a 40% gain next month by selling a couple $1 million homes.
In Murrieta, last month was the highest median price they’ve enjoyed in nearly 5 years, since April 2008 when
the median hit $326,978 on its way down to $252,082 (1/10). For Temecula, they had a couple good months
last November and December but prior to that this is the highest median since March 2008 when it hit
$356,383 on its way down to $263,118 (1/10).
So you don’t lose perspective, even with the recovery of 26%, at $355,950 Temecula is still 38% under its peak
of $575,935 (6/06) and at $322,574 Murrieta is still 44% below its peak of $576,224 (5/06). But at least we’re
trending in the right direction finally. That’s good news.
Does this mean we’re out of the woods? Well, only time will tell on that. The next few months will be critical
as the feds deal (or no deal) with issues like our mortgage interest deduction and future of Fannie Mae,
Freddie Mac and the FHA.
Housing availability will also play a significant role in that recovery. Our year over year sales are down 18%
(601/491) and our inventory of available homes is down a whopping 72% from last February (2,240/617) to
just a 1.4 months supply. Without those $1 million homes, where we still have a 24 month inventory, our real,
salable inventory for the region dips to less than a month. We’re replacing just half of what we’re selling.
New home builders are rushing to fill that inventory vacuum but their lead time to occupy reduces the
immediate impact they can have on the market. Benefitting from strong demand, new home builders are also
enjoying anywhere from 12% to 30% pricing premium over comparably sized existing inventory.
As demand across the country strengthens, some analysts are starting to bandy the term ‘bubble’ around
again. I’ve been seeing that potential developing locally for the past 6 months or so. So far we’re not into
bubble territory as we can absorb a significant increase in pricing just to get back to where our normal
demand curve would place us. However…
One more positive to note. In February standard sales accounted for 81% of our active inventory and 61% of
sold properties . There are only 8 bank-owned homes listed in Temecula (4%) and 9 in Murrieta (6%) as of a
couple days ago. If you’re a buyer this spells a cutthroat market. If you’re a seller – happy days are here again
(or at least you can hear the band warming up).

2. 250
Southwest California Homes
Single Family Homes
200
Unit Sales
150
100
50
0
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
February transaction volume:
Temecula $42,713,976 Lake Elsinore $15,516,176
Murrieta $41,612,059 Wildomar $7,389,053
Menifee $23,619,849 Canyon Lake $6,132,500
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
Southwest California Homes
Single Family Homes
$50,000
Median Price
$0
3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

3. 2 2 2 2 2 2 2 2 2 2 2
1 0 2 1 2 1 1
2500 1 1 1 2 2 0 1 0 1 2
0 9 0 9 1 9
9 7 9 5 7 2 4 2 3 1 4
1 1 1 8
7 7 6 2 7 4 1 4 0
4
5 0 7
0 9 0 7
2
8
8 9
0 Southwest
1 7 9 7 9 8 8 7
2000 1 1 6 1 5 4
9 3
2
1
2 1 California
4
4 4 7 4 6 4
6 4 6
4
1 Inventory
2 1
2 6 9 1
1500 9
8
9
8
7 8 8 7 7 7
4 6 4 9 7 7 8 6
1000 2 1 2 5 7 6
5 8 2
5 8 9 1
1 7
500
0
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 1 2
2010 2011 2012
Our region has had 1.1 – 1.4 months inventory since last May. We are just
now seeing the inevitable appreciation resulting from that demand.

4. 400
350
Southwest California
2
2 6
February Demand Chart 2
3
.
300 2
5 2 7 . 8
2 .
4 2 1 4
1 .
250 9 9 1 3
1 8 0
4 .
200 5 6 1
1 1 8
1 2
4 2 2
150 0 9
8 8 0 0
.
8 6 7 7
100 5 2 5 5 5 5 1 5 8
5 4
5
2
3 0 8 4 5 4 1 1 1 0 3 0
1 0
50 0 . . . . . .
6 0
2 6 2 9 3 5
0
On Market Pending Closed (Demand) Days on Market Months Supply Absorption rate *
(Supply) Murrieta Temecula Lake Elsininore Menifee Canyon Lake Wildomar
* Absorption rate - # of new listings for the month/# of sold listings for the month
February 2012 February 2013 The only sector of the existing home market with
• 2,240 homes for sale • 617 homes for sale room to grow is standard sales. We’re already
• 561 homes sold • 491 homes sold selling 5 REO’s for every 4 listed and 12 short
• 3.3 months supply • 1.4 months supply sales for every 6 listed. Appreciating prices will
• 87 days on market • 57 days on market increase that seller pool and reduce the number
• 110% absorption rate • 201% absorption rate of underwater homes in the region.
February Market Activity
By Sales Type
Standard Sale Bank Owned Short Sale
% of % of % of % of % of % of
Active MKT Sold MKT Active MKT Sold MKT Active MKT Sold MKT
Temecula 163 88% 80 67% 8 4% 10 8% 13 7% 28 23%
Murrieta 133 86% 79 61% 9 6% 13 10% 10 6% 31 24%
Wildomar 13 81% 14 47% 1 6% 3 10% 2 13% 12 40%
Lake
Elsinore 63 72% 40 56% 8 9% 9 13% 17 19% 22 31%
Menifee 76 70% 69 58% 16 15% 17 14% 14 13% 27 23%
Canyon
Lake 58 89% 16 80% 2 3% 2 10% 5 8% 2 10%
Regional
Average 506 81% 298 61% 44 8% 54 11% 61 11% 122 25%

5. $600,000
California
$500,000 US
CA Price Trend
$400,000
$300,000
$200,000
$100,000
$0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
CA Prices Still Below Trend Line = Opportunity
Meanwhile
Pent-Up Demand for Housing is Real
38,000 13,500
In thousands
36,000 575K 13,000
377K
34,000 12,500
Total Population, California
32,000 Number of Households, California (right axis) 12,000
Projected linear estimate
Projection, based on U.S. 0.55% growth rate
30,000 11,500
2000- 2002- 2004- 2006- 2008- 2010-
2001 2003 2005 2007 2009 2011

6. C.A.R. reports 4th quarter 2012 housing affordability
Higher home prices send California housing affordability lower
Higher home prices offset lower interest rates to reduce housing affordability in California during the fourth quarter of 2012,
the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported.
The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California
decreased to 48 percent in the fourth quarter of 2012, down from 49 percent in third-quarter 2012 and from 55 percent in
fourth-quarter 2011, according to C.A.R.’s Traditional Housing Affordability Index (HAI).
C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in
California. C.A.R. also reports affordability indices for regions and select counties within the state. The Index is considered
the most fundamental measure of housing well-being for home buyers in the state.
Home buyers needed to earn a minimum annual income of $66,940 to qualify for the purchase of a $353,190 statewide
median-priced, existing single-family home in the fourth quarter of 2012. The monthly payment, including taxes and
insurance on a 30-year fixed-rate loan, would be $1,670, assuming a 20 percent down payment and an effective composite
interest rate of 3.49 percent. The effective composite interest rate in third-quarter 2012 was 3.72 percent and 4.30 percent in
the fourth quarter of 2011.
Housing affordability results were mixed at the regional level, with affordability improving from the third quarter of 2012 in
Alameda, Contra Costa, Marin, Napa, Los Angeles, Ventura, San Luis Obispo, Santa Cruz, Fresno, and Kings
counties. However, homes in San Francisco, Solano, Riverside, San Bernardino, Monterey, Santa Barbara, Madera,
Sacramento, and Tulare counties were less affordable during fourth quarter 2012.
STATE/REGION/COUNTY Q4 2012 Q3 2012 Q4 2011
Calif. Single-family home 48 49 55
Los Angeles Metropolitan Area 50 51 56
Calfi. Condo/Townhomes 59 60 63
Inland Empire 67 68 71
San Francisco Bay Area 34 35 42
U.S. 69 67 70
Alameda 36 34 39
San Francisco Bay Area
Contra-Costa (Central County) 31 28 37
Marin 28 27 29
Napa 48 45 50
San Francisco 22 25 26
San Mateo 24 24 29
Santa Clara 32 32 40
Solano 73 77 76
Sonoma 46 46 51
Los Angeles 44 42 48
Southern California
Orange County 34 34 38
San Bernardino 76 77 78
Riverside County 62 63 66
San Diego 43 43 46
Ventura 48 47 49
Monterey 50 52 56
Central Coast
San Luis Obispo 40 37 41
Santa Barbara 27 31 41
Santa Cruz 34 30 37
Fresno 70 69 71 r
Central Valley
Kings County 76 74 r 75
Madera 74 76 75
Merced 74 74 77
Placer County 64 64 67
Sacramento 71 73 74
Tulare 71 73 73

7. At an index of 76 percent, San Bernardino and Kings counties were the most affordable counties of the
state. Conversely, San Francisco County was the least affordable, with only 22 percent of the region’s households
able to purchase the county’s median-priced home.
To determine the approximate Homeowner Affordability Index for your city, just find the California City that most
closely matches your city median from the preceding charts. For example, at $355,950, Temecula is closer to the
state average of $353,190 with an HAI of 48, than it is to the rest of Riverside County with a median of $240,840 and
an HAI of 62. Murrieta at $322,574 is closer to Monterey at $329,000 and an HAI of 50. The true number of
prospective buyers in any market area is also a factor of the median income in that market. Thus our cities might rank
somewhat lower or higher on the HAI depending on the percentage of people in the area making the minimum
qualifying income.
Monthly
Housing Minimum
Median Home Payment
C.A.R. Region Affordability Qualifying
Price Including Taxes
Index Income
& Insurance
Calif. Single-family home 48 $ 353,190 $ 1,670 $ 66,940
Los Angeles Metropolitan Area 50 $ 326,470 $ 1,550 $ 61,870
Calif. Condo/Townhomes 59 $ 272,760 $ 1,290 $ 51,690
Inland Empire 67 $ 209,260 $ 990 $ 39,660
San Francisco Bay Area 34 $ 593,220 $ 2,810 $ 112,420
U.S. 69 $ 178,900 $ 850 $ 33,900
Alameda 36 $ 522,890 $ 2,480 $ 99,100
San Francisco Bay Area
Contra-Costa (Central County) 31 $ 631,530 $ 2,990 $ 119,680
Marin 28 $ 812,490 $ 3,850 $ 153,980
Napa 48 $ 385,200 $ 1,830 $ 73,000
San Francisco 22 $ 777,090 $ 3,680 $ 147,270
San Mateo 24 $ 782,500 $ 3,710 $ 148,300
Santa Clara 32 $ 685,000 $ 3,250 $ 129,820
Solano 73 $ 225,540 $ 1,070 $ 42,740
Sonoma 46 $ 382,560 $ 1,810 $ 72,500
Los Angeles 44 $ 350,080 $ 1,660 $ 66,350
Southern California
Orange County 34 $ 568,600 $ 2,690 $ 107,760
San Bernardino 76 $ 152,860 $ 720 $ 28,970
Riverside County 62 $ 240,840 $ 1,140 $ 45,640
San Diego 43 $ 405,360 $ 1,920 $ 76,820
Ventura 48 $ 440,250 $ 2,090 $ 83,430
Monterey 50 $ 329,000 $ 1,560 $ 62,350
Central Coast 0
San Luis Obispo 40 $ 399,310 $ 1,890 $ 75,680
Santa Barbara 27 $ 546,510 $ 2,590 $ 103,570
Santa Cruz 34 $ 520,000 $ 2,460 $ 98,550
Fresno 70 $ 152,360 $ 720 $ 28,870
Central Valley 0
Kings County 76 $ 146,210 $ 690 $ 27,710
Madera 74 $ 133,750 $ 630 $ 25,350
Merced 74 $ 133,450 $ 630 $ 25,290
Placer County 64 $ 302,630 $ 1,430 $ 57,350
Sacramento 71 $ 193,190 $ 920 $ 36,610
Tulare 71 $ 141,810 $ 670 $ 26,880
Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS®
(www.car.org) is one of the largest state trade organizations in the United States with 155,000 members dedicated
to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles

8. NAR President Testifies on FHA
NAR President Gary Thomas last week testified before the Senate Banking Committee on the importance of
FHA in housing markets. In the testimony, Thomas explained that if FHA had not been providing insurance in
the last 5 years, housing prices would have fallen another 25%.
Although FHA has fallen short of its required reserves, FHA has made significant changes to increase revenue
and mitigate risks. Thomas cautioned about making arbitrary changes to FHA, such as further increasing
costs to consumers or limiting the use of the program to certain types of buyers, only for the sake of luring
back private markets.
NAR welcomes a reduction in FHA's market share when the private market returns, but Thomas stated that
"we aren't there yet!
The 3.8% Tax
Real Estate Scenarios & Examples
Beginning January 1, 2013, a new 3.8 percent tax on some investment income took effect. Since this new tax
will affect some real estate transactions, it is important for you to clearly understand the tax and how it could
impact you. It’s a complicated tax, so you won’t be able to predict how it will affect every buyer or seller.
To get you up to speed about this new tax legislation, the NATIONAL ASSOCIATION OF REALTORS® has
developed an informational brochure. By clicking on the link above, you’ll find examples of different
scenarios in which this new tax — passed by Congress in 2010 with the intent of generating an estimated
$210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans — could be
relevant to your situation.
Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception.
Rather, effective this year, it may impose a 3.8% tax on some (but not all) income from interest, dividends,
rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an
adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.
CAR Sponsors Debt Forgiveness Bills
SB 30 (R. Calderon) and AB 42 (Perea) Debt Forgiveness Income Tax - (Sen. Joel Anderson is the bi-partisan
co-author of SB 30). The federal government enacted the Mortgage Debt Relief Act of 2007 creating mortgage
debt forgiveness relieving borrowers from income tax liability on debt forgiven in a “short” sale. In late 2008
the federal government extended this relief through December 31, 2012. This rule, which has been extended
several times in both federal and conforming California laws, expired on January 1, 2013. As part of the Fiscal
Cliff deal signed by President Obama on January 2, 2013, mortgage cancellation relief was extended for one
year, through January 1, 2014. C.A.R. is sponsoring SB 30 and AB 42 to make conforming changes in California
law effective January 1, 2013.
Until this bill passes, California homeowners who short-sell their homes may be liable for taxes on the forgiven
debt to the state. In order for the earliest possible resolution of this situation, the bill would need to be
passed quickly and by a 2/3 majority as an urgency matter. If it does pass but without the urgency, then the
bill would not become law until 2014 and would need to be retroactive to 1/1/13 to keep it concurrent with
the federal bill.
So banks and lenders have dried up our inventory of REO’s because of last year’s Homeowners Bill of Rights
which encouraged them to pursue short sales rather than foreclosing on homes. Now the state has ratcheted
up concern among those same short sellers by presenting the possibility that they will be taxed on their
forgiven debt. We better hope that prices rise fast enough to entice more standard home sellers into the
market. Otherwise our inventory will shrink to nothing.

9. Beige Book: Real estate markets strengthen
Nearly all twelve Federal Reserve districts reported modest to moderate growth in economic activity in the Fed's
latest February Beige Book.
Residential real estate markets posted the strongest results, with impressive growth throughout nearly all the
districts as home prices rose amid falling inventories across the country, the report said.
The Boston, Dallas, Kansas City, Minneapolis, San Francisco and St. Louis districts reported slight improvements.
Meanwhile, Philadelphia real estate continued to report low-end home prices as firm or rising or increasing slightly,
while high-end home prices continued to fall.
Inventories also declined in nearly all districts, with Realtors in several districts concerned about the impact on
future sales volume, the report noted.
Home construction increased in most districts, with the exception of the Kansas City District where it was reported
as unchanged.
Additionally, several districts noted ongoing strength in multifamily construction. However, the Atlanta and
Cleveland districts reported continued financing difficulties for builders.
Overall commercial real estate conditions were mixed or slightly improved in most districts, the book stated.
Commercial real estate activity grew modestly in the Atlanta, Philadelphia, Richmond, San Francisco and St. Louis
districts. While Boston and New York reported mixed activity levels, Dallas and the Kansas City districts noted few
changes.
Economist Makes Bold Statement on Home Prices
Home values could surge 35 percent without stretching housing affordability, Raj Dosaj, vice president of the home
price index at LPS Applied Analytics, said during a recent webinar hosted by HousingWire.
Dosaj says that the increase in home prices could be less than that if mortgage rates rise, which he says they are
predicted to do.
"During the peak of the housing run-up, affordability was stretched as the market sold off," Dosaj said. "As home
prices dropped, affordability dropped."
Industry reports are showing home prices rebounding and rising across the country.
"There are definite signs that there's room for growth," said Dosaj. "Things are generally looking good for the
housing market."