The (not so) Great Recovery. That was the message from one speaker we heard from when several hundred Realtors from around the country descended on Washington D.C. a couple weeks ago to discuss housing issues with our Congressional leaders. Apparently the degree of recovery has a great deal to do with your position relative to it. If you had a fair amount of money to begin with, you’ve recovered nicely. If not, well, there’s still hope and change I guess.

Speakers including HUD Secretary Shaun Donovan, FHA Commissioner Carol Galante, CFPB Director Richard Cordray and NAR Chief Economist Dr. Lawrence Yun attempted to explain why the housing market isn’t carrying it’s weight in the current recovery. Four knowledgeable people, sixteen different theories.

Turns out millenials, that huge generation readying to assume the reigns of commerce and government, aren’t buying homes as expected. They’re ‘choosing’ to live at home into their 30’s. It could be they like being catered to, or they might be saddled with college debt, or that might not have anything to do with it. Of course a lot of potential move-up buyers can’t move-up because they don’t have equity in their homes yet, or not enough to prompt a move. This is preventing many baby-boomers who want to down-size from doing that since there aren’t enough buyers who can afford their big old houses. And even though 80% of people who lost their homes to foreclosure or short sale during the past few years plan to buy another home, they aren’t able to quite yet.

Overly restrictive lending regulations seem to play a big role in the problem, and rising interest rates and prices have conspired to drive many investors and first-time buyers out of the market. Consumer confidence continues to weigh down the economy as well, because even as the nation posts decent job growth statistics, participation in the labor market continues to suffer and those people, the record numbers of unemployed and under-employed can’t buy a home either.

One economist posited that the next couple months will set a tone for the year. Housing could actually fall back into another mini-recession for 2014 with both sales and prices dropping some only to recover in 2015. Nobody put too much weight on this idea but most acknowledged the possibility.

Locally our market continues to chug along. Sales were up slightly from the previous month, although pending home sales portend a drop in June. Prices were up about 6% from April and still holding 16% ahead of last year. Overall, prices for the region are back to 2004 levels, up about 40% from their trough. Statistically we’ve made back exactly half of the value we lost in 2008-2009. Our regional median is $147 higher than it’s lowest point but still $148 away from it’s highest.

According to the U.S. Census Bureau, Southwest County was home to 3 of California’s 10 fastest growing cities. Temecula grew 2.1% to 106,780, Menifee grew 2.6% to 83,447 and Lake Elsinore was the fastest growing in the state increasing 3.3% to 57,525. Quality of life and housing affordability will keep Southwest County at the forefront of the recovering market.

Now if we could just get the rest of the country to follow along.

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Inventory Sales

Inventory v Sales

I thought it might be interesting to chart not only the inventory, as we have been for some time, but compare it to sales during the same period. Sales have stayed in roughly the 500 – 600 home range for the past three years, spiking to nearly 800 in May 2012 (796). Meanwhile inventory has drifted from as high as 2,300 units to 581 and back up to 1,900. In December 2012, March 2013 and May 2013 sales actually exceeded inventory.

Following a precipitous drop in February 2012, inventory continued to decrease until last June when it started to increase again. We’ve gone from less than 1 month inventory for the region to 3.5 months – a hefty increase but still well below the 6-7 months considered to be a balanced market inventory. That ‘sellers’ market has propelled prices from a low of $217,924 for the region in January 2012 to $364,163 today, an increase of 40%. That’s still a far cry from our regional median of $512,963 reached in January 2006, but it’s definitely progress.

As indicated in later reports, this increase has helped lift some 300,000 homeowners out of a negative equity position in just the first quarter of 2014, 3.5 million in the past year. It hasn’t lifted many of them far enough yet to turn them into move-up buyers, but the numbers are getting better.

Now if we can just keep those borderline homeowners from slipping back into default as many of them face their first interest rate re-set on their modified mortgages.

SW Market @ A Glance

Southwest California Reporting

Period Current Period

Last Period Year Ago

Change from Last

Period

Change from

Year Ago

Existing Home Sales (SFR Detached) May 2014 638 579 686 9% 7%

Median Home Price $364,163 $341,630 $307,440 6% 16%

Unsold Inventory Index (SFR Units) 1,902 1,751 677 8% 60%

Unsold Inventory Index (Months) 3.5 3.2 1.1 9% 69%

Median Time on Market (Days) 64 67 48 4% 25%

Source: CRMLS

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Southwest California Homes Single Family Homes

Unit Sales

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Southwest California Homes Single Family Homes

Median Price

May Transaction Value*: Temecula $77,335,798 Lake Elsinore $26,399,367

Murrieta $58,595,175 Wildomar $7,380,300

Menifee $44,818,677 Canyon Lake $11,889,800 * Revenue generated by single family residential transactions for the month.

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Hemet/San Jacinto 2014 Single Family Residential Median Price

Hemet San Jacinto

April Transaction Value:

Hemet $28,109,563 San Jacinto $11,228,700

* Revenue generated by single family residential transactions for the month.

May Median Price:

2013 2014 %

Temecula $414,100 $449,627 8%

Murrieta $359,189 $368,523 2%

Menifee $221,796 $269,992 18%

Lake Elsinore $232,509 $280,843 17%

Wildomar $277,214 $320,883 14%

Canyon Lake * $335,012 $495,408 32%

Southwest California $ 307,440 $364,163 16%

Hemet $159,218 $195,205 18%

San Jacinto $149,716 $190,317 22%

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Southwest California Median Price

* If I were doing weighted averages, I would note that of 24 sales last month in Canyon Lake, one sale of $1.3 million had a disproportionately positive impact on median price for the city and, to a lesser degree, the region.

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* Absorption rate - # of new listings for the month/# of sold listings for the month

May Market Demand

On Market 7% Pending 4% Closed 6% Days on Market 4% Months Inventory 3% Absorption 5%

Month over Month

Inventory continues to climb, closed sales were up slightly from the prior month, pending sales were down in May meaning June sales could be down as well, properties were staying on the market a few days less, months inventory was up slightly to 3.5 months (still well below average) and absorption was down slightly although Menifee sold 20% more homes than they listed and Hemet sold every new listing.

Standard sales hold steady at 85% of the market and distressed sales have made up 15% of the market since January.

May 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 522 94% 153 89% 14 3% 10 6% 13 2% 7 4% Murrieta 454 92% 138 87% 11 2% 5 3% 27 5% 16 10% Wildomar 71 89% 26 113% 1 1% 1 4% 8 10% 2 9%

Lake Elsinore 258 88% 80 85% 6 2% 4 4% 28 10% 8 9% Menifee 302 89% 140 84% 14 4% 12 7% 21 6% 10 6%

Canyon Lake 133 93% 22 92% 4 3% 1 4% 5 3% 0 0% Hemet 373 88% 115 80% 19 4% 17 12% 28 7% 11 8%

San Jacinto 129 79% 43 73% 12 7% 7 12% 19 12% 6 10% Regional Average 2242 90% 717 85% 81 3% 57 7% 149 6% 60 7%

312,000 Properties Regain Equity in Q1 2014

Author: Colin Robins June 5, 2014 0

CoreLogic released an analysis of residential properties in the first quarter of 2014, focusing specifically on homes with negative equity. The company found that more than 300,000 homes returned to positive equity in the quarter, bringing the total number of mortgaged residential properties with equity to more than 43 million.

Negative equity, more commonly known as a home being "underwater," means borrowers owe more on their mortgage than their homes are worth. The company cites declines in value, an increase in mortgage debt, or some combination of the two as factors leading to a home having negative equity.

The company's analysis found that roughly 6.3 million properties, or 12.7 percent of all residential properties with a mortgage, had negative equity as of Q1 2014. The first quarter of 2014 saw a decline from the fourth quarter of 2013, when 6.6 million homes had negative equity, or 13.4 percent.

Year-over-year, negative equity properties have declined 20.2 percent from 9.8 million in 2013 to 6.3 million in Q1 2014.

Underwater homes have a national aggregate value of negative equity of $383.7 billion at the end of the quarter, according to CoreLogic. Negative equity is down $16.9 billion from roughly $400 billion in the fourth quarter of 2013.

"Despite the massive improvement in prices and reduction in negative equity over the last few years, many borrowers still lack sufficient equity to move and purchase a home," said Sam Khater, deputy chief economist for CoreLogic. "One in five borrowers have less than 10 percent equity in their property, which is not enough to cover the down payment and additional costs associated with a conventional mortgage."

The company commented that of the 43 million residential properties with equity, roughly 10 million have less than 20 percent equity. Homes in this particular situation may have a more difficult time refinancing or obtaining new financing to sell and buy another home due to tougher underwriting standards.

"Prices continue to rise across most of the country and significantly fewer borrowers are underwater today compared to last year," said Anand Nallathambi, president and CEO of CoreLogic. "An additional rise in home prices of 5 percent, which we are projecting will occur over the next 12 months, will lift another 1.2 million properties out of the negative equity trap."

Nevada had the highest percentage of mortgaged properties in negative equity at 29.4 percent, followed by Florida (26.9 percent), Mississippi (20.1 percent), Arizona (20.1 percent) and Illinois (19.7 percent). These top five states combined account for 31.1 percent of negative equity in the United States.

Texas had the highest percentage of mortgaged residential properties in an equity position at 96.7 percent, followed by Montana (96.3 percent), Alaska (95.7 percent), North Dakota (95.7 percent) and Hawaii (95.6 percent).

The company found that the bulk of home equity for mortgage properties is concentrated at the high end of the housing market. CoreLogic noted that 93 percent of homes valued at greater than $200,000 have equity compared to 82 percent of homes valued at less than $200,000.

Where have all the investors gone? Some states are faring better than others in the housing recovery. Florida, California, Arizona and Nevada all experienced significant declines in pricing following the bust of the sub-prime market and sharp declines in employment. However, Arizona and California have also experienced the sharpest declines in their foreclosure rate, respectively. By contrast, the improvements in Florida and Nevada have not been as strong.

Phoenix, the original poster child for institutional investor activity, has seen the institutional investor share fall from a high of 13.2 percent in July 2012 to 3.6 percent in March 2014, as significant rises in home prices and rapidly shrinking inventory levels made investing no longer attractive. Not surprisingly, this rapid drop-off in institutional interest is taking place in many of the California and Florida markets for similar reasons.

As a reminder, institutional investors are defined as parties that have made 10 or more purchases in the past year within a metro area.

Interest Rate Resets a Concern for Modified Mortgages

The Data and Analytics division of Black Knight Financial Services released its latest Mortgage Monitor Report, which analyzed data as of the end of April 2014. The report found that there were roughly 2 million modified mortgages facing interest rate resets, with 40 percent of those loan modifications currently underwater.

According to Black Knight, more than one in 10 of all active loans are in near negative equity positions, with 9.0 percent equity or less.

"We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture," said Kostya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher—over 40 percent."

Gradushy noted that another 18 percent of modified borrowers have 9 percent equity or less in their homes, and that resets in interest rates pose an increased risk for defaults in the years ahead.

Home prices continued towards recovery, up to $235,000, a monthly increase of 0.97 percent and a yearly increase of 7.0 percent.

April saw a decline in foreclosure starts, which fell 10.56 percent from March to 78,800 in April. Troubling, the total U.S. loan delinquency rate increased 1.84 percent month-over-month to 5.62 percent. The loan delinquency rate remains down, however, on a year-over-year basis by 9.5 percent.

The number of properties in foreclosure pre-sale in April was approximately one million, down 54,000 from March and down nearly 575,000 from April 2013.

"Finally, as foreclosure sales (completions) increased in both judicial and non-judicial states—though the increase was larger in the former than the latter—Black Knight observed the gap between judicial and non-judicial pipeline ratios (ratio of loans 90 or more days past due or in foreclosure to the current rate of foreclosure completions) had narrowed to its lowest point since at least 2005," Black Knight noted.

On average, foreclosures in judicial states take 52 months to complete, compared to the 2011 high of 118 months. By comparison, the average time to complete a foreclosure in non-judicial states in 2011 was 33 months. It was has since increased to 48—the highest point on record.

States with the highest percentage of non-current loans include: Mississippi (13.8 percent), New Jersey (12.9 percent), Florida (11.7 percent), New York (11.0 percent), and Louisiana (10.8 percent).

States with the highest percent of seriously delinquent loans include Mississippi, Nevada, Rhode Island, Alaska, and Massachusetts.

Black Knight noted that seven of the top ten states for total non-current loans are judicial states. (California is a non-judicial state).

No one wants dirty water, but at a time when our economy is struggling, why is the Environmental Protection Agency (EPA) pursuing new rules on water which place greater restrictions and financial penalties on law-abiding Americans? The new rules reclassify the meaning of water and expand government intrusion onto private lands.

According to a report in the Washington Post, at issue is the definition of federally protected waters. In March, the Environmental Protection Agency pitched new rules meant to clarify and expand its regulatory reach under the Clean Water Act to include small streams, riverbanks, wetlands and floodplains.

Gina McCarthy, the agency’s administrator, has defended the proposal, saying that it would not significantly expand the department’s authority to monitor and regulate waters.

However, when these new regulations now give the federal government regulatory control over dry washes that run through private lands, there is something certainly amiss.

You have to wonder, why do we even have a Congress and representatives when a government agency can institute insidious regulations with impunity — and with no regard to the economic impact or intrusion into our private lives?

Small business owners and some lawmakers warn the new rules will subject farmers, ranchers, homebuilders and other entrepreneurs to complicated and potentially costly new regulations that were written with other industries and other purposes in mind.

Rancher Jack Field has a small stream running through his pasture from which his cattle drink. Under the new rules, the stream may qualify as federally protected water, requiring a new permit for use of the land and “opening me and my ranch up to significant liability,” he said during a hearing last week before the House Small Business Committee. Permitting means paperwork and that means money to apply for the permit and fines if found not in compliance. And it seems the financial penalty is substantial, at $30,000 a day

I sat on the House Small Business Committee and can attest that it is a truly one of the few bipartisan committees (the repeal of the Obamacare 1099 form requirement is an example). Rep. Sam Graves (R-Mo.) said the rule “threatens to drown small businesses in unnecessary regulatory requirements,” and called the revision one of the most “expansive and potentially damaging” proposals the panel has examined during his four-year tenure leading the committee. On the other side of the aisle, Rep. Kurt Schrader (D-Ore.) described the rules as an “abomination” and “a power grab for private property.”

New EPA rules may reclassify the meaning of “water” Written by Allen West on June 2, 2014

The National Association of Realtors® is strongly opposed to this redefinition of ‘navigable waterways’ by the EPA and will continue to work on behalf of private property rights.

Navigable Waterway.

The Last Word… So what do Realtors® do in D.C.? Well, we do what you might expect of the largest grassroots political advocacy group in the country, we lobby. And some would argue we lobby pretty effectively.

This year we had three primary issues we focused on:

• Preserving the mission of the FHA. Celebrating 80 years of helping people buy homes, the FHA played a critical role in helping move the nation out of the recent recession. Even in California, FHA loans went from single digits in 2005 to over 60% in 2011. However, recent increases in down payment have hampered consumers without adding to the FHA’s bottom line. Their recent drop, along with Fannie & Freddie, of conforming loan limits hit higher cost areas like ours especially hard and proposed bills like H.R. 2767 would impose further costs on consumers and reduce the role of the FHA. Conversely, S. 1376, the FHA Solvency Act provides additional tools to the FHA to better manage risk to taxpayers.

• Reform of the secondary mortgage market. Fannie Mae and Freddie Mac were created to ensure that creditworthy borrowers had access to affordable mortgage products. That formula worked for 70 years until Congress decided to dictate a new mission starting in the late 1990’s, which ultimately lead to them being taken over by the government in a massive bail-out scheme. Never mind that Fannie & Freddie have both repaid their loans, with interest, and are highly profitable today and contributing significant revenues to the federal government, moves are afoot to replace them with a new agency, the FMIC (imagine the FDIC only for mortgages). We agree that reforms are necessary to insure that in the future profits are not privatized while losses are borne by the public, but the backstop of the Federal government is necessary to reassure the market, to reassure private mortgage lenders and to provide stability and liquidity to the secondary market.

• Preserve real estate related tax policies. These provisions include

• Preservation of the mortgage interest deduction, which has helped make homeownership more affordable for more than a century. We oppose bills like the PATH Act which proposes to severely limit or eliminate MID on both primary and secondary residences.

• Maintaining property tax deductions so homeowners are not double-taxed on their homes.

• Retaining the mortgage debt forgiveness tax relief so homeowners who short sale their homes will not be subject to taxation on the phantom income of forgiven debt. While California is not subject to this thanks to a 2010 bill sponsored by the California Association of Realtors, the federal bill expired the end of 2013. This has had a deleterious impact on prospective short sales across much of the country, encouraging homeowners to go to foreclosure rather than short sale.

• Allowing Like-kind exchanges to continue. This has long been a key part of a high percentage of investment related real estate transactions. Repeal of this provision would harm economic growth.