Mixed Messages On Recovery March was generally a good news month for the local housing market – and a much needed boost for both sales and prices. We hope it’s the beginning of a recovery, or a trend, or at least a few months of good news.

However, the general outlook is more mixed as you’ll see in some of the attached articles. The first article points to stalled consumer housing sentiment while the second article, by the same author the next day, points to a surge in demand. How do you make sense of that? Esmael Adibi, Director of the Gary Anderson Center for Economic Research at Chapman University says the first quarter was ‘way below expectations’ but overall ‘not too bad’. He believes we’ll see much better numbers for the economy the rest of the year. If bad numbers are ‘not too bad’, would better numbers be ‘not too good’?

And based primarily on job growth reports, you’d have to agree that certainly part of the economy was recovering nicely even if that had not yet translated to a strong housing market. But then March job numbers came out and poked some holes in that recovery. Turns out job growth had not been as strong as reported in the previous months (the dreaded ‘downward revisions’) and March was not only dismal but again, ‘way below expectations’, jolting a number of rosy forecasts. In fact when you look at the real numbers under the reported 5.5% unemployment statistic, you realize that actual labor force participation dropped again by nearly 100,000 jobs, leaving job force participation at just 62%, its lowest level since the 1970’s.

So people feel a little optimism when unemployment declines but then get even more pessimistic when they realize those numbers are bogus, especially if they’re out of work and have given up trying. And then the Fed steps in hinting that interest rates will finally rise off the floor maybe about mid-year and that sends the market into another funk. It’s a funny thing that the market only looks strong enough to raise interest rates when people don’t think they will. As soon as it looks like rates will rise, the economy stumbles and the Fed has to back off.

I can tell you that after a dismal January and a slightly stronger February, March home sales jumped by over 30% locally. For the region we sold 614 single family homes in January, 636 in February and 934 in March. Sales were up in almost every city with Temecula enjoying its best month since July of 2013. For the quarter regional sales were up 2% (2,146/2,184) and prices edged up 3% over Q1 2014 ($289,868/$299,130).

Between a drop in inventory and the increase in sales, demand jumped 32%, homes remained on the market fewer days and inventory of available homes fell from 4 months to 2.7. That should put us directly in the center of a strong Sellers market, but your average Seller is just not aware of that and most Buyers still think they’re in the drivers seat. It’s a funny market.

Demographics tell us we’re in a good place. Our region is adding jobs, we’re still an affordable oasis bordering several faster appreciating areas (buying a median price home in Manhattan Beach requires an income over $300,000), the cost of gas should stay low all summer, perhaps encouraging people to buy here while working there, and our cities and schools continue to perform well (at least most of them).

But one good month does not make a trend any more than one bad one, so we’ll hold off judgment for at least another month or two and see where this market takes us. The wild card today is WATER. Increases in water rates could offset savings on fuel costs and any impact on the nascent building industry could rock our market.

Figuring that out is way above my pay grade.

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)

March 2014

934 636 872 32% 7%

Median Home Price

$302,569 $300,847 $294,120 1% 3%

Unsold Inventory Index (SFR Units)

2,294 2,378 2,105 4% 8%

Unsold Inventory Index (Months)

2.7 4 2.8 32% 4%

Median Time on Market (Days)

78 83 72 6% 8%

Source: CRMLS

March Median Price: 2014 2015 %

Temecula $426,256 $431,543 1%

Murrieta $379,234 $374,619 1%

Menifee $254,949 $284,426 11%

Lake Elsinore $285,043 $288,231 1%

Wildomar $323,501 $335,944 4%

Canyon Lake $419,653 $355,613 15%

Hemet $183,401 $196,419 7%

San Jacinto $191,126 $201,867 5%

Perris $237,185 $254,461 7%

March 2015 Transaction Value*: Temecula $85,013,873 Lake Elsinore $28,246,598

Murrieta $61,812,092 Wildomar $9,070,499

Menifee $40,104,130 Canyon Lake $8,543,700

Hemet $28,087,914 San Jacinto $12,112,018

Perris $20,102,435 Perris $20,102,435 * Revenue generated by single family residential transactions for the month.

February 2015 Transaction Value*: Temecula $46,792,747 Lake Elsinore $16,407,892

Murrieta $45,373,088 Wildomar $7,618,900

Menifee $28,859,814 Canyon Lake $6,727,400

Hemet $19,820,010 San Jacinto $7,687,700

Perris $16,495,454 Total $195,783,005 * Revenue generated by single family residential transactions for the month.

0

50

100

150

200

250

3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14 3/15

Southwest California I-15 Corridor Single Family Home Sales

Temecula Murrieta Lake Elsinore Wildomar

0

20

40

60

80

100

120

140

160

180

200

3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14 3/15

Southwest California Homes I-215 Corridor Single Family Sales

Menifee Canyon Lake Hemet San Jacinto Perris

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14

Southwest California Homes I-15 Corridor Single Family Homes

Median Price

Temecula Murrieta Lake Elsinore Wildomar

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14

Southwest California Homes I-215 Corridor Single Family Homes

Median Price

Menifee Canyon Lake Hemet San Jacinto Perris

0

100

200

300

400

500

600

2010 2011 2012 2013 2014 2015

Temecula Murrieta Menifee Lake Elsinore Wildomar Canyon Lake Hemet San Jacinto Perris

1st Quarter Run Rate SFR Sales

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

2010 2011 2012 2013 2014 2015

Temecula Murrieta Menifee Lake Elsinore Wildomar

Canyon Lake Hemet San Jacinto Perris

1st Quarter Run Rate Median Price

0

50

100

150

200

250

300

350

400

450

On Market (Supply)

Pending Closed (Demand) Days on Market Months Supply Absorption rate *

402

183

165

78

2.4

106%

422

202

197

75

2.1

112%

410

204

143

77

2.9

91%

343

194

141

66

2.4

101%

229

113

98

91

2.3

113%

145

93 6

0

72

2.4

122%

114

30

24

107

4.8

59%

72 4

4

27

58 2

.7

73%

Murrieta Temecula Hemet Menifee Lake Elsininore San Jacinto Canyon Lake Wildomar

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

March Demand On Market -4% Pending 11% Closed 32% Days on Market 6% Months Inventory 32% Absorption 32%

Month over Month

Demand surged in March back to numbers we haven’t seen in months as more homes sold than were listed during the month. For every new listing that came on the market, 1.06 homes sold in Temecula, 1.12 in Murrieta and 1.22 in San Jacinto. That lead to a 4% drop in inventory and a reduction in both days on market and months of active inventory.

In addition to strong closings, pending sales, that precursor of future sales, were also up.

I’m hearing from a few agents that the market is ‘HOT’ right now. Of course there are always a few agents for whom the market is hot.

There are also a few agents who will tell you the market is hot whether they mean it or not. They buy into the notion that you ‘fake it until you make it’ so if they convince themselves the market is hot, sooner or later their production will follow suit.

The agents who are selling nothing aren’t saying much either way. But in an area with some 5,000 Realtors, not counting those from Orange, LA or San Diego County that carpetbag, 900 sales produces 1,800 paychecks. You do the math.

But enough about the plight of Realtors – it’s definitely better news for homeowners hoping to sell. And with prices edging up, more and more homeowners are seeing some equity build up in their home. The number of distressed properties dropped back to 10% but we’ll still be watching for that number to climb some as loan modifications reset to higher interest and/or interest PLUS principle . That will be a real jolt for some homeowners and as many as 63% of those with loan modifications are still underwater. Time will tell.

0

500

1000

1500

2000

2500

1/12

2/12

3/12

4/12

5/12

6/12

7/12

8/12

9/12

10/1

2

11/1

2

12/1

2

1/13

2/13

3/13

4/13

5/13

6/13

7/13

8/13

9/13

10/1

3

11/1

3

12/1

3

1/14

2/14

3/14

4/14

5/15

6/14

7/14

8/14

9/14

10/1

4

11/1

4

12/1

4

1/15

2/15

Inventory Sales

Inventory v. Sales

March 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 397 94% 176 89% 11 3% 7 4% 7 2% 11 6% Murrieta 367 91% 149 90% 16 4% 5 3% 5 1% 7 4% Wildomar 67 93% 23 85% 3 4% 3 11% 3 4% 1 4%

Lake Elsinore 204 89% 82 84% 4 2% 5 5% 5 2% 7 7% Menifee 310 90% 120 85% 8 2% 8 6% 8 2% 7 5%

Canyon Lake 109 96% 23 96% 2 2% 0 0% 0 0% 0 0% Hemet 365 89% 122 85% 19 5% 13 9% 13 3% 5 3%

San Jacinto 117 81% 57 95% 8 6% 5 8% 5 3% 6 10% Perris 133 85% 66 84% 6 4% 10 13% 10 6% 1 1%

Regional Average 2069 90% 818 88% 77 3% 56 6% 56 2% 45 5%

Fannie Mae: Slow Wage Growth Stalls Consumer Housing Sentiment Author: Brian Honea April 7, 2015

The optimism expressed by consumers toward the economy and the housing market at the beginning of the year has stalled as consumers' attitudes toward personal finances and wage growth have taken a step backward, according to Fannie Mae'sMarch 2015 Housing Survey released Tuesday.

Whereas February's survey showed that consumer optimism toward the economy was at an all-time high, March's survey painted a different picture. The March employment summary released last week by the Bureau of Labor Statistics (BLS) showed only 126,000 jobs added for the month, which was less than half of the monthly average (266,000) for the 12 previous months, may have played a role in the lack of growth in consumer optimism. That same BLS March employment summary reported an average wage gain of just 2.1 percent year-over-year up to $24.86 per hour.

“Consumers are being patient prior to entering the housing market. Our March survey results emphasize how critical attitudes about income growth are to consumers’ outlook on housing,” said Doug Duncan, SVP and chief economist at Fannie Mae. “We've seen modest improvement in total compensation resulting from a strengthened labor market. However, income growth perceptions and personal financial expectations both eased off of recent highs, consistent with Friday’s weak jobs report."

Housing Data Shows Surge in Demand, Median List Prices Author: Brian Honea April 8, 2015

An early look at the realtor.com national monthly housing data, which is based on the first three weeks of March, showed that housing demand is surging and median list prices are rising faster.

The median age of inventory declined by 13 percent month-over-month in March despite a 2 percent increase in inventory for that same period, according to realtor.com. Meanwhile, the median list price for a home rose nationally by 3 percent month-over-month and 11 percent year-over-year up to $220,000 for March.

“It’s still a seller’s market,” said Jonathan Smoke, realtor.com chief economist. “Realtor.com data shows that supply is not keeping pace with surging demand. We expect rising prices to persuade those who may be on the fence about listing their homes to do so in the coming months, leading to closer parity between supply and demand.”

The realtor.com data concurred with Fannie Mae's March 2015 Housing Survey, which also showed signs of a seller's market. The percentage of respondents in Fannie Mae's survey who said they believe now is a good time to sell reached an all-time survey high of 46 percent while the percentage of people surveyed who said now is a good time to buy declined slightly to 20 percent, possibly indicating a move toward a more balanced housing market.

Smoke determined the 20 hottest housing markets in the nation based on the number of listing views relative to the number of listings when looking at March data and website traffic. Realtor.com said these markets should see plenty of activity in the next few months as homebuying season gets underway. The top 20 markets were: 1. Waco, Texas; 2. New Orleans-Metairie, Louisiana; 3. Ann Arbor, Michigan; 4. Denver-Aurora-Lakewood, Colorado; 5. Santa Rosa, California; 6. Fort Wayne, Indiana; 7. Vallejo-Fairfield, California; 8. San Diego-Carlsbad, California; 9. Columbus, Ohio; 10. Detroit-Warren-Dearborn, Michigan; 11. Manchester-Nashua, New Hampshire; 12. Boston-Cambridge-Newton, Massachusetts-New Hampshire; 13. Austin-Round Rock, Texas; 14. Boulder, Colorado; 15. Springfield, Illinois; 16. Charleston, West Virginia; 17. Pittsburgh, Pennsylvania; 18. Tampa-St. Petersburg-Clearwater, Florida; 19. College Station-Bryan, Texas; and 20. Lansing-East Lansing, Michigan.

A dip or a blip? The jobs boom went bust in March* Matt O’Brien The Washington Post

It's been a tale of two recoveries the past few months. The jobs numbers said the economy was still strong, but all the other data said it wasn't. So you'd either think we were in the middle of one of the best years since the late 1990s if you only looked at the booming jobs reports, or in the middle of the same, slow slog we've been stuck in since the recession ended if you looked at consumer spending or durable goods orders. Well, after the economy added a disappointing 126,000 jobs in March, it's only looking like one recovery now. A weaker one.

It was pretty bad news all around. It wasn't just that the economy added 126,000 jobs in March when we'd been expecting 245,000. It was also that we lost 69,000 jobs in revisions to previous months. These tend to mark turning points in the economy. So the depressing message is that things weren't as good as we thought they were. Now, despite all this, the unemployment rate was unchanged at 5.5 percent, but, again, this wasn't cheery news. It was because the labor force shrank by 96,000. The total number of hours people worked also fell. About the only silver lining—and it might not be much of one—is that wages increased 0.3 percent. But you have to squint really hard to see any kind of pattern in the two-steps-forward, two-steps-back wage growth that we've had the past year or so. Over the last 12 months, wages have still only risen 2.1 percent.

Year's slow start should pick up pace

ORANGE COUNTY REGISTER EDITORIAL Published: April 6, 2015 Updated: 4:46 p.m.

How bad was the economic slowdown in this year’s first quarter? Fortunately, not too bad, Esmael Adibi told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University.

According to the Bureau of Labor Statistics’ new report, nonfarm payroll employment increased by just 126,000 in March, about half the 245,000 jobs expected. March unemployment remained stuck at 5.5 percent.

For California, the unemployment rate for February, the latest month recorded, was 6.7 percent, the third-worst among the states, ahead of Mississippi, at 7 percent, and Nevada, at 7.1 percent. On the positive side, California created 498,000 jobs for the year ending Jan. 31, the most for any state.

Mr. Adibi said the top reason for the first quarter being “way below expectations” was that given by may economists: the bad weather in most U.S. states, which especially hurt consumer purchases. He added other reasons were the West Coast port strike, which “created a hiccup in deliveries”; and the strong U.S. dollar, which “slammed exports.”

The good news is the weather is better, the port strike is over, and the dollar is weakening a bit. “We should be getting much better numbers the rest of this year,” he said.

Some areas of the economy are especially troubling. Labor-force participation dropped to 62.7 percent in March, the lowest level since the “stagflation” (stagnation plus inflation) of the late 1970s. That means millions of working-age people have just given up looking for work. And a record 12.2 million blacks are not in the labor force.

This recovery, although certainly better than a recession, remains the weakest since World War II. We urge the Republican majority in Congress, especially the Inland Empire’s contingent in the House, to advance bold tax-cut and other ideas to get the economy moving faster. They also need to rein in deficit spending, projected to be $458 billion this year.

Packing them in* BY JOEL KOTKIN / Staff columnist What kind of urban future is in the offing for Southern California? Well, if you look at both what planners want and current market trends, here’s the best forecast: congested, with higher prices and an ever more degraded quality of life. As the acerbic author of the “Dr. Housing Bubble” blog puts it, we are looking at becoming “los sardines” with a future marked by both relentless cramming and out-of-sight prices.

Market forces – overseas investment, a strong buyer preference for single-family homes and a limited number of well-performing school districts – are part of, but hardly all, the story. More important may be the increasingly heavy hand of California’s planning regime, which favors ever-denser development at the expense of single-family housing in the state’s interior.

The biggest losers, as usual, will be those people – working and middle-class families as well as minorities – who have looked to the periphery for housing opportunities and a chance for a better life. Los Angeles County is already a majority-renting community, and attempts to force densification in other counties could bring this reality to Orange, San Bernardino, Riverside and Ventura counties as well.

Where minorities can thrive

Until recently, the periphery has offered housing salvation for younger middle-income homeowners, particularly families. Homeownership rates are more than 25 percent higher in the Riverside-San Bernardino area than in the Los Angeles-Orange County area. Minorities also do much better. The homeownership rate inland is a quarter higher among African American and Asian households. The rate for Hispanics is nealy half again higher than in Los Angeles-Orange.

Some of the logic behind densification was based on the perception that the suburban dream is dead. Yet, despite persistent claims by planners and pundits, this turned out to be less a matter of altered market preferences than of temporary effects of the Great Recession. Roughly 80 percent of Americans still prefer single-family homes. So do Californians: In the past decade, single-family units represented the vast majority of all new homes built in the state.

Densification might well increase over time as some people prefer more urban lifestyles. But the opportunity to own a single-family home should not be limited to the very rich, or to aging baby boomers, by Sacramento bureaucrats and unelected regional planning agencies. Yet, precisely this is the inevitable result of the massive attempt at social engineering now advancing throughout the region and state.

* Excerpts only. For the full article please follow the title link.

Including distressed sales, the U.S. has experienced 36 consecutive months of year-over-year increases; however, the national increase is no longer posting double digits.