February 21, 2013

With your host… Gene Wunderlich

Debt Crisis in EuroZone

Oil Price Spikes

2013: A Year of Economic Wild Cards

Arab Spring

Political Change

/ CA

supermajority

Debt Limit Ceiling &

Downgrade of US Debt

Stock Market

Volatility

Fiscal Cliff

• Federal Economic Policy • Regulations • Mortgage Interest Deduction • Strategic Foreclosures • Future of GSE’s

• Lenders • Short Sales • Foreclosures • Interest Rates • Inflation • Shadow Inventory • Global Economy • Unemployment

Unprecedented era of government involvement in housing

“Just because you don’t take an interest in politics doesn’t mean politics won’t take an interest in you.”

Pericles: 500 B.C.

If you don’t have a seat at the table… You’ll probably be on the menu.

Wunderlich Codicil: 2000 A.D.

You may still be on the menu, but hopefully we can keep you from being the main course

2012 addendum

NAR: The largest grassroots Political Action Group in this country.

"These groups are powers in Washington. The National Association of Realtors gave more money than any other group to candidates in the last election ($11+ million). Its 1.1 million members can do a lot of lobbying."

CAR: The most effective business advocacy group in Sacramento.

Red State? Blue State? Under all is the land…

Realtor® Preamble

May 2012 12,000+ Realtors® Rally for the American Dream

The Realtor® Home Washington D.C.

So how is the housing market?

0

50

100

150

200

250

3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12

Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

Southwest California Homes Single Family Homes

Unit Sales

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

7,692

8,475

6,654

4,015

8,450

9,665

8,264

7,596

8,004

Southwest California Homes Annual Sales Volume

Single Family Homes

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

962 1,038

1,287

999

494

1,405

1,805

1,405 1,270

1,165

Lake Elsinore Annual Sales Volume

Single Family Homes

CA Median Price of Existing Detached Homes • November 2012: $349,300, Up 24.8% YTY

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 P: May-07 $594,530

T: Feb-09 $245,230

-59% from peak

11/12 $349,300

+30% from trough

SOURCE: California Association of REALTORS®

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

$400,698

$461,437

$499,147

$452,888

$288,822

$234,974 $247,648 $241,438

256,539

Southwest California Homes Median Price

53% drop

9% gain

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$230,115

$323,681

$391,725

$433,996

$377,597

$230,459

$174,666 $187,347 $180,856 $187,696

Lake Elsinore Median Price

60% drop

7% gain

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12

Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake

Southwest California Homes Single Family Homes

Median Price

January over January prices rose

• 30% in Lake Elsinore ($162,622/$233,280), • 18% in Canyon Lake ($233,445/$284,577), • 17% in Menifee (161,143/$195639), • 15% in Temecula ($286,246/$334,928), • 12% in Murrieta ($259,975/$294,929) • 9% in Wildomar ($204,109/$225,299)

0

50

100

150

200

250

300

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

169

238

139

62

1.2

1.9

186

212

111

56

1.7

1.4

116

181

100

70

1.2

2.1

118

260

142

74

0.8

2.2

64

28

30

99

2.1

.9

26

59 3

4

55

0.8

2.8

Murrieta Temecula Lake Elsininore Menifee Canyon Lake Wildomar * Absorption rate - # of new listings for the month/# of sold listings for the month

Southwest California Homes January Demand

0

500

1000

1500

2000

2500

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

Southwest California Homes Inventory levels

2010 2011 2012

Active Inventory Down 74%

Since February

0

50

100

150

200

250

300

350

3/12 6/12 9/12 12/12

317

290

253

196

149

112 112 99 95

107 121

107

-66%

Lake Elsinore Inventory Level

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

3/12 6/12 9/12 12/12

.8 .9 .9

1.7 1.6

2.8

3.7

4.3

3.4

2.4

1.8 1.6

Lake Elsinore Absorption Rate

January 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 157 84% 59 53% 9 5% 15 14% 18 10% 34 31% Murrieta 138 82% 77 55% 14 8% 15 11% 16 9% 46 33% Wildomar 17 65% 13 38% 5 19% 6 18% 4 15% 14 41% Lake Elsinore 86 74% 45 45% 10 9% 14 14% 18 16% 36 36% Menifee 77 65% 73 51% 18 15% 18 13% 19 16% 46 32% Canyon Lake 55 86% 13 43% 4 6% 5 17% 4 6% 11 37% Regional Average 530 76% 280 52% 60 8% 73 14% 79 12% 187 35%

What lies ahead?

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

California

US

CA Price Trend

CA Prices Still Below Trend Line Spells Opportunity

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Pent-Up Demand for Housing is Real Household Formation will Rebound with Jobs

11,400

11,600

11,800

12,000

12,200

12,400

12,600

12,800

13,000

13,200

13,400

30,000

31,000

32,000

33,000

34,000

35,000

36,000

37,000

38,000

2000-2001

2002-2003

2004-2005

2006-2007

2008-2009

2010-2011

In th

ousa

nds

Total Population, California Number of Households, California (right axis) Projected linear estimate Projection, based on U.S. 0.55% growth rate

377K

575

When it Does CA will Start Building Again 2012(p): 52,000 units, Up 10.4% from 2011

0

50,000

100,000

150,000

200,000

250,000

2005 2006 2007 2008 2009 2010 2011 2012P

Single Family Multi-Family

Household Growth: 220,000-250,000/yr.

SOURCE: Construction Industry Research Board

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1-06 3-06 5-06 7-06 9-06 11-06 1-07 3-07 5-07 7-07 9-07 11-07 1-08 3-08 5-08 7-08 9-08 11-08 1-08 3-09 5-09 7-06 9-09 11-09 1-10 3-10 5-10 7-10 9-10 11-10 1-11 3-11 5-11 7-11 9-11 11-11 1-12 3-12 5-12 7-12 9-12 11-12

US CA RivCo Lake Elsinore Temecula Murrieta

Unemployment

There’s two ways to reduce unemployment: #1 – put people to work #2 – people quit looking for work

Current US unemployment: 7.8% % of people out of work: 14.7%

SOURCE: Federal Home Loan Mortgage Corporation

Mortgage Rates at 50 Year Lows Fed will continue QE until U=6.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

FRM

ARM

Federal Funds

California Housing Market Outlook

Indicator 2008 2009 2010 2011 2012p 2013fSFH Resales (000s) 441.81 546.86 492.29 497.86 523.25 530

% Change 27.3% 23.8% -10.0% 1.1% 5.1% 1.3%Median Price ($000s) 348.5$ 275.0$ 305.0$ 286.0$ 317.0$ 335.0$

% Change -37.8% -21.1% 10.9% -6.2% 10.9% 5.7%

30-Yr FRM 6.0% 5.1% 4.7% 4.5% 3.8% 4.0%

1-Yr ARM 5.2% 4.7% 3.5% 3.0% 2.8% 2.8%

Signs of U.S. Housing Recovery

1. Prices have bottomed! 2. Home equity up 20% last year to $7.71Trillion

as rising prices begin to reverse negative equity

3. New and Existing Home Sales at four- year highs

4. Low inventory across the board 5. Housing starts at four-year high 6. Threat of shadow inventory fading as

delinquencies, foreclosures decline 7. Foreclosure starts at 6 year low

But there a few issues…

1. Mortgage rates are low but credit is tight 2. “Defensive” Lending is prevalent 3. Appraisals lagging today’s market 4. Listings are scarce:

– Underwater homeowners are stuck – Investors are renting instead of flipping – Some sellers still don’t get it

The Political Economy

• Fiscal Cliff Averted but Tax and Spend Decisions Await – 60 Day Deadline

• Tax Reform: •Mortgage Interest Deductibility •Mortgage Debt Forgiveness

• Future of Fannie and Freddie • Future of FHA

Opportunities at the Local Level… Coalitions!

• Murrieta-Temecula Group

• EDC of Southwest California

• Southwest California Legislative Council •Temecula Valley Chamber of Commerce

•Murrieta Chamber of Commerce

•Wildomar Chamber of Commerce

•Lake Elsinore Valley Chamber of Commerce

• Building Industry Association

• Apartment Managers Association

• Property Mangers Association

• Southern California Escrow Association

• California League of Cities

• City of Temecula

• City of Murrieta

• City of Lake Elsinore

• City of Wildomar

• City of Menifee

• City of Canyon Lake

• Riverside County

• Riverside County D.A.

• NSDAOR, TIGAR, IVAOR

• Commercial Real Estate

5 years from now

there will be people who say

“I wish I would have bought

a home in 2013.”

http://www.slideshare.net/genewunderlich