1. San Diego economy poised for rebound
Don’t know if you saw this recent article in The Californian headlined ‘San Diego economy poised for rebound’. The
article summarized a positive economic forecast for California and San Diego by US Bank CEO Richard Davis . Had
the article confined itself to the positive economic news as forecast it would have been a decent enough article as
articles in The Californian go, as articles by Eric Wolf go.
But the article ends with Davis expressing his ‘concern’ for housing in the Inland Empire and especially Temecula
and Murrieta – the ‘exurban’ areas. Citing high gas prices and a trend toward apartment renting in big cities, Davis
opined “We may have to raze a lot of houses. We may have built a lot of houses in the wrong place.”
Now according to his Forbes Magazine profile, Mr. Davis is a real whiz bang in the banking industry and heaven
knows I don’t have a competing profile in Forbes. But then again he is just a banking exec who lives and works in
Minneapolis but enjoys a visit to our sunny climes during the dead of the Midwest winter.. They may be ‘razing’
houses back in his neck of the woods but we haven't seen that in SoCal, and certainly not in Temecula/Murrieta.
So I decided that I would ask a couple questions about his supposition that any inquiring mind might want to know
– like where the hell did that theory come from, Dick? Because it doesn’t seem to comport with the reality on the
street in Southwest California. It’s no great revelation that the current havoc at the gas pumps will have an impact
on commuters but you have to ask (well, I have to ask, Eric didn’t feel the need) is it really forcing people to
abandon our affordable homes in the Wine County or Menifee to live in an apartment in the city? I’ve got a break-
down on that later in the report and the indication is that Mr. Davis should stick to what he knows best, which
apparently is not the housing market in Southwest California.
All right, got that of my chest. It apparently comes as quite a surprise to some that our housing market in
Southwest County is quite robust. Single family home sales were off just 1% in 2011 from our record setting pace
in 2010 when we sold more homes than ever before in Southwest California. Our prices continue to stabilize
within a narrow range and for the first time since late 2008, there are more active standard homes for sale than
distressed!. Looking at the absorption rate of single family homes in the region, our inventory of available homes is
down 20% from last February to just 3.3 months and last month we sold 1.1 homes for every 1 new listing that
came on the market. Raze homes? We should be raising homes. Maybe that’s what he meant.
Let’s see, last January we sold 481 homes – this January 561. Last February we sold 533 homes – this February 601.
Last February our regional median price was $227,173 – this February $233,190. Warm up the bulldozers? Actually,
Davis was right about warming up the bulldozers but for the wrong reason. You may recall my chart showing new
housing starts statewide with about 36,000 starts in 2009, 39,000 in 2010 and just 33,000 in 2011 – this in a state
that requires 125,000 housing starts a year to stay abreast of demand. Bulldoze lots for new homes, folks.
Jeez, I hope he was closer to the mark on his positive news for San Diego than he was on his housing news for
Temecula & Murrieta.
OK. Now it’s off my chest. Sorry, I just get a little defensive when people who can’t find our region on a Google map
pontificate about it like they had a clue. There’s a couple economists in the state that have the same problem.
Anybody who lumps the Southwest California economy or housing market in with the rest of Riverside County is
suspect to begin with. If they lump us in with the ‘Inland Empire’, they don’t even deserve a read.
Of course that’s just my opinion. I don’t even have a Forbes profile.

2. 250
Southwest California Homes
Single Family Homes
200
150
100
50
0
3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake
Sales are starting off the year strong. After the roller coaster year in 2010 with a strong start
based on the first time homebuyer tax credit, sales lagged during the last half to end the year
with a massive spike in December. 2011 didn’t show the spikier spikes nor the troughier
troughs yet posted a volume just 71 homes, or 1%, off 2010’s record pace.
This year is starting off 8% ahead of 2010 and 13% ahead of last year at this same time. If we
can continue this pace of strong sales and inventories continue to shrink, we could be looking
at the potential for sustained price appreciation later this year.

3. $400,000
$350,000
$300,000
$250,000
$200,000
$150,000
Southwest California Homes
$100,000 Single Family Homes
Median Price
$50,000
$0
3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11
Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake Linear (Murrieta)
Driven by drops in Temecula and Wildomar, median prices for the region are down 2% from
last year. However, prices continue in the same stable path they have charted since early in
2009 with moderate increases or decreases month over month while annual prices remain
flatlined.
Murrieta, Menifee and Lake Elsinore remain virtually even with their year over year median
and Canyon Lake continues it’s wild ride with peaks and valleys caused by the
disproportionate impact that a sale of a million dollar home has on their median. So far this
year there has one $1 million+ home sold in Canyon Lake and Temecula, two in Murrieta.
We desperately need to jump start that segment of our housing market in order to
encourage our move-up market and increase our median in a meaningful way.

4. 4
500 7 4
5 2 4
450 8 1
3
400
3
1 3
350 2
8 0
9
0
0
300
2
250 0
8 1
7
200 1 1
4 1
1 4 1 4
1 1
1 5 2 3 1 2
2 1
150 0 5 1 8
0 9 7 9 0
7 9 8 9 8
8 7 6
0 9
2
4 2 9 2
9 9
100 1 9 5
4
3 8
7 1 6 2 3 3 3 5 2
50 . . . . . .
9
7 0 2 3 6 0
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
Inventory continues to slide – down 9% from January and 19% from a year ago. With
available listings down and sales up, our months of supply has again shrunk to just 3.3
months.
From Temecula’s inventory we could back out the 48 homes listed in excess of $800,000, 47
in Murrieta and 13 in Canyon Lake. That’s abut 10% of the inventory in each of those cities
and the part of the market that is selling the slowest. With 1 $million dollar home sold in
Temecula in the past 2 months, that’s an 8 year inventory of those homes on the market, 4
years in Murrieta. So the 2.7 and 3 months of inventory showing is actually even less than
that.
As far as our ability to continue to absorb new inventories, as the banks keep threatening,
last month they sold nearly 1.5 homes in Murrieta for each new listing. In Temecula it was
1.1, 1.3 in Wildomar for an average absorption rate of 1.1 properties sold for each new
property listed.
Pending sales are off slightly this month indicating that March sales may be down by 8 – 10%
from February.

5. 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 239 57% 50 37% 48 11% 32 24% 135 32% 53 39%
Murrieta 276 59% 64 42% 33 7% 37 25% 160 34% 50 33%
Wildomar 48 52% 8 24% 14 15% 12 36% 31 33% 13 39%
Lake Elsinore 105 37% 25 32% 44 16% 29 37% 134 47% 24 31%
Menifee 171 43% 52 42% 59 15% 29 23% 166 42% 43 35%
Canyon Lake 69 66% 8 42% 13 12% 6 32% 23 22% 5 26%
Regional
Average 908 52% 207 37% 211 13% 145 29% 649 35% 188 34%
For the first time since late 2008, standard sales have pushed above the 50% threshhold for
active inventory. They’re still just 37% of the sold market but climbing. Bank owned homes
now make up just 13% of our active market, down over 70% since 2009. Nearly 70% of bank
owned home transactions are successful compared to 29% of short sales and 23% of
standard sales.
The last chart is a new one showing what so many of us have suspected or known ###. It
takes a little over 2 months to close the average standard sale but they are selling for as
much as 19% higher than bank owned homes across the region and up to 33% more than
short sales. A short sale in Temecula will sell for 31% less in, 12% in Murrieta and 42% in
Canyon Lake. A bank owned home will sell for 8% less in Temecula, 16% less in Murrieta.
Looking at the Average Days on Market (ADOM) you can see why short sales are not known
for their brevity. If you’re one of the lucky 30% to close a short sale it will take you nearly 4
times as long as it will to close on a bank-owned home, more than double the time required
to close a standard sale.
Days on Market v. Median Price
By Sales Type
Standard Bank Owned Short Sale
ADOM Median ADOM Median ADOM Median
Temecula 57 $318 48 $292 129 $251
Murrieta 80 $298 47 $249 138 $262
Wildomar 64 $247 45 $195 198 $202
Lake Elsinore 61 $205 46 $173 154 $173
Menifee 72 $185 43 $165 161 $161
Canyon Lake 115 $421 27 $279 230 $246
Regional Average 75 $279 43 $226 168 $216

6. The Last Word…
In my introduction, I cited a recent presentation by US Bancorp Chairman Richard Davis on the San Diego economy. I’ll credit
him with some assessments I consider valid – namely:
• The national economy is at ‘halftime’ with the worst of the recession behind us.
• California is already stronger and coming back faster than the rest of the country.
• Recovery will be slow – 5-7 years for job loss and GDP recovery.
• The housing market has a tough road ahead, in part due to overly restrictive lending policies.
• People would rather live in an apartment in the city than a house in the country.
Wait. What? Not according to a recent survey by Pew Research that found 81% of people still consider buying a home the ‘best
investment a person can make’. And another showing that 80% of apartment dwellers are hoping to buy a home at some
point. Sorry, Dick, not buying that one.
But it was his supposition that high gas prices will be driving citizens from our area, which, if the reporter is to be believed, he
called by name, saying ‘we may have built a lot of houses in the wrong place that we may have to raze’ that caught my
attention.
Hmmmm. Let’s see just how well that gassy supposition stands up, shall we?
For the sake of argument, let’s say a person lives in Murrieta and drives to San Diego to work every day – as many of our
residents do. According to Google that’s a 65 mile trip, or 130 miles a day. The price of gas is up almost a buck over last
year so let’s use $1.00 as the fuel differential in this equation. If you drive a reasonably fuel efficient vehicle you might get
32 mpg or you can drive an SUV and get 12 mpg so let’s use 20mpg as our baseline. That means today you are spending
$130 more per month to commute than you were a year ago. (130 miles X 5 days X 4 weeks / 20 mpg X $1.00 = $130).
$130.00
Now rather than use my own numbers, I’m going to use figures from Zillow so no one can accuse me of a local bias. Zillow says
the median price home in San Diego is $359,000 while in Temecula it’s $265,000 and $238,000 in Murrieta. We’ll split the
difference on those two and call it $251,500 for Southwest California.
By the numbers, a principle and interest payment on the place in San Diego will be $1,713.92 while the place in SWCal will be
$1,200. At that rate, you can spend the extra $130 for gas every month and still have $383 left to take your family to
dinner a couple times – as long as you don’t drive to San Diego for dinner. (Home price / 30 year term X 4% interest).
But lets look at a more plausible scenario – because aside from our great climate, well run cities, award winning schools and
low crime rate, people move here because nice housing is more affordable – waaaay more affordable.
Again according to Zillow, the average price per square foot for a home in San Diego currently stands at $246/SqFt. In
Temecula that same figure is $119/SqFt and in Murrieta it’s $104/SqFt. Let’s meet in the middle at $111 for our
hypothetical SWCal home, OK? Now last month the average home sold in SWCal was 2,332 Square Feet. That means it sold
for $258,852. If you were to buy that same home in San Diego it would have set you back $573,672.
Just for giggles, let’s do the math on that one. To buy an average 2,332 SqFt home in Temecula or Murrieta you’d expect to
drop $1,235.80 for your monthly payment. That same 2,332 SqFt home in San Diego, would set you back $2,738.80/month
just for principle and interest. We won’t even add taxes and insurance to that, nor will we factor in the additional difficulty
in qualifying for ½ million dollar loan or the problem you’d have finding a jumbo mortgage today.
Now let’s add in that extra $585/month you’d be spending for gas (130 miles X 5 days X 4 weeks / 20 mpg X $4.50/gal = $585).
Now I’m no banker but my smoking calculator tells me I could buy my nice big house in Temecula, drive to my job in San
Diego and still pocket over $900 bucks a month differential. Sorry, Dick, having a little trouble with your math here.
Let me just make one final point. Unfortunately Mr. Davis’ supposition plays right into the hands of what some in the real
estate industry have been concerned about for the past 3 years – namely that it is the agenda of some in this
administration to devalue housing and decrease the prevalence of homeownership. Articles I’ve cited here in the past from
Time Magazine, Fortune, The Wall Street Journal and others have pointed to this bias toward an effort to increase renters
and reduce owners. Why? Well, renters typically have shallower roots in their community and are therefore more mobile
so they can relocate in pursuit of job patterns. They are also more malleable – they have no ownership interest , have less
interest in protecting private property rights and are more easily sold on some issues – like the ‘unfair’ preservation of the
mortgage interest deduction or capital gains that favor homeowners over renters. Not saying Mr. Davis is part of the plot,
just saying…
Ah well. What do I know? I’m just a small town Realtor. My numbers are probably incorrect and my theories suspect.
Of course that’s just my opinion – I could be wrong.

7. 8 in 10 Americans (STILL) Agree:
Buying a Home is the Best Investment One Can Make
8 in 10 Renters Would Like to Buy in the Future
Survey says…
There is no ‘trend’ toward
people preferring to rent
an apartment in the city
rather than own a home
in the ‘exurban areas’.
Sorry Dick
“…renters are hardly immune to the allure of homeownership, even in
the face of the five-year decline in prices. Asked if they rent out of choice
or because they cannot afford to buy a home, just 24% say they
rent out of choice.”
SOURCE: Pew Research Center’s
“Home Sweet Home. Still. Five Years After the Bubble Burst”