Retailers feeling real estate woes

By: CHRIS BAGLEY - Staff Writer | Thursday, August 16, 2007 11:21 AM PDT ∞

Reports from local governments show that a slumping housing market is weighing on retailers in Southwest County as mortgage payments rise and home-equity loans vanish.

On the whole, the reports from Lake Elsinore, Murrieta and Temecula show a retail scene that is continuing to expand, with taxable sales growing by 3.6 percent to an annual $45.7 billion. But that growth fell short of the 5.8 percent growth in the number of residents. The combined population of the three cities grew to 243,000 as of Jan. 1, according to state figures, with Lake Elsinore seeing the largest increase.

That means individual consumers are spending less, a recent trend that an economist blamed squarely on weakness in local real estate markets. The average sale price of existing houses in Southwest County has fallen by about 7.5 percent since May 2006, from $500,000 to $463,000, according to The Californian's analysis of figures from a real estate agents' database.

As a result, fewer consumers are able to take out the large home-equity loans that were helping them buy ski boats, monster trucks and swimming pools in 2004 and 2005.

"They were using their homes as an ATM machine, and using cash from refinancing," said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. "People sold their Hondas and bought Lexuses."

The burden has been particularly heavy in Temecula. Meanwhile, Murrieta's retail scene has just managed to keep pace with growth in population, and Lake Elsinore's taxable retail sales have grown even more rapidly, according to the reports. The most recent reports, released last week, detail the three cities' retail sales in the first three months of the year and the tax revenue that the resulting tax revenue received in April, May and June.

In Temecula, the area's retail hub, shoppers spent $2.66 billion from April 1, 2006, through March 31, 2007, about 2 percent less than in the previous 12 months, according to reports from that city. Shoppers spent $1.13 billion in Murrieta, about 6 percent more than in the year-earlier period.

While business increased modestly in most types of stores, the slowdown in the construction and real estate industries hammered home-furnishing and lumber stores. Even with the appearance of a large new furniture mall off of Los Alamos Road, the combined sales from the two sectors fell by about 12 percent in Murrieta, to about $195 million. The decline has been even more dramatic in Temecula. Adibi pointed to dwindling numbers of home-equity loans and a dramatic dropoff in the number of families moving into new and existing homes.

Teri Ferro, Murrieta's finance director, said a series of new stores in Lake Elsinore has also had a big effect, both there and in Murrieta. Lowe's and Home Depot opened large building-supplies stores off Central Avenue early last year. Costco, a membership warehouse, and Target, a discount store, have opened in the city since then.

"People who might have come from Wildomar and Lake Elsinore in the past are now staying up there," Ferro said.

The new stores helped Lake Elsinore rake in $7.84 million in its 2006-07 fiscal year compared to $6.42 million in the previous year, according to a city report. Those numbers represent the city's 1 percent share of implied sales of $784 million between April 2006 and this March, a whopping 22 percent more than in the preceding 12 months. The city's population grew by 15 percent in 2006 to 47,600 on Jan. 1, the California Department of Finance estimated.

Neither the state report nor the cities' numbers include non-incorporated areas of Riverside County.

Shoppers' dwindling numbers have also dinged most of the dozen car dealers along Ynez Road, which contribute more to Temecula's bottom line than any other type of retail business. Dealers in the city did about $220 million in business from October to March, down from about $243 million in the year-earlier period.

With sales taxes accounting for 30 to 40 percent of local governments' revenue, the housing slowdown is being felt across California, except for only a handful of fast-developing communities such as Lake Elsinore, Adibi said. Officials in Murrieta and Temecula have said conservative spending habits are helping them ride out the downturn.

"It's time to tighten the belt," for local governments that haven't done that, Adibi said. "Cities and counties should expect to see a very, very soft increase in taxable sales through the end of 2008."

-- Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.

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Pre-Registration Comments[-]Go to Top

dog_pile wrote on Aug 16, 2007 1:13 AM:HUH? But George Chamberlin just said... http://nctimes.com/articles/2007/08/12/business/chamberlin/16_00_348_11_07.txt Rutroh!!!!

robert wrote on Aug 16, 2007 3:00 AM:LMAOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO LOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOL HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA HEEHEEHEEHEEHEEHEEHEEHEEHEEHEEHEEHEEHEEHEE HOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHOHO

Mike wrote on Aug 16, 2007 7:31 AM:Mr. Albi's last quote nailed the required action during this downturn. These trends should be a wake up call to our tax-and-spend local government bureaucrats that the party is over for them too. Reduce government spending folks.

Matter of time wrote on Aug 16, 2007 7:48 AM:Temecula's numbers will continue to go down as all the new shopping centers are going up. Boo hoo. I'm so upset.

Economics 101 wrote on Aug 16, 2007 8:17 AM:I wonder how many bozos are still laughing now about real estate agents and the mortgage industry getting burned? Yesterday, a couple of NC Times blog posters were celebrating the news that the real estate and mortgage industry are taking a major hit as sloppy subprime loans and mortgage fraud sink the real estate market. The ripple effects caused by this mess are quite obvious and this news story by Chris Bagley illustrates just how connected the economy is. People are going to be hurt by this whether they work in real estate or not. How many people will be laid off by auto dealers? How many people will be laid off by hardware and home improvement businesses? Remember, these are businesses in your community and many of your neighbors, friends and family are probably tied to these businesses that are now being negatively impacted by the subprime loan/real estate meltdown. There is NOTHING to laugh about here. Fasten your seatbelts, this is going to be a bumpy ride!

MoE wrote on Aug 16, 2007 9:04 AM:This is great news!! Who wants to live in an armpit of a town like TeSMECula anyway? Like rats abandoning a sinking ship, it's nigh time to get out of Dodge! Let TeSMECUla return to being a one-stop-sign dirtbag of a town!

Jsten wrote on Aug 16, 2007 9:07 AM:No kidding?

ed wrote on Aug 16, 2007 9:18 AM:lmaooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooool haaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaah hoooooooooooooooooooooooooooooooooooooo yeaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

How stupid wrote on Aug 16, 2007 9:33 AM:of these people to buy boats, cars and pools with their equity. No wonder everyone in Murrieta drives a new suv, it's borrowed money from their equity. So sad that they feel they have to have all these things to be worth something. I enjoy living a simple life with lots of money in savings. Sure makes my life stress free.

GFN wrote on Aug 16, 2007 10:05 AM:The true root of the problem is the lack of respect and awareness of how much the federal government is spending in Iraq. There is no govenment money to be lent anymore. Baaadddd times ahead.

Mark wrote on Aug 16, 2007 10:13 AM:This is a sad consequence of the sub-prime loans that millions of Americans were drawn into. It's a shame really.

To How Stupid wrote on Aug 16, 2007 10:26 AM:But just think, now they truly are self-validated, worthy of the "armpit" known as "TeSMECula." Bankruptcy is a small price to pay for a sense of self-worth, however fleeting it may be. Now let's dig deep, raise taxes for the rest of us, and bail them out so they can keep their precious toys. (You can tell I'm a democrat, eh?)

vee wrote on Aug 16, 2007 11:39 AM:let note that this trend also takes a toll on people in San Diego county. The industry if falling so fast. People are loosing jobs & homes. Not everyone upgraded to the SUV's and boats but they are still feeling the pain. Elections cant come any sooner?

Proud to live and invest in Temecula wrote on Aug 16, 2007 12:03 PM:Great article! This falls in line with the UCLA Anderson report. There was a recession in early 1990s and we recovered unscathed. I believe that the market is now taking a down turn mainly due to the sub-prime loan defaults of 2/28 ARM & the fraud applied to take these type of loans. The banks and loan brokers got richer and many of these people are now losing their homes. I hope there is some change in this type of loan practices. Otherwise, we will never get out of this recession.

Laughing from SD County wrote on Aug 16, 2007 12:53 PM:Wow, prices only have to drop 47% more before homes in Temecula/Lake Elsinore/Murrieta are selling for what they are really worth!

it would be cool wrote on Aug 16, 2007 12:57 PM:to know what percent of mortgages in temecula murrieta etc are subprime, alt-a, prime, and how much of those are defaulting. maybe theres a good percentage of defaulting subprime, but not enough to knock down the local economies.

Concerned-1 wrote on Aug 16, 2007 1:00 PM:Our economy is based on a complex network of interlinking forces. The initial real estate slow down in late '05, triggered the mortgage tremors which have led to stock market jitters, etc. None of it is good but the thing to remember is we will survive, even if the dominoe theory prevails.

Concerned-1 wrote on Aug 16, 2007 1:04 PM:It never fails to amaze me that whenever there's a story on real estate failing in Southwest Riverside County, a plethora of ignorant people come out of the woodwork to gloat and make dim-witted posts.

Dim-witted posts, like... wrote on Aug 16, 2007 2:14 PM:...'The initial real estate slow down in late '05, triggered the mortgage tremors which have led to stock market jitters, etc.' Whatever that means! Do some people talk just to hear themselves?

hold on tight wrote on Aug 16, 2007 2:40 PM:I've worked in the mortgage industry for the last 11 years, and I've never seen anything like this. The market conditions now are worse than the dotcom bust, the 80's savings and loan scandal and the recession in the early 90's...In fact the CEO of countrywide stated, the market conditions are worse than they have been since the great depression...the fed has down a good job so far hiding it to avoid panic, but the cat is coming out of the bag. The next few years are going to be rough for everybody, not just mortgage lenders and the real estate market/homeowners. This is going to hurt everyone, and especially sourthern CA

On the cusp wrote on Aug 16, 2007 5:54 PM:Those on the 'cusp' of finally saving enough to buy a FIRST home, are seeing their hard work dissolve/leaving them almost homeless. Those near retirement, who have diligently saved for 40 years, counting on selling their San Diego Homes to add to retirement, are virtually left destitute, all their planning and saving dissolved to pennies on the dollar. Excellent credit borrowers are left out in the cold now, whereas just a few years ago unscrupulous brokers and lenders gladly doled out 'stated income' and subprime loans Those are the culprits in this mess. Add to that the escalating HEALTH care industry cutting 'elective surgeries' and raising premium rates above 'sane' limits - out of reach of almost everyone except teachers and gov. workers. People will DIE, be ignored, more homeless will walk the streets, and this country will join the '3rd world' of poverty and crime. If you didn't buy a home for YOUR KIDS years ago, forget them ever staying in their home community. Who to blame? BUSH? Your congress, Senate, the war, illegals? Doesn't matter really - none of these obvious problems have been solved or even addressed with common sense. Build more golf courses for billions (Carlsad) and of course more casinos to drain what's left of the family income. No wonder Japan rules!

tax cuts got the credit wrote on Aug 16, 2007 6:15 PM:They used to credit tax cuts for the previously booming economy. Now the truth comes out. Home equity ATM machines, hahhahahahahaha I went through the boom driving my same piece of crap car, watching the same piece of crap TV. Now that the boom is over my rental property is generating more money than ever. I think i will buy a monster truck. NOT hahahaha got you!!!!!!!!!!!!!!!

Dave wrote on Aug 16, 2007 6:50 PM:Bush fiddled while Rome burned.

Common Sense wrote on Aug 16, 2007 6:55 PM:Damn shame. It's so hard to get by these days. The government should give everybody money to maintain their faux riche lifestyles - NOT. I love all the people commuting to San Diego in monster trucks. Hahahahaha! They're paying for those trucks and the gas that goes in them with 30 year home loans! Wait a couple of years until gas is $5 per gallon and then see how bad things will get in Trafficula.

not amused wrote on Aug 16, 2007 9:41 PM:I am a stable homeowner, nice big house, have a great loan which is not in danger of default, drive an SUV, and I even commute. I think that those of you that laugh at others as broadly as you are, reflect very poorly on you all. What a bunch of hindsight is 20-20 financial pros we have here. What shall we do to solve this? Get out of Iraq or have Temecula drop off the planet? Yes people are losing there homes. Let's have a parade.

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