Equal Housing Opportunity
AV News Briefs - By Frank Donato
 

Frank Donato is a long time Valley Resident and Businessman, and a V.P. Account Manager for Fidelity National Title. Frank currently serves as A.V.E.K. Water Board Director (since 1987), and has served as A.V. Fair Director (1997-2001) and North County General Plan Advisory Council Member (1981-1986). Frank is also a Wine Grape Grower and Consultant and Owner/Partner of Antelope Valley Winery. We thank Frank for sharing his knowledge and unique perspective on current issues!

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First Quarter 2003 AV News Briefs: January February March

January 2003 - AV News Briefs:

2002 Overview of the Antelope Valley


2002 was a great year of growth for the AV!. Two new & huge Wal-Marts opened up, one in east Lancaster and one in east Palmdale.

Wal-Greens also opened two new stores, one in east Palmdale and one in west Lancaster.

Countrywide Credit moved into their 105,000 sq. ft loan center in the Lancaster Business Park. The largest "spec" industrial building ever built in the AV, some 60,000 sq. ft, was successfully leased, attracting yet another business away from the Valencia area.

Costco began its relocation in earnest, to the NWC of 10th St. West and Ave. L.

US Pole moved into their new manufacturing plant in the Fairway Business Park, in west Palmdale.

Northrop Grumman opened up site 4 at Plant 42, and turned it into a manufacturing center, taking on three projects simultaneously, with workers going from project to project to cut costs.

New retailers announced their intent to come to the AV- T. J. Maxx, Dress Barn, Bed, Bath, & Beyond, and the Shoe Pavilion.

A new urgent care center opened up in east Palmdale; Kaiser Permanente broke ground on its new east Palmdale medical center.

Ritter Ranch, a master-planned project in west Palmdale, which at one time appeared dead, is once again beginning to look viable with the removal of the primary bond holders- Franklin-Templeton Funds.

KB's Anaverde (formerly City Ranch), another west Palmdale master planned project, began mapping the acreage, and took on two home building partners.

The City of Lancaster finished two Fwy overpasses- one at Ave. L and one at Ave. H. The Ave. L overpass will service the new Costco site, and the Ave. H overpass will service the new Fairgrounds.

Cal State Bakersfield's off-campus site, on the grounds of AV Community College, is busting at the seams. The pressure is mounting to bring a four-year university to the AV. The foundation of all of this growth is of course, the booming housing market ongoing in the AV.

Increased defense spending, for many years out, is almost a certainty for 3 reasons: it is needed, the public supports it, and lastly, few politicians are in the mood to vote against homeland security or protecting the nation.


Some of the events I will be following in 2003 include: the opening of the new Fairgrounds; the progress on selling or re-leasing the empty K-Mart building in west Palmdale; the new 5 story County Court House opening(?); the ground breaking on the new west Palmdale Hospital; Albertson's Market putting in a "Newport Beach" type store at 50th W & Ave. N; news surrounding the reopening of the Palmdale Regional Airport; and the continued growth of our housing market, of which, I expect to see plenty in 2003.

I expect new home sales in 2003 to exceed that of 2002. And of course, there is always the X factor, some unknown piece of news that could have a major impact on AV growth and it's job market. With both Lancaster and Palmdale constantly under secret negotiations with numerous businesses, the X factor is always "out there". It should be another exciting and interesting year for the AV.

- Frank Donato, January/2003

Information presented above has been compiled from reputable sources, and is deemed reliable but not guaranteed. All opinions expressed are those of the Author.

February 2003 - AV News Briefs:

On Jan 29th, The Greater AV Economic Alliance presented its annual report on the AV economy in 2002, as it phases into 2003. The summary conclusion was that "the AV is developing a healthy economy with a range of attractions, including (of course) it's diversified housing market". The report is packed with statistics intended to help new and local businesses make strategic decisions. The report also showed that the AV's workforce is talented, diverse, and experienced. Across the entire AV, home sales were up 29% in 2002, vs. 2001, and also posted an 11% increase in value for the same period. The report also numbers commuters, those traveling "down below" to work, at nearly 60,000. The report pointed out that the cost of living in the AV is just 97.5% of the US average, where in LA, it is 137%. Overall, the report reinforced what many AV residents already knew: that the AV economy is doing well. The report was underwritten by Lockheed Martin, So Cal Gas, and So Cal Edison.


The County of Los Angeles is proposing a new master plan for the unincorporated areas of the county, of which, the AV has tens of thousands of acres. The county is proposing, in some areas, decreasing density from 1 house per acre to 1 house per 10 acres. The reason given revolves around environmental concerns, less people & less density = less pollution. When this became public knowledge, due to the public outcry, the county extended the time period to comment on the new master plan, i.e., protest it. The Greater AV Assoc of Realtors, our board up here, is leading the charge against this master plan.

Vitamin Shoppe Industries is locating a new store in west Palmdale's Marketplace, on 10th St West, south of Rancho Vista Blvd. This franchise is new to the AV. VSI has 120 stores; mostly on the east coast.

Grading has begun on the new 33-acre Sam's Club site in west Palmdale, at 10th St West and Ave O-8. Rothbart Development says that construction of the 152,000 sq ft building will begin in February, with completion by June. The new shopping center, which Sam's Club will anchor, will have 5 other tenants as well, which will occupy 20,000 sq feet each. Two fast food restaurants are also planned, along with a self-service gas station. Rothbart Development also built the new Wal-Mart in east Palmdale, at 47th St East & Ave S.

The Costco relocation in west Lancaster is moving along nicely, with all four walls up now. The new Costco site, at the NWC of 10th St West & Ave L, is only 3 1/2 miles from the new Sam's Club site in west Palmdale. Costco says they will be in their new site by February 20th. It will be interesting to see how these two giant discount retailers decide to react to pricing, as both carry very similar products.

Fox Airfield's long awaited infrastructure improvements are finally about ready to get started. The City, with help from some federal grant money, will widen Ave G to 6 lanes and run a water line and a storm drain on Ave G. The Street widening will be from 25th St West to 50th St West, with the water and storm drain running from 50th St West & Ave H, north to Ave G, then east up Ave G to 30th St West, then south on 30th West to Ave G-8.

The Dept of Veteran's Affairs has awarded "priority one funding status" to the Lancaster Veteran's Home. This means the site is on a list of projects to be funded as soon as Congress approves the 2002-2003 budget. The new Veteran's Home, which will be located on the NWC of 30th St West & Ave I, is ranked 20th on a list of 81 projects nationwide.

Housing Market:

On Jan 12th, KB Homes held their grand opening on their new tract in Quartz Hill called Lexington. Located on Ave L-8, at 42nd St West, just north of Los Hermanos, the homes range in size from 2,297 sq feet to 3,485 sq feet, with prices starting in the low $200k's.

No more camping out is what the City of Palmdale has told Pacific Communities when they offer future phases of their Renaissance tract. PC has gone to the lottery format to decide who gets the opportunity to buy one of these gated homes. Gated and on large lots, the homes sport spacious floorplans ranging to over 4,000 sf. Phases 1 and 2 are in escrow, with the phase 3 and 4 lotteries already closed. Prices are going up about $10,000 (est.) per house, per phase. Each phase ranges from 7-12 homes in size. The first phase sold out on a first come - first serve basis, with many buyers getting shutout. The lottery won't change being shutout, but it will be more orderly.

Beazer Homes had a successful opening on their new tract called Le Reve, located near 25th St West & Ave P-8 in west Palmdale. On their grand opening weekend, Beazer took 16 reservations at Le Reve. La Reve features 161 home sites on 7,000 sq ft lots, with floorplans ranging from 1,880 to 2,800. Prices on Le Reve also start in the low $200,000's.

Larwin, a homebuilder not seen in the AV since the late 1980's, is back. They are taking large positions in more than one location in the AV. Because some of them are still in escrow, the locations & prices paid cannot be revealed at this time. The NWC of Ave L and 60th St West has sold. It is a 583-acre parcel that will hold approx 1,700 lots. The new owner will map it thru the City of Lancaster and then sell it off in phases to homebuilders.

Western Pacific's new tract on Ave J, at 47th St West is moving right along. Streets are carved out, infrastructure being installed, and foundation footings for the first phase are being constructed.

The New Housing Monitor shows that new homebuilders sold 1,109 homes in 2002. If you include various small builders, that number jumps to 1,162.

Here are the top selling tracts of 2002:

  • Carlton Ridge (east Palmdale) by Pardee Construction- 101 homes
  • Fairways (Rancho Vista) by Beazer Homes- 80 homes
  • Rancho Vista Two (west Palmdale) by Forecast Corp- 79 homes
  • Delta Ridge (west Palmdale) by KB Homes- 71 homes
  • Pacific Collections (east Palmdale) by Pacific Communities- 68 homes
  • County Club Ridge (west Palmdale) by Beazer Homes- 67 homes
  • Belle Maison (west Palmdale) by Forecast Corp- 64 homes
  • Palamino Two (west Lancaster) by KB Homes- 63 homes
  • Twilight Ridge (Quartz Hill-west Lancaster) by Greystone Homes- 58 homes
  • Skyline 2 (Rancho Vista) by Rancho Vista Development - 41 homes

Western Pacific has a new 169 home tract coming on-line (mentioned above) this year in west Lancaster at 45th St West & Ave J. In 2003, expect to see Lancaster do some catching up in the new home market.

Bull markets always produce scams. Remember the internet scams of the late 1990's? This Bull market has had its first. On Jan 27th, a Palmdale couple was arrested for grand theft, identity theft, forgery, and filing false documents. The couple preyed on those losing their home thru foreclosure, claiming they could help the homeowner stave off their lender. It is alleged the couple defrauded homeowners of more than $1M.

Land Market:

Demand in January (67) continued to be very strong. The last four Januarys are a definition of a rising volume trend- Jan 2000- 20 land sales; Jan 2001- 16 land sales; Jan 2002- 45 land sales; and Jan of 2003- 67 land sales. The strong housing market continues to drive the land market overall, with some well-located parcels bringing prices that rival the 1989 market. Sales unrelated to the housing market, i.e., industrial investment parcels and more speculative agricultural land, are slower.

Housing related land investments are sucking up the majority of money coming into our market. For the patient investor, this is creating some good opportunities in the ignored sectors of our market...

The 77 net acres along the north side of Ave N, from 35th St West to 40th St West, now belongs to Pacific Communities, a homebuilder in the AV (see above). P.C. closed escrow on these 8 parcels in mid December. With the great success P.C. has had with their gated Renaissance tract, just south of 50th W & Ave N, this one might become a gated community too.

Supply closed out January at 1,790, regaining all of the listings that expired at year's end on Dec 31st. Even in the face of the strongest land sales in over ten years, supply has remained constant at around the 1,800 area. Parcels going into escrow, and new listings coming onto to the market, are at equilibrium.

The first indication that this market is getting over heated will be to see the supply number get drawn down dramatically. By dramatic, I mean somewhere below 1,000. If and when this happens, it will be indicative that sellers have gotten greedy, preferring to sell later as the market continues to run up. This would restrict supply. At this point, buyers exhibit fear, fear of missing the move. This "fear", will bring in land buyers into our market in even larger numbers than we have now, with buying overwhelming supply and driving up prices. This is just one possible scenario, and if it happens, it won't get there in just one month. Over time, it would work its way in that direction. Presently, I see no evidence that this process has started. At the market peak of our last bull market, the supply number of land listings was drawn down to the 567 in May of 1989. But, as I said, this is just one possible scenario, and even if it happens, I don't know if it will take 2 years or 10 years to play out. If this does happens again, demand overwhelming supply, with prices going through the roof, it will not be easy to play as a seller. Even if you were sell at the top, if the market goes through another contraction as in the early to mid 1990's, chances are good you may get the property back anyway, through foreclosure (unless of course you sold for all cash). In the 1930's, when one of the Rothchilds was asked his secret to being a successful investor, he replied, "I always sell too early". There are a few million stock market investors who wish they had sold "too early".

Summary/Forecast:

While 2003 should be a very good year overall for AV real estate, I do expect to finally see the existing home market cool a bit, with sales volume and prices leveling off. The resale housing market will still be very good, but sales probably will not be at the frantic pace of 2002. However, I also expect new home sales in 2003 to surpass 2002. New supply from the new home market will probably hurt the resale market a bit, but nothing major. I do not view this as a negative, as no market can charge ahead indefinitely. It is my own opinion, that the housing market will slow a bit, to pace itself, much like a long distance runner. The AV housing market has a major price advantage over neighboring markets. For this reason, the AV has never had to worry about running out of buyers; there are ten million of them only an hour away by car. The AV housing market has always thrived by cannibalizing other markets and gives every indication it will continue to do so. If January is any indication, 2003 should see the volume of land sales continue to improve vs. 2002, which means, overall, 2003 will be another very good year for AV real estate.

Economy:

Released on Jan 10th, the January unemployment rate fell to 5.7%, from 6% in December. The economy in Jan produced a net 143,000 jobs, the strongest job growth since Nov of 2000. The retail sector produced 101,000 of those jobs, with health care and construction kicking in the rest. The manufacturing sector is still struggling, losing 16,000 jobs in Jan, the fewest since July of 2002. On balance, the Jan employment report was positive, but not as glowing as it first appeared. This good news, begs the question, "Was Dec the top of the jobless rate, and are we now headed for the long awaited jobs recovery?" While the Jan number is good news, it's really too early to know. One month is not a trend, but it could be the beginning of one. For what it is worth, the stock market greeted this news with a ho-hum unimpressive rally, but then 20 minutes after the open, got smacked down when the Dept of Homeland Security announced it was upping the danger level of a terrorist event, going from yellow to orange on their alert system. I see the stock market's inability to rally on good news (the employment report), as classic bear market behavior. When a market wants to go down, the excuse will be provided.

Holiday retail sales came in below expectations, as only a handful of retailers showed gains vs. the same period in 2001. Even in the face of positive GDP growth, in all 4 quarters of 2002, employers are still very reluctant to hire. This lack of hiring shows a lack of confidence in the immediate future... On Jan 14th, buoyed by the strongest auto sales in over a year, Dec retail sales came in at +1.2%. Even so, this was "below expectations", which just about says it all regarding the holiday shopping season. Durable goods orders, also part of the retail picture, were also weak in Dec at +.2%. Worker productivity, in the 4th Q, decreased, as hours worked went up 1%. For the year though, productivity in 2002 was the most efficient since 1950.

Not surprisingly, this all added up to a very weak 4th Q of growth, with GDP coming in at a paltry +.7%. The 3rd Q had given us + 4% growth. GDP growth for all of 2002 was + 2.4% which indicates a very average, run-of-the-mill recovery. In the face of all of the historic stock market losses that are still ongoing, I find this number very decent. As January unfolded, the stock market gave back all of its gains from the first week, and then some. This most certainly contributed to January's very flat Consumer Confidence number, coming in at 79, down from 80 in Dec. Let us hope it holds here, for 79 was also the Oct low, and the lowest CC reading in 9 years... It looks like Wall Street has started its revenue recovery, although it is not yet being felt on Main Street.

On Kudlow & Cramer, a CNBC talk show on the economy, stock market, and current events, it was reported that over 500 companies in 2002 had an average improvement in revenues of over 50%, vs. 2001. On Jan 15th, the FED released their Beige Book, which looks at the economy of the US, region by region. The FED said in the BB report, they see little in the way of improvement in business capital spending.....The housing sector continues to lead the economy as Dec housing starts (+5 % released Jan 21st) was the strongest in 16 years. New Home Sales were also strong in Dec, up 3.5%. In December, the Leading Economic Indicator was up for the 3rd month in a row, providing some hope, that GDP growth might start to ramp up. Versus the weak 4th Q, I do expect some modest improvement in 1st Q GDP growth. So far, to me, the 1st Q has the look and feel of about + 2% GDP growth.

If you have been watching the news at all, then you know about California's budget deficit and the hand wringing going on regarding the budget cuts. What has caused this mess? The last four years, state revenues have gone up 28%. Even in the face of economic weakness, revenues have still climbed. However, state spending, during this same time frame, has gone up 36%. State spending has increased faster than revenues. One budget analyst said, that if California went back to 1999 spending levels, for 18 to 24 months that would erase the state deficit.

Interest Rates:

On Jan 16th, the Consumer Price Index for Dec was released, coming in at a very benign +.1% (1/10 of one percent). During the last 6 months of 2002, the CPI rose only 1.1%, and probably about 2% for all of 2002. This is important news, because it means that interest rates will remain low, or go even lower, for the first part of 2003. Beyond that, it's wait and see. Why? The FED's primary job is to protect the dollar and it's purchasing power- meaning that it is always on guard for inflation. But there are no inflation pressures or anything close to it, so the FED can concentrate it's policy on what is needed to help the economy, which right now translates into keeping rates as low as possible for as long as possible. Make no mistake about it. Someday, the FED will have to choose between fighting inflation & maintaining an easy money policy to help the economy. When that day comes, the FED will throw the economy "over the side", and fight inflation. Why? When interest rates rise, only some segments of the economy are hurt. When inflation rises, ALL segments of the economy are hurt. Our current low interest rate environment will change someday; just not in the immediate future.

Also, on Jan 16th, we got clear evidence that the recent rally in gold prices is not forecasting inflation, but reacting to the uncertainty of war in the Middle East. Early in the morning on Jan 16th, when the CPI figure was released, gold didn't budge; but a few hours later when it was announced that the weapons inspectors in Iraq found some empty chemical warheads not declared by Iraq, gold shot up, fearing that perhaps, war was getting closer......The FED meet for two days on Jan 28th & 29th, and left rates unchanged. No surprise here if you have been following this newsletter. Until the unemployment rate starts to trend downward, or inflation begins to threaten, rates will go sideways, and maybe even lower. Neither is happening yet.

Defense Briefs:

Based on Pentagon projections, the Congressional Budget Office says that defense spending will continue to increase over the next two decades. The US Navy is experimenting with converting some of its submarines from carrying Trident nuclear missiles to carrying 200 Navy Seals and 154 Tomahawk missiles, both for targeting and fighting terrorism. Four of these "Florida class" subs were ticketed for the scrape heap as the threat of global nuclear has greatly diminished over the past decade. The SEALs from these subs, would do surveillance, confirm other intelligence, and engage terrorist forces, when appropriate. The Navy recently ran a "test exercise" near the Bahamas with this new configuration.

On the morning of Feb 1st, when Columbia went down over Texas, there were a lot of broken hearts in the AV. The Space Shuttle Columbia underwent final assembly in Palmdale. Until recent years, the Shuttle program landed and was maintained in the AV. The dry lakebed near Edwards Air Force Base, in Rosamond, is still a secondary landing site for the Shuttle. In the late 1970's, when it was moved from Plant 42, where it was assembled, to Edwards Air Force Base, it was towed right down 10th St East (now Challenger Way), north to the base. Traffic signals had to be taken down temporarily to accommodate its wingspan. Columbia was the first Shuttle to go up (April 1981 during the Reagan years). There is already a proposal by a LA County Supervisor, to rename Ave M to Columbia Way.

Northrop Grumman has been awarded a $307M contract to build 6 more Global Hawks. The Global Hawk is an UAV (unmanned air vehicle). Unlike the Predator, the Global Hawk flies pre-programmed missions. It's larger than the Predator and can stay up for as long as 24 hours. The Predator's missions are "on the fly" and can be altered as the remote pilot sees fit. The new Bush budget for 2003-2004, allocates $610M for more Global Hawks. $250M has been requested to purchase 14 more Predator's, which are built in San Diego. Overall, the Bush's budget sends billions to Cal for cargo planes, jet fighters, UAV's, and satellite/missile defense. Bush is gearing the nation's ability to fight the war on terrorism for the long haul.

- Frank Donato, February/2003

Information presented above has been compiled from reputable sources, and is deemed reliable but not guaranteed. All opinions expressed are those of the Author.

March 2003 - AV News Briefs:

Lancaster Announces New Residents for Fox Field Industrial Corridor

The 756th Transport Company of the California Army National Guard will relocate to a 62,000 sq ft facility in the Fox Field area. The facility, which will be built on 28 acres, will be on Ave G, near the Fox Airfield. It will house the armory's 90 some trucks and have other living facilities. The new facility is expected to open some time in 2004.

Last year, the City received a $1.25M grant from the Governor's office to help build a new West Coast law enforcement facility, which would also be in the Fox Field Corridor. Lancaster Mayor, Frank Roberts said, "it will be quite a campus", serving some 50,000 law enforcement officers. There are no further details at this time.

Infrastructure improvements, previously mentioned in my updates, are about to begin. Ave G, from 25th St West to 50th St West, will be widened from 2 lanes to 6 lanes of traffic and have a water main installed, along with a storm drain. Mayor Roberts added, in referring to the Fox Field area, "growth is in on the horizon".

Roberts also hinted that the City is in negotiations with two other major distribution centers as well as two "spec" industrial builders.


Late February and early March, the City of Lancaster hosted a Division I college baseball tournament. Held at Lancaster Municipal Stadium, where the minor league JetHawks play, Oregon St, U. of Washington, Cal State Northridge, San Diego St U., and U. of San Diego participated.

On Feb 12th, Countrywide Credit announced it was go to build a new 102,000 sq ft, two- story, office-complex, near its current location in the Lancaster Business Park. The new site will allow CWC to employ up to 1,400. Construction begins in March and is slated to be finished by Oct this year.

On Feb 20th, Costco opened up at it's new location at the NWC of 10th St West & Ave L. When Costco opened it's doors on that Thursday morning, 3,000 people were waiting anxiously to come in and spend their money.

Los Angeles World Airports, owner of the land underneath the 1M sq foot buildings at Plant 42 in Palmdale that SR Technics used to call home, has entered into negotiations with that bankrupt firm to purchase the buildings. This will keep the buildings out of bankruptcy court, and allow LAWA to begin marketing the building, for resale or lease, subject to acquisition.

Lancaster's The 99 Cent Store, located in the Power Center on Valley Central Way, wants to expand. 99 Cent is proposing to raze the old, and vacant, 115,000 sq ft Home Base location to build a 24,080 sq ft store for themselves. The store would be up on the perimeter, on Valley Central Way. The old Home Base location would become parking. This would be the first step in redeveloping the entire Power Center. Lancaster's Planning Commission will get its first look at the plan on March 17th.

Housing Market:

Whenever I talk to a residential agent or broker, I always hear the same thing: "supply is tight, we need more listings". This sentiment is even echoed by Robert Kleinhenz, economist for the California Association of Realtors, saying, "In Cal we have less than a 3 month supply of homes on the market, and that is below normal levels. We have a very tight market inventory." Kleinhenz also added, "We have a lot boomer households in their prime earning years, and they are selling their homes and trading up. We are seeing an increase in the number of repeat buyers." In closing, Kleinhenz said that, home prices in the AV are extremely reasonable, with the average price of a home there about $150,000. What does this mean? If interest rates remain down near current levels, demand should continue to push home prices even higher.

Here is an interesting statistic. As of Feb 16th, year to date, 218 new homes have been sold in the AV. That is an annual run rate of 1,692. In all of 2002, builders sold 1,162 new homes. That would be an increase of 45% in just one year. It's easy to extrapolate a trend, and not always a good idea to do so, but in this case I actually believe that the present run rate is below what our market will actually produce this year. I expect new homebuilders to actually sell 2,000 to 2,200 homes this year.

A new west Lancaster tract is breaking ground. Atlantic Park, located on 40th St West, at Ave J-6, will offer 3 one-story models, and 1 two-story model. Houses will range in size from 1,936 sq ft to 2,650 sq ft. Prices will start at $200,000 and top out at $250,000.

The trustee assigned to handle the bankruptcy auction of Ritter Ranch, has asked for more time to put together the auction process. Apparently there was some question about the correct legal description of the property to be auctioned and in which priority the creditors will be paid. A federal bankruptcy judge has set March 31st as the sale date.


Land Market:

Supply closed out February at 1,775, continuing it's trend of moving sideways. Even the strongest land sales in 12 + years did not drawn it down with any real power, being only 15 listings less than last month. In the tug-of-war struggle between supply and demand, I would give a slight edge to "demand" right now. Demand is strong and appears to be gaining strength. While in the near term, I don't expect to see any major draw down in our supply numbers; the balance of power in this market is changing from buyers to sellers. This will be a gradual and drawn out process, with many parcels still having trouble selling.

Demand: Wow, what a month! February, with only 28 days, saw the strongest monthly land sales (98) since I have been tracking this number in January of 1992. This was probably the strongest month of land sales since 1990, which was the last year of our last bull market. It has only been two months, but the current rate of land sales is on pace to do 990 for the year. In all of 2002 we had 679 land sales. The housing market continues to attract land buyers into our market. The trend of the last year, where home sites and acreage (for tracts) garner the lion's share of the buyer's money, is still in force. There are some good bargains in the ignored sectors of our market, but it does takes some courage and patience to buy in these areas. This is basically a two tier market- parcels that can be developed into housing (or a house), and everything else. The "everything else", in regard to money flows, is taking a back seat to custom home sites and map-able acreage.

Summary/Forecast:

There is expression, that the most dangerous words in investing are, "this time it's different". While market periods do have similarities, this Bull Market in real estate does have some glaring differences with the one of the late 1980's.

In 1990, when our market back then topped and rolled over, the economy was headed into recession. Today, we are headed out of recession.

In the last market, the Cold War had just ended, causing 1,000's of defense/aerospace layoffs and budget cutting in defense spending. Today, because of the war on terrorism, Pentagon spending is expanding to the highest levels since the Reagan years. The Congressional Budget Office says that defense spending is likely to continue to rise for the next 10 years.

Probably the most important difference today, versus 1990, is the condition of the stock market. In 1990, the stock market was competing with real estate for investment funds. Today, the stock market is broken. Most investors do not want to place good money after bad into the stock market. This asset shift actually started in March of 2000, when technology stocks broke down. On a net basis, cash is leaving stocks and looking for a new home, and real estate, something tangible and easy to understand, has been the beneficiary. Cash is the lifeblood and the driver of all markets. A market cannot advance unless it has positive cash in-flows.

Right now, real estate does have positive cash in-flows, and the stock market does not. Asset shifts like the one we had in 1982 into stocks and the one into real estate in 2000, can go on for 1 or 2 decades. The stock market had its great run from Aug of 1982 through March of 2000. A lot of the money went into stocks at that time because alternatives were limited- real estate was weak in the early and mid 1980's. Today, the shoe is on the other foot.

So how long can this Bull market in real estate go on? No one knows, but I do know, that once a powerful trend is in force, it can go on far longer than most believe. In the 1960's and 70's, it was real estate; in the 1980's and 90's it was the stock market. Beginning in 2000, it is once again real estate's turn. All bull markets have their naysayers and doubters. This one will be no different, but experience has taught me not to argue with the direction that money has chosen. The direction that money chooses is the market talking, and one would be advised to listen.


- Frank Donato, March/2003

Information presented above has been compiled from reputable sources, and is deemed reliable but not guaranteed. All opinions expressed are those of the Author.