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!

Email Frank Visit Frank's Website

First Quarter 2005 AV News Briefs: January/February February/March

Antelope Valley News – January/February 2005

Jan 11th- Rancho Vista Development, the developer of the master planned community of Rancho Vista, is also developing additional retail office space in the Rancho Vista Plaza, a shopping center anchored by Van's, located at the NW corner of 30th St West & Rancho Vista Blvd. Located at the west end of the shopping center, Rancho Vista Development, who has their own offices in the center, is offering suites that range in size from 1,000 to 7,000 sq feet. A total of 12,000 square feet is being offered for lease. If market forces cooperate, RV Development has plans to add another 12,000 square feet to the center at some future date.

Jan 12th- Construction of a new LAX fly-away in west Palmdale is now 4 months old (October) and coming along fine. Owner of the fly-away, Antelope Express says they will be open by mid-summer. The fly-away location is on Ave S, just west of the Fay 14. The Antelope Express site will be 8,200 sq feet and hold 100 cars at any given time. Antelope Express has run a LAX shuttle business in the AV for 15 years. If the customer so chooses, his car can be washed, detailed, and even have an oil change, while he is away.

January 21st- Jack Kiser, chief economist with the Los Angeles County Economic Development Corp, says, that if Los Angeles want to foster economic growth, they should follow the example of the leaders in the Antelope Valley. Kiser says that "Los Angeles has lost track of the connection between fostering economic growth and enhancing the well being of it's citizenry." Kiser went on to say, "The attitude of the city leaders in the Antelope Valley is very positive; businesses have been impressed with that positive attitude and welcome." Continuing, Kiser said, "The strategy of city and county leaders should be to attract and create new wealth to the region (county wide). Industries that Kiser said should be targeted for growth include: professional businesses, services, tourism, and international trade, apparel/textiles design and manufacturing, health sciences and bio-medical fields, and specialized manufacturing.

Jan 26th- Lancaster's new Lowe's (home improvement) holds it's grand opening. The new Lowe's is at the SE corner of 10th St West and Ave K in west Lancaster. The 160,000 sq ft building has 160 employees, of which 109 are full time. The store had received over 5,000 applications.

Jan 26th- Hyundai-Kia Motors holds it's own grand opening of it's test track facility in California City. The test track is a proving ground for the company’s line of autos. The test track has 21 miles of test roads, with 7 different venues to test for the "widest possible range of actual road conditions in the US." The test track includes: a 6.4-mile high-speed oval track, a 3.3-mile hill climb, and a handling evaluation course that has 15 turns in a 3-mile span. There is also a 2M sq ft Vehicle Dynamics Area which allows for testing for extreme road conditions. The road surfaces mimic different roads around the country. The site has 30,000 sq feet of administration and support buildings. Between 5 and 30 cars can be testing at the proving grounds at anyone time. The site employs 50 on a full time basis, and an additional 50 on a part time or seasonal basis. Since 1990, Honda Motors has also had a test track in the California City area.

Jan 26- The Cal High Speed Rail Authority makes it final- California's super-speed train will be routed through the AV. According to the High Speed Rail Authority's staff report, the AV is the fastest growing region of Los Angeles County, and with a population forecast that could exceed 1M by 2020, could not be overlooked. The primary purpose of the rail line is to connect Los Angeles and San Francisco, which will have a total trip time of 2-1/2 hours. Travel time from Palmdale to Los Angeles is anticipated to be only 26 minutes. Palmdale officials are hopeful that the stop over at the new Transportation Center (someday), will help stimulate growth of the Palmdale Air Terminal, which is approx 3 miles to the NE. In 2005 dollars, the system will cost $35B. Presently, there is no date for ground breaking, let alone a completion date. The state is not presently in a strong enough financial condition to begin this project. Once up and running, the economic impact on the AV region could be in the billions. AV leaders considered inclusion in this route a must, as they spent hundreds of thousand of dollars, over a 10 year period, to lobby for it. A public vote on a $10B bond issue is set for Nov of 2006. Rail officials say, that just to finish the first leg of the 700 mile route, will take 8 years. A ground breaking in 5 to 10 years is feasible, but by no means certain. Later in the month, a second high speed rail line, one that would use magnetic levitation, and is supported by the Southern Cal Assoc of Governments, was revealed. It also includes Palmdale as a stopover. The SCAG, in its long term planning for transportation plans for the region, includes maglev trains, and is hopeful that one could connect Palmdale to Los Angeles by 2024. A joint-powers authority of 14 cities, called The Orange line Development Authority, which includes Palmdale, hopes to see one sooner, perhaps by 2011, which would connect Palmdale to Irvine (Orange County). The Orange line Authority has already contracted with a 24-member team, headed by Lockheed Martin, to do detailed engineering, and environmental and financial studies. The plan is to use private funding and bonds to build the line, with the public contribution coming from allowing the use of existing right of ways. The Orange line is projecting a 13-minute ride from Palmdale to Santa Clarita and a 28-minute ride to LA (from Palmdale). Maglev trains can go up to 300mph, and can also accelerate and slow down much faster than steel trains.

Jan 27th- The Greater AV Economic Alliance releases their annual Economic Roundtable Report at a public luncheon. The report includes economic and other demographic data that businesses consider vital in making a relocation decision to the AV. GAVEA gathered their own data. Here are some of the report's major findings:

  • the total population of the greater AV region, which includes all cities and communities, now exceeds 432,000
  • the total number of workers who commuted in 2003 was 52,398, down from the 2000 figure of 56,900
  • the cost of living in Palmdale and Lancaster is rated as "moderate"
  • there is 1.5M sq ft to 1.8M sq ft of industrial space under construction, or in the planning stages. Developers say that 80-90% of this space is pre-leased before construction begins.
  • in the 5-city region, retail sales tax has increased 20% since 2001, to a total of $3.3B in 2004
  • the average price of an AV home is now $224,588, which is up 34% from 2003, and double that of 2000
  • small business loans in 2003, versus 2002, were up 51%
  • the number of businesses in Lancaster and Palmdale grew 3% from 2002 to 2004

Jan 29th- The AV Board of Trade announces that two of the AV's newest industrialist will speak at their annual Business Outlook Conference. Reza Solitarian of Regent Aerospace Corp, will discuss his companies decision to build a 80,000 sq ft facility in the Fox Field area. His company rehabs airline seats. David Dickinson, of Delta Scientific will discuss his company's move to the Palmdale Fairway Business Park, and his companies line of anti-terrorist equipment which protects 3,000 sites around the world. The Business Outlook Conference will be held on Feb 25th, from 7:30am to 3pm, in the Poppy Pavilion at the new Fairgrounds, which is located on Ave H, at the Fwy 14. Ticket prices are $150 per person. Tickets may be acquired by calling the AV Board of Trade at 661-942-9581.

Jan 31st- After 17 months of work, Ave G, from the Fwy 14, west to Fox Airfield, at 50th St West, reopens. The outer lanes reopened, with the inner lanes, next to the center median, still closed for landscaping work. The street widening also included the addition of water lines on both sides of Ave G, storm drains, and conduit for electrical, telephone, and cable, a landscaped median, and left and right hand turn pockets. The City of Lancaster is hopeful that the added infrastructure will attract more development. Presently, several projects are on the drawing board: a National Guard Armory, Regent Aerospace, which rehabs aircraft seats, and Bright star Properties LLC, which has plans to develop a business park on "spec" (build then lease) near 50th St West & Ave G.

Jan 31st- The relocation of the Cinemark Theater from inside the AV Mall, to outside the mall, is getting some objections from nearby homeowners. The new theater location is on the north rim of the mall, at 15th St West & Ave O-8, just across the street from $500,000 homes. Homeowners realize that commercial development is going to happen on this site, but they were hoping for a upscale hotel vs. the
16 screen theater. At 13th St West & Ave O-8, just east of the theater site, a 4 story, 70,000 sq ft hotel is planned. South of the theater, on the curved perimeter road that encircles the mall, three new restaurants have been proposed: Johnny Carina's (Italian), Famous Dave's Barbecue, and a Gina steak house. Johnny Carina's, with over 400 restaurants nation wide, will be 6,452 sq ft on 1 acre, with an open kitchen and exhibition cooking. Famous Dave's, with 105 restaurants nation wide, will be in 5,000 to 6,000 sq ft range and be located on 1.32 acres. Planned for a late June opening, the restaurant will seat between 160-220 and employ 90 workers. Gina Japanese Steak House, which is expected to site on the mall perimeter as
well, has yet to file an application. The "affected" residential area is an unincorporated area and has a rural look and feel, i.e., no curbs or streetlights, which is the way the residents like it. On Feb 4th, at the urging of LA County Supervisor Michael Autonomic, Palmdale agreed to delay a decision on the 16 screen theater.
The county wanted a 30-day continuance to reexamine to studies regarding the project. All of these projects will happen, with most of the objections worked out or minimized.

Feb 2nd- FED-X announces that construction of their new 41,000 distribution center in the Fairway Business Park will begin this week. The $5M project is expected to be completed by mid-summer. It is anticipated that the new site will employ between 25 and 100 people. For FED-X, this will be their second distribution center, with the other being located in the Lancaster Business Park, at Division St & Ave K-8. The Fairway Business Park is located on Ave O, between Sierra Hwy and 10th St West.

February 4th- The new Albertson's Market holds it's grand opening. The new market is located at the SW corner of 50th St West & Ave N. The ceremony kicked off at 7:30am and was attended by 150 people. Palmdale City councilman Mike Dispense, said, "This center was badly needed, not just for who lives in the area now, but for who will live here." This is an obvious reference to the 600 new homes in the planning stages between 65th St West and 75th St West, NW of the new shopping center. It appears that Albertson officials have kept a promise they made upon the projects approval: to build a "Newport Beach" type store with it's Mediterranean architecture and variety of product lines. The new store even sells Dom Perignon champagne for $123.99 per bottle.

National Housing Market- The following housing data is subject to large sampling and other statistical errors. Substantial revisions in this data are common. It can take up to 6 months to firmly establish a new trend in sales activity.

December housing starts (Commerce Dept). After a weak November, housing starts bounced back strongly in December, with a + 10.9% gain. This was the strongest monthly rise in 7 years, with gains in every region of the country. Over the past year though, housing starts are actually down - 3%. One analyst said, that due to heavy snow and rains in the west and mid-west during January, housing data could be very temporarily depressed, and show a lot of volatility. Another analyst said, "The housing party is still booming."

December building permits (Commerce Dept), which many analysts feel is a forward looking indicator, were down -.3%, a fractional loss.

December new home sales (Commerce Dept.), released January 31st, increased a meager .1%. This comes out to a seasonally adjusted 1.097M new homes per year. The inventory of new homes on the market increased + 2.6% to 432,000, the highest level in 31 years. This represents a 4.8 month supply, which is the highest since July of 2000. November new home sales were also revised downward. In all of 2004, a record 1.183M new homes were sold, up + 8.9% vs. 2003. New home sales have now set annual records 4 years in a row. It is the general consensus among housing analysts, that new home sales will slow, but not collapse, as the FED continues to raise the Fed Funds rate.

December existing home sales (Natl Assoc of Realtors), released January 25th, were down -3.3%. For all of 2004, existing home sales were up + 9.4% to a record 6.675M homes. This is the fourth consecutive annual record for existing home sales. Nationally, the median sales price of an existing home is now $188,900, up + 8.1%. Inventory of existing homes fell 11.7% to 2.18M, a new low, which represents a 3.9 month supply (at the December sales pace). Analyst quotes: "There are few
signs of housing demand cracking", and, "Until mortgage rates rise in a meaningful and sustained way, home sales will remain close to their current level and prices will keep rising at their current trend rate of 7.5%, year over year."

Summary- The overall health of the economy and the housing market is directly tied to interest rates. As detailed above, mortgage rates actually fell through out January. With falling rates, in the present economy, the housing market can't do anything but well.

AV Home Market - DataQuick, a real estate reporting firm, has some interesting observations on the southern Cal real estate market. In mid January, here is a quote from Marshall Prentice, the DataQuick President. "We need to remember that we are further along in the cycle, which means were are closing in on the end stage (of this cycle). The big question now, is whether the cycle will play itself out in 2005
with a soft landing or with a turbulent crunch. Right now, the soft landing appears to be the most likely scenario. The Antelope Valley and other high desert communities in the region are exceptions to this projection, with homes still affordable, home sales are likely to remain strong in those areas."

Antelope Valley Median home prices- Dec 2004 vs. Dec 2003
Acton - $570,000 + 42.5%
west Palmdale- $332,000 + 24.3%
east Palmdale- $277,000 + 41.3%
Littlerock- $240,000 + 45.5%
west Lancaster- $215,000 + 32.4%
east Lancaster- $240,000 + 40.8%
Quartz Hill - $293,000 + 30.8%
source: DataQuick

AV New Home Sales Data (source: The New Housing Monitor, a Hanley Report)

As of Dec 31, 2004
-New Homes sold year to date - 2,503
-New homes sold since last month- 272
-New homes selling per day - 7
-New homes projected to sell for all of 2005- n/a

2004 - total of all new homes sold- 2,503
2003 - total of all new homes sold- 1,820
2002- total of all new homes sold- 1,162
1990- total of all new homes sold- 5,000

New home builders in the AV- 25
Open "new home" subdivisions in the AV- 57

New Home builders in the AV: Forecast Homes, Pulte, Standard Pacific, Eliopoulos Ent, First Pacifica, Western Pacific, DR Horton, KB Homes, Trimark, Stratham Group, Pacific Communities, Richmond American, Larwin Co, American Premier, John Laing Homes, Beazer Homes, Frontier Homes, Rancho Vista Development, Fieldstone Communities, New West Builders, US Home Corp, Empire Homes, K Hovnanian Co, Harris Homes.

AV Housing Market Outlook: While supply in the resale market has risen dramatically since mid year of 2004, sales are still good, and good enough to still have prices inching up. Most sales do not bidding wars or multiple offers, but on occasion that can still happen. Over the past 12 months, depending on the area, market values of AV homes have risen 25% to 50%. The median price of an AV home is
still below $300,000. The January bond market rally, as discussed above, has mortgage rates once again falling. What more could a realtor or a home buyer ask for?

With the lion's share of the water distribution issue now behind us, projects are moving forward. For the AV as a whole, in 2004, versus 2003, building permits were up + 62%. In 2004, building permits in Lancaster were up + 72% and in Palmdale + 45%.

New homes are now being framed in the Anaverde master planned community of west Palmdale, on Ave S, west of the Fay 14. Anaverde officials say they have an "interest list" of 6,000 people. The six sales offices at Anaverde say that they have sold over 360 homes, which are still under construction. Homes in the Anaverde region are selling for $200,000 to $400,000. Everything that has been released, has been sold.


Land Market - Supply closed out January at 1,779, a - 6.46% decline, which is substantial, on a month to month basis. Supply appears to have topped out in November at 2,045, and from that point, has fallen two straight months. In that two month period, supply has fallen 13%, which is quite a bit for that time period. The main reason for the falling supply is very strong buying demand. In the context of this bull market, which began in April of 2002, January sales numbers (237) had the 2nd strongest monthly performance, topped only by April of 2004 (263 monthly sales).

Supply numbers in perspective:
Supply at end of January - 1,779
Supply change from last month- - 6.46%
Supply at the end of 2004- 1,902
Supply change, year to date- - 6.46%
Supply in January 05 vs. January 04- + 8.8 %

Why is the supply number important? The market value of all things, eventually, comes down to the basic principle of supply and demand. The supply number helps to tell us the psychological condition of buyers and sellers, by it's change and it's rate of change. Large drops in supply could be signaling speculative behavior as investors fight it out to get into our market. If supply were to increase rapidly, that could be telling
us that buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down. The value in following supply, is not in the number itself, or what any one number might mean. The valuecomes from when it changes; how much it changes and how fast it changes.

Demand: January (237) land sales, confirmed December's renewed strength, by closing above 200 for the 2nd month in a row. January land sales were the strongest since April of 2004, which had 263 land sales. The majority of land buying is being done by investors and land dealers. I see a lot of sales in very speculative,
low quality areas, which is where dealers like to buy because of their low prices. And of course, we still have a very strong building market as new homes are going up in numerous locals. Industrial and commercial development is also active. In 2004, versus 2003, land sales volume was up 91%. I don't see that type of sales volume improvement in 2005, but if volume numbers were to hold at or near the 200 per month level, that would also be impressive. As you can see below, last month's January sales were quite a bit stronger than January of 2004, up a whopping 72%. In a mature market, that has been running for almost 3 years now, these kind of year over year sales increases are just not do-able. None the less, this market is strong, and is
bringing in hoards of new capital to the AV.

Demand numbers in perspective:
Land sales year to date- 237 (only 1 month)
Projected Land sales for this year- n/a
Land sales last year (2004)- 2,372
Land sales last year (2003)- 1,240
Average land sales (in 2005) per month- n/a
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Jan 2005 vs. Jan 2004- + 72%

The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 the beginning of this bull market in AV land. This means that this bull market in AV land, by April of 2005, will be 36 months (3 years) old.

Supply & Demand Dynamics:
Through out 2004, supply rose, month by month, ending the year 18% higher. To illustrate the recent strength, of this market, buying demand has drawn down supply, in just 2 months, 13%. This means, that currently, property is selling faster than it is being listed. In 2004, the opposite was the case. Going forward, it will be interesting to see if supply can keep falling at this rate. While this is doubtful, if so, supply would break
below the 1,000 in November of this year, and reach the levels of May 1990 (589), the last market top, in June of 2006. This assumes monthly drops of 6.5%, each and every month, which probably won't happen. Point in fact, if this market were to accelerate to speculative levels, we might see supply drop more than 6.5% per month. For now supply is falling which only reinforces the strength of this market. I should point out, that around the end of the year, supply numbers can bounce around quite a bit. This is due to the large number of listings that expire on Dec 31 or Jan 1st. The difference between Dec 03 and Dec 04 is a gain in supply of +18% in 04, but if we compare Jan 04 to Jan 05, the gain in supply is only 8.8%. The point is this, supply, after increasing in 2004, is now falling. We will need to watch it to see if it begins to decline at speculative levels.

- Frank Donato, January/February 2005

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/March 2005

Antelope Valley News:

Feb 6th- The chatter is once again being heard in regard to a tunnel that would connect Palmdale to Glendale. This idea was first discussed in the mid 1950's, but in 1972, as the Fwy 14 opened up, the need and interest faded away. Then in 1999, it reappeared in a report by the Southern Cal Assoc of Govts as one possible solution to southern Cal's growing traffic congestion. In May of 2004, the City of Palmdale and the County of Los Angeles agreed to split the cost of $125,000 for a feasibility study on the tunnel. The study is due out in late February (this month). It is estimated that the tunnel would cost $3.1B, be 21 miles long, and would shorten the trip to Burbank by 14.4 miles and to Los Angeles by 20.8 miles. The short-cut would have two tunnels, one 5 miles long, and the other 11 miles, with 5 miles of road on the surface. In it's present financial condition, there is no immediate hope that the state would budget for such a project. However, there is another way it could be financed. Observers say that global capital markets would be willing to finance such a project, if it were toll funded. Charging a toll for its use would allow the investors to recoup their investment. It is also believed that private-public partnerships can deliver large-scale projects with less delay and cost overruns, than traditional public-sector methods. A Foundation study estimates, that if the tunnel were open by the year 2015, investors would recoup 83% of their investment by 2055. This assumes that the proposed toll would be in the $8 to $9 range.


Feb 7th- Scenic Airlines, the Las Vegas based commuter and tourist airlines that has reopened the Palmdale Air Terminal, reports that business is progressing well and on schedule. Bookings have been strong, about at the level the company expected. In the first 30 days of operation, the Palmdale to Las Vegas route (one way) carried 440 passengers. A company official said, "We have had great passenger response. Many are coming back for repeated flights. We already have some frequent flyers." Passengers are primarily from Lancaster and Palmdale, but some are coming in from as far away as Santa Clarita. As predicted, the most popular flights are on the weekends. The introductory fare of $49 one way, is still available on some flights. The terminal, at 25th St West & Ave O-8, is open from 5am to 9:30pm.

Feb 10th- The City of Lancaster announced that they will be reviewing, and in all probabilities, changing the City's General Plan. The General Plan is a city's blue print for future growth, with the plan adjusted every 5-10 years to the changing rate and patterns of growth. Issues addressed by the General Plan review will be: land uses (zoning and density), community design standards, drainage, flood control, water availability, regional growth, public safety, the state's revised seismic and liquefaction hazard maps, transportation issues, traffic patterns, the environment, and the economy. The City says that they have 11,000 approved lots ready to build (by major home builders) and 6,000 more lots in the approval process. In addition to all of that, there are 10,000 acres zoned for single-family homes or urban residential. The process of reviewing the Gen Plan will not begin until the current 11 applications for Gen Plan amendments have been heard and decided. That will take about one year. From that point in time, the review will take about another year, so it will be a good two years before the new General Plan is completed.

Feb 11th- A Santa Barbara based civil engineering firm, saying "it's really happening out there", has opened an office on Lancaster Blvd. Penfield & Smith, well established in the Santa Barbara area, says that their clients have shown a great interest in the AV and have pulled them along. The Lancaster Blvd office has been open since August of 2004, with the goal of the company to have a balanced mix of private and public contracts.

Feb 15th- URS Corp., the consulting firm preparing the master plan for Los Angeles World Airports, has projected, that the Palmdale Air Terminal, if the focus of expansion is continued, could have 400,000 annual passengers by the year 2008, and 1.2M by the year 2030. LAWA owns some 17,500 acres in and around the Plant 42 area of east Palmdale. Of the 5,700 acres on Plant 42 grounds, LAWA has 62 of those acres under lease to major aerospace and defense contractors. The future growth rate of Palmdale's air terminal will be primarily determined by how attractive of a venue it appears to be to other commercial airlines. Added incentives from LAWA could help this cause. Plant 42 is anchored by the big 3 of aerospace and defense, Lockheed Martin, Boeing, and Northrop Grumman.

Feb 16th- City of Palmdale announces that the Ave S Bridge, near 18th St East, despite recent bad weather, is progressing on schedule. The bridge crosses the Union Pacific RR at that juncture. The old bridge will be torn down as part of widening of Ave S to accommodate the growth of the east side as they access the Fwy. 14. In addition to the new bridges, 4 new lanes of traffic will be added, as well as curbs, gutters, sidewalks, drains, bike paths, bus stops, streetlights, and landscaping. Completion is slated for August.

Feb 24th- The Los Angeles Sanitation District # 14 is taking over hundreds of acres on the east side of Lancaster as a place to get rid of tertiary water, water that has been reclaimed. The water can be used on parks, golf courses, or lakes. The boundaries of this sanitation district is 50th St East to 90th St East, and from Ave D to Ave G, an area of 12 square miles or 7,680 acres. The plan has the sanitation district leasing the land to farmers to grow food for farm animals, such as alfalfa. The sanitation district will sell the farmers "gray water", water not suitable for drinking, but OK for growing certain crops. The controversy on this issue, is the possible effect of this water on the water table on the east side. Opponents have already lost in court, so the acquisition of land, through purchase or eminent domain, within the above boundaries, has been, and will continue to happen.

Feb 25th- The Antelope Valley Board of Trade held their annual Business Outlook Conference. Speaker at the conference was a wide array of AV business leaders, economists and other leaders of industry. Burt Rutan spoke on his company's success with SpaceShipOne out of Mojave and the future of commercial space travel. Lucetta Dunn, director of Cal's Dept of Housing and Community Development, praised the AV for it's role in helping Cal meet it's overall housing needs. Dunn, a Schwarzenegger appointee, said the Governor has made "creating more housing as one of it's lynch pins to a prosperous economy". Economist Nancy Sidhu said that the LA County economy is sweet and getting sweeter, but the Antelope Valley is the sweetest spot of all in the county. Sidhu went on to say that the LA county economy is growing at about a 3.5% rate, and the long term interest rates will go up in 2005. Sidhu also added, that "aerospace has something really cooking", a comment on it's steady job growth in 2004, which should continue in 2005. Sidhu went on to say that exports are strong from all parts of Cal, tourism is up and looking good, and consumer spending is looking stronger. LA County supervisor, Michael Antonovich, discussed the importance of private and public partnerships in meeting the needs of the people of the AV. Reza Soltanian, of Regent Aerospace, spoke of his firms plans to build a 80,000 sq ft plant in the Fox Field area, at 47th St West and Ave G, from which Regent will refurbish airline seats and cabin interiors. David Dickson, a senior vice president of Delta Scientific, presented a bone jarring video showing his company's security barriers and product line. Delta's concrete security barriers are sold to nations around the world, including Iraq and Afghanistan. Delta is located in west Palmdale's Fairway Business Park, on Ave O, east of 10th St West. Dickson finished by saying, "If you want to get an industrial business going, the AV is the place to do it." Congressman Buck McKeon gave thanks and commended those who are serving in the armed forces to defend this nation freedom in this time of war. Praise and thanks also went out to the AV's aerospace industry, which has had more than their share of involvement in contributing weapons against the war on terror.

March 1st- The 107,000 sq ft empty K-Mart building, at the NEC of 10th St West and Rancho Vista Blvd, is about to get some new tenants. Rehabilitation plans show that Wickes Furniture wants to lease 43,000 of the sq feet, and a cafe (Mimi's Cafe) wants to lease another 7,000 sq feet. Also in the rehab plans is a new 4,500 sq ft building pad, detached from the K-Mart site, for a dental office. The Palmdale K-Mart location was one of 16 Cal K-Mart stores that were closed in 2002. Two more tenants will be needed to fill up the old K-Mart building.

March 2nd- The Los Angeles County Supervisors approve of a $2M project to upgrade the ground surface at Fox Field. The upgrade is needed due to the increase in larger and heavier aircraft operations at Fox Field. The improvements will be done over the summer and take 75 days.

March 3rd- The Palmdale Planning Commission, over the objections of some residents in the area of this development, by a 3-0 vote, gave their approval for a new 16-screen movie theater on the north side of the AV Mall. The theater will be at the SWC of 15th St West & Ave O-8. Opponents will now appeal to the Palmdale City Council.

Defense & Aerospace News


Employment figures for Plant 42 in 2004 are released. The figures show that 2004 had slow and steady employment growth, as 224 new workers were hired. As the AV economy has diversified, the aerospace workforce has become a smaller percentage of the valley's overall workforce. In 1990, defense contractors on Plant 42 represented 22% of the AV's entire workforce. In year 2000, that figure had shrunk to 8%, and today stands at 7%. The large mega-contracts of the past are fewer, as defense spending is now gearing more towards guerilla-style wars vs conventional ones. Observers feel that the defense and aerospace workforce will stabilize and not go through wide swings as in past years. The total present workforce is 6,805. The low in the workforce came in Dec of 2002 at 6,209. The peak in employment was in 1987 at 12,000. The annual payroll at Plant 42 is $481.5M. Among the ongoing projects at Plant 42 are: the Global Hawk (unmanned spy plane), the fuselage of the F-35 Joint Strike Fighter, maintenance and upgrades for the B-2 Bomber, F-117 NightHawk, and the U-2, Boeing's unmanned combat air vehicle, the X-37B, and support programs for the Space Shuttle.

SpaceShipOne, and it's crew headed by Burt Rutan, have been awarded aviation's top prize- the Robert J. Collier Trophy. The trophy has been awarded since 1911 by the National Aeronautic Assoc "for the greatest achievement in aviation in America". Previous winners of the award include: Orville Wright, Howard Hughes, Chuck Yeager, Scott Crossfield, and the crew of the Apollo 11.

Safe for the past 10 years, military base closures are back in the news, as Defense Secretary Rumsfeld feels the existing 425 military bases are still about 25% over capacity. The chief of the Pentagon believes that $7B annually could be saved by closing another 100 or so bases. This is a continuing effort to transform all branches of the US military from a "cold war" stance to a smaller, more efficient, and mobile force. The Pentagon says that all bases are under consideration, but some bases are more vulnerable than others. Bases that are more apt to be closed, have the following characteristics: bases used by only one branch of the service, bases with aging facilities, and or large bases whose missions, training, and weapons are outdated. This will be the classic NIMBY battle in Congress, as Congressmen will argue that base closures are good, as long as it is "not in my back yard". In the short run, the time span it takes a congressman to get re-elected, base closures have a negative affect on community's economy, so the battle to keep bases open, or push closures into other areas, will be heated and fierce.

National Housing Market

The following housing data is subject to large sampling and other statistical errors. Substantial revisions in this data are common. It can take up to 6 months to firmly establish a new trend in sales activity.

January housing starts (Commerce Dept), after a weak November and a powerful December, again rose strongly and surprised many analysts. January housing starts rose +4.7%, rising to an annualized level of 2.159M units, the highest monthly level of new home starts in 21 years. Considering that mortgage rates fell through out January, a positive number here is not too surprising. In 2004, total housing starts finished the year at 1.957M. As I have said month after month, interest rates are the real key to the housing market, both new and existing. Mortgage rates in and around the 6% area will keep this
market acting healthy.


January existing home sales (Nat’l Assoc of Realtors), came out flat, down -.1%. The NAR, in January, changed the methodology of how they calculate this number, now adding condos to single family homes. From now on, this number will include houses and condos, but for that reason, this number, as of now, is not comparable to previous months, since the methodology is different. In general though, sales strength remains near record levels. The NAR also revised sales volume in 2004 down by 10% as they found that they had over sampled the strongest markets and over counted "for sale by owners". 2004 was still a record year though, as 6.78M sales (homes and condos) were sold. In 2004, sales volume peaked in June at the 7.02M annual rate. Getting back to January of this year, inventories fell 5.1% to a 3.7-month supply, an all time low. Nationally, the median price of a home rose 10.5% to $189,000. With demand still strong, and supply at record lows, expect the resale market to continue to be strong.

January building permits (Commerce Dept), which many analysts feel is a forward looking indicator, after being slightly down in December, were up + 1.7%.

January new home sales (Commerce Dept.), released February 25th, disappointed, as they fell -9.2%. The annual rate expected was 1.13M with the actual number coming in at 1.106M. Year over year, new home sales are down -4.2%. Supply of new homes increased + 3.5% to a record of 438,000 new homes, which represents a 4.7-month supply. This is the largest inventory to sales ratio since June of 2000. The median price of a new home also fell, some - 4.8% to $199,400. The western region of the country, Cal etc, went against the national trend, as it was up +5.6%. New home sales have set annual records 4 years in a row. It is the general consensus among housing analysts that new home sales will slow, but not collapse, as the FED continues to raise the Fed Funds rate.

AV Home Market


It is no secret that the AV has been in the midst of a major new home building boom. Here are some numbers that put that boom into perspective. In Palmdale, in 2004 vs. 2003, building permits were up 45%, from 946 to 1,371. The projections for growth of building permits in 2005 is about the same, another 45% improvement. Lancaster, which had a slow start as this market took off in 2002, put up even better numbers. In 2004 vs. 2003, Lancaster building permits were up 79%, from 972 to 1,740. These numbers have Bob Toone, City Manager of Palmdale, saying, that he expects to see a very healthy real estate market in the AV for the couple of years. Toone also says, that interest in the AV is not only in residential, but in commercial and industrial development as well. Toone went on to say that, about 25 developers are now busy building homes in Palmdale. Two of those developments, Ritter Ranch and Anaverde, will have major impacts on the AV economy. Ritter Ranch is now out of bankruptcy and hopes to start grading soon, perhaps within a month. Overall RR has 7,200 residential units planned, with commercial, parks, schools, and facilities for law enforcement and fire fighters. Anaverde, also a master planned community, now has 1,450 of their 5,200 lots ready for construction. Co-owners of Anaverde, KB Homes & Empire Land, have applied for the development of 600 more lots. In the next few months, construction of a 7,200-yard golf course will begin in Anaverde. Together, Ritter Ranch and Anaverde will create a community of between 35,000 and 45,000 people. The two projects together encompass the area from 20th St West to 60th St West, and from Ave S, north to Elizabeth Lake Road, which is an extension of Palmdale Blvd.

The housing market while booming now, will have its challenges going forward. One, will be higher mortgage rates, as long rates now appear to rising once again. The second challenge will come from government, as they raise fees to build and upgrade infrastructure. This is beginning to happen now as LA County Waterworks has already proposed higher connection fees and water user rates. The proposed rate changes includes a 74% rate hike on connection fees, which will raise of the price of each new home by $2,000. In addition, another $5,900 per new house has been proposed to improve / upgrade the AV's water supply and storage capability. The county has not raised water fees since 1986. The Board of Supervisors have already approved of a 37% rate hike on water users in the LA County Waterworks District. To avoid large increases in the future, county officials are looking are smaller and more gradual increases (more often). While rates increases on end users are final, increases on developers, discussed above, are being reviewed and may not be final for several months. Details on developer increases could change and analysis warrants. The home builders that are committed to long term master planned projects, knew, that over time, the market would go through these structural changes, i.e., a changing market due to the economic and interest rate cycles, and government fees related to meeting the valley's growing demand for services and infrastructure. These are all part of the risk factors that the builders decided to accept.

The median price of a AV resale home, in January, was in the range of $209,000 to $358,000. DataQuick, a real estate reporting firm, says that rates of appreciation, from Jan 2004 to Jan 2005, range from +18% to +60%, depending upon a number of factors. Mortgage rates are still below 6%, which bodes well for the housing market. Mortgage rates though, did begin to rise in mid February, after falling the first 6 weeks of the year. Rick Little of AV Bank, says that the AV home market can handle "a little higher rate" one gets "a lot of house for their money" as compared to our feeder markets. Resale homes have maintained a steady price appreciation, just behind the rising prices of new homes. Very few existing homes can still be bought for under $300,000. Little went on to say that the great debate of whether or not we have a "housing bubble" may go on for years, as long as the FED keeps a stable monetary policy and as long as the general economy remains good. "As a banker, I have to be worried, we all know, that eventually, the market will turn." Statewide, the supply of resale housing is down to 2.8 months, near
the lows of mid 2004.

AV New Home Sales Data (source: The New Housing Monitor, a Hanley Report) As of Dec 31, 2004
-New Homes sold year to date - 2,503
-New homes sold since last month- 272
-New homes selling per day - 7
-New homes projected to sell for all of 2005- n/a

2004 - total of all new homes sold- 2,503
2003 - total of all new homes sold- 1,820
2002- total of all new homes sold- 1,162
1990- total of all new homes sold- 5,000


New home builders in the AV- 25
Open "new home" subdivisions in the AV- 57
New Home builders in the AV: Forecast Homes, Pulte, Standard Pacific, Eliopoulos Ent, First Pacifica, Western Pacific, DR Horton, KB Homes, Trimark, Stratham Group, Pacific Communities, Richmond American, Larwin Co, American Premier, John Laing Homes, Beazer Homes, Frontier Homes, Rancho Vista Development, Fieldstone Communities, New West Builders, US Home Corp, Empire Homes, K Hovnanian Co, Harris Homes.


AV Housing Market Outlook: Although interest rates are bouncing around, they are doing so in a mild way, with not too much upside volatility. While supply in the resale market has risen dramatically since mid year of 2004, sales are still good, and good enough to still have prices inching up. Most sales do not have bidding wars or multiple offers, but on occasion that can still happen.

Over the past 12 months, depending on the area, market values of AV homes have risen 25% to 50%. The median price of an AV home is still below $300,000. With mortgage rates still below 6%, the monetary environment for buying a new or existing home is still very good. In the housing market, the cost of money drives everything, and that cost is still consumer friendly.

Land Market

Supply closed out February at 1,784, just five listings higher than last month. This is a statistically insignificant change. In the 4th Q of 2004, we saw a contraction in supply, falling some 11% from the September time frame, until the end of February. If we look at a larger time frame though, year over year, supply is actually up, almost 10%. The last 3 months of land sales have all been near record numbers, above 200 per month. In the face of strong demand, I do not see anything meaningful in the supply numbers; to me this means that this market is capable of giving us more of the same- strong sales performance. I do see a strong market, but not one that has overheated or become excessively speculative. Supply looks fairly stable here, which means, that for the most part, supply and demand are in equilibrium.

Supply numbers in perspective:
Supply at end of February - 1,784
Supply change from last month- unchanged
Supply at the end of 2004- 1,902
Supply change, year to date- - 6.20%
Supply in February 05 vs. February 04- + 9.98 %

Why is the supply number important? The market value of all things, eventually, comes down to the basic principle of supply and demand. The supply number helps to tell us the psychological condition of
buyers and sellers, by its change and its rate of change. Large drops in supply could be signaling speculative behavior as investors fight it out to get into our market. If supply were to increase rapidly, that could be telling us that buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down. The value in following supply, is not in the number itself, or what any one number might mean. The value comes from when it changes; how much it changes and how fast it changes.

Demand: February (236) land sales, has now given us three consecutive months of over 200 land sales. This has not happened since the April - July period when the market gave us 4 months in a row of 200 + land sales. The majority of land buying is still being done by investors and land dealers. I see a lot of sales in very speculative, low quality areas, which is where dealers like to buy. And of course, we still have a very strong builder market as new homes are going up in numerous locals. Industrial and commercial development is also active. From a demand and cyclical standpoint, the land market is now in a mature stage. The rocket like sales growth we have had over the past 3 years is now behind us. We are not going to see 50%-100% sales volume gains from current levels. Statistically, it is highly unlikely and improbable. Nonetheless, this market is strong, and is bringing in hoards of new buyers and capital to the AV.

Demand numbers in perspective:
Land sales year to date- 473
Projected Land sales for this year- 2,838
Land sales in 2004- 2,372
Land sales in 2003- 1,240
Land sales in 2002- 679
Average land sales (in 2005) per month- 236
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month- 56
Feb 2005 vs. Feb 2004- + 72%

The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 the beginning of this bull market in AV land. This means that this bull market in AV land, by April of 2005, will be 36 months (3 years) old.

Supply & Demand Dynamics
Through out 2004, supply rose, month-by-month, ending the year 18% higher. Then in the span of just two months, Dec 04 and Jan of 05, supply fell 13%, which is dramatic for just a two-month period. It is only one month, but it appears, that in February, supply and demand forces are stabilizing, as supply in February was statistically unchanged from the previous month. Supply and demand numbers have their greatest value when they move to levels that are historically extreme. When these numbers, in tandem, move to historic extremes, they can be helpful in determining market bottoms and tops- i.e.
major turning points. Presently, as a pair, they are not at extreme levels, so I see no pending warning signs re: this market.

- Frank Donato, February/March 2005

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