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 2007 Antelope Valley News: January February March


March 2007

March 14th- Robertson Honda breaks ground for a public refueling station for cars that run on natural gas. The refueling station with be at the Honda dealer in the Palmdale Auto Mall, west of the Fwy 14. The fueling station should be ready sometime in April. It will be the only Honda dealership nationwide to have such a pumping station. The Honda Civic GX will be the only commercially marketed car in the US to run on natural gas. The advantages of natural gas are lower emissions and lower cost of fuel, equivalent to about $2 per gallon. Disadvantages are, the car costs more to buy, $25,000 vs $18,000 for the gasoline version of the Civic, and a lack of convenient refueling stations. However, the car has a $4,000 federal tax credit and the dealer will thrown in another $3,000 cash back incentive, which should help handle the price issue. The City of Lancaster has two natural gas pumping stations.

March 15th- An Indianapolis hotel developer announces that he is planning to build a 7 story, 150 room, full service hotel in west Palmdale, just west of the Fwy 14. The Sun Development & Management Corp said they selected the Antelope Valley because of the need for this project. The hotel will be located on Ave P-4, between 5th St West and Trade Center Dr. Business travelers would be served during the week and vacationing families on the weekends. The Sun Development is hoping to convince the City of Palmdale to build a conference center next door, which the hotel could service. While the City has made no commitment to build such a conference center, Sun Dev. has released artist renderings with the two built together to show how they could complement each other. The hotel does not need the conference center to go forward, but the conference center would need a nearby hotel for it's attendees to stay. To be clearly visible from the Fwy 14, the developers say that the hotel is going in, conference center or no conference center. If the conference center is not built, the design of the hotel can be changed to add meeting rooms. As it is designed now, the hotel will encompass 150,000 sq feet, be located on a 12.5 acre parcel, and will need a conditional
use permit because it is over 45 feet tall. Negotiations to acquire the 12.5 acres are still under way. Once ground is broken, the hotel will take 12-15 months to complete. Sun Development hopes to begin infrastructure work on the site by the fall. Sun has built more than 30 hotels in 13 different states in the US.

March 16th- Northrop Grumman, the builder of the B-2 Bomber, will begin development of a new satellite communications system which will allow the bomber to send and receive battlefield information 100 times faster than today. The new system will also allow the bomber to share battlefield Intel with allied commanders around the world. The work falls under the umbrella of B-2 maintenance and upgrades that NG already does. When completed, the B-2's new communication system will make it easy for it to connect to the military's Global Information Grid, a worldwide network of information systems and people that are tasked with collecting and sending out information needed to plan and complete military operations. This work is not expected to increase NG's workforce on the B-2, but will help stabilize it.

March 19th- The City of Lancaster has hired a long time AV developer to recruit a major upscale restaurant to the Lancaster Spectrum shopping center, which will be located at 20th St West & Ave J-8. Martin Properties has been paid $300,000 to use their best efforts to find a sit down eatery of quality. According to newspaper reports, Martin has 15 years to make good at his end, as both Martin and the City would continue to collaborate even after their expected initial success.

March 20th- Los Angeles County Supervisor, Michael Antonovich publicly pushes an idea that has been discussed before, making the AV an inland cargo port or hub. The "inland port" would receive cargo from the Port of Long Beach via rail, then load them on trucks for distribution. To relieve traffic congestion in the LA area, goods coming into the country would be retrieved in the AV. Antonovich, who sits on the Metropolitan Transportation Board, has proposed a 60 day study to determine the feasibility of such a plan. The cargo hub would include the AV's existing rail and Fwy system and the Palmdale Airport. It may also include the High Desert Corridor, which, when built, would have Ave P-8 coming off the Fwy 14, going east to the Airport and eventually extending east to the Fwy 15 near the Victorville area.

On March 28th, leaders of San Bernardino County and Los Angeles County, met for the first time to discuss a Fwy going east from Palmdale to the Victorville area. The Freeway is called the High Desert Corridor. In Nov of 2006, the High Desert Corridor Joint Powers Authority was created by the two counties. Palmdale Mayor Jim Ledford was appointed to the Authority as one of its 9 directors by LA County Supervisor Michael Antonovich. At this point in time, the immediate plan is to make formal applications to the State and Federal govts for partial funding. Once they have those monies, work would begin on the Environmental Impact Report.

March 21st- The Palmdale City Council gives their strong approval to move ahead and purchase 615 acres at the SE corner of Sierra Hwy & Ave M for an electrical power plant. The cost of the land is reported to be $18M. Palmdale Mayor Jim Ledford said, "Having a site already secured allows us to move ahead with applications to the state." Power generated from the new plant could be used to reduce electricity costs for Palmdale's aerospace production firms and other businesses. It could be used as a recruiting incentive for new businesses. It is hoped that permits could be acquired from the state by mid 2008; if so, the power plant could be up and running by 2010. As is designed now, the power plant would have 500 megawatts produced by natural gas and 50 megawatts produced by solar power. One megawatt is enough electricity for 750 homes. In total, the plant could provide electricity for a 412,500 homes. The city feels that only 1/2 of the land would be needed for the power plant, with the other 1/2 developed into a business park. Costa Mesa based Inland Energy is the consulting firm Palmdale has hired to help get the project permitted.

March 28th- The City of Lancaster rezones the 56 acres that made up the old AV Fairgrounds, located at Division St and Ave I (NEC). The zoning or land use breaks down as follows: 41.1 acres for parkland and 15 acres for school use and a shopping center. Of the 41.1 acres for parkland, 37 of those acres are reserved for a baseball/softball complex. The site already has two universities, Cal State Bakersfield and Fresno, working with AV College to provide classes in computer, electrical, and mechanical engineering.

March 30th- AV Hospital, located at 15th St West & Ave J, announces a $90M expansion. The first phase of improvements will bring an additional 166 parking spaces and improve inner campus roadways. The main entrance will get a circle driveway and canopy. Eventually the following improvements will also be made: increase ICU beds from 14 to 40, double the size of the emergency room to 25,000 sq feet, exam rooms in the ER would increase from 28 to 57, and build 5 additional private rooms. Total beds in this plan though, actually go down, from 377 total beds now to 362 beds when they are completed. The overall decrease in total beds had one hospital Board member actually vote against the plan, but the plan is going ahead she was out-voted. All improvements are scheduled to be done by the year 2011.

April 4th- The AV's wholesaler of water, The Antelope Valley East Kern Water District, has taken the lead in water banking, having put a 1400 acre parcel into escrow, in hopes that the newly formed AV Joint Powers Authority will see the wisdom in this and join. The parcel is located in Kern County, between 60th St West and 120th St West, between Rosamond Blvd and Ave B. The land was previously farmland for onions and carrots. AVEK is currently moving through it's of contingencies and when done, full intends to close escrow. Thus far, the property has passed AVEK water percolation requirements, absorbing two feet of water per day. The AV Joint Powers Authority is a coalition of the AV's three State Water Contractors, AVEK, Palmdale Water District, and Littlerock Creek Irrigation District.

April 5th- Two commercial developers trying to rezone residential acreage to commercial in the west Lancaster-Quartz Hill area, will pay $574,000 for two Environmental Impact Reports for the two properties. The properties in question are the SE corner of 60th St West & Ave L and the NW corner of 60th St West & Ave L. At the SE corner, a Super Target is planned; at the NW corner a Wal-Mart Supercenter. Both sites are right across the street from Quartz Hill High School, which has led to some protesting. The Wal-Mart site is 40 acres while the Target site, in total, is 70 acres. The Target site may be scaled back.

Defense & Aerospace News

Total employment at Palmdale's Plant 42 stood at 6,670 at the end of 2006. This is down 115 workers from the end of June when the number was 6,785. The government owned, contractor operated facility has 8 separate production sites and is home to several major aerospace and defense contractors, i.e., Lockheed Martin, Boeing, and Northrop Grumman. Northrop Grumman has 5 major projects ongoing: B-2 Bomber upgrades and modifications, F-35 Joint Strike Fighter final assembly of fuselage, Global Hawk final assembly, production of target drones, and development of the Navy's X-47B unmanned combat air vehicle. NG's workforce has remained stable in the 2,000 area. Lockheed Martin is involved in the maintenance of the NightHawk F-117 and a modernization program for the U-2 spyplane. The U-2 has a new roll: testing sensors for the Global Hawk. Lockheed Martin also produces high tech parts for the F-22 Raptor and will do the same for the Joint Strike Fighter. And of course, Lockheed Martin's famous "Skunkworks" program is also located on Plant 42. All of Skunkworks programs are "in the black" or top secret. Boeing's role at Plant 42 is primarily centered around the Space Shuttle, however, with the shuttle headed for retirement by 2010, those numbers there are on a gradual decline. Plant 42 has an annual payroll of $498.6M. In addition to the above numbers, the Federal Aviation Administration Air Traffic Control Center employs an additional 500.
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AV New & Existing Home Market

In March, the Southern Kern County School District announces a 18% increase in developer fees. The reason: over crowding of schools county wide due to the recent housing boom. On a per square foot basis, for each house, developer fees will go from $3.39 per sq foot to $4 per sq foot. The news, by letter, was sent to the 30 some odd home builders active in Kern County. On a 2,000 sq ft home, the fee is going up from $6,780 per home to $8,000 per home. On a finished home, this increase would raise the price of a 2,000 sq ft home by about 1/2% to 1%. In the AV, the only homes that will be affected by the increase are ones built in Kern County, which would be the communities of Rosamond, Mojave, and California City.

Antelope Valley Average Incomes by Zip Code*

93551, west Palmdale- $95,128
93550, mid Palmdale- $51,019
93552, east Palmdale- $64,083

93536, west Lancaster- $81,652
93534, mid Lancaster- $50,394
93535, east Lancaster- $52,436

*source is the Greater Antelope Valley Economic Alliance


AV New Home Sales Data (source: The New Housing Monitor & Frank Donato)

As of March 25th, 2007
-New Homes sold year to date - 683
-New homes sold since last month- 216
-New homes selling per day in 2007 - 8.1
-New homes projected to sell this year at current sales pace- 2,967
-New home sales year to date vs same period in 2006 (-24%)
-Number of "new home" builders in the AV- 38
-Number of open subdivisions with sales in Q 1 2007- 71

2006 - total of all new homes sold- 2,584
2005 - total of all new homes sold- 4,579
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- 4,900 +

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)Fieldstone Communities
Fieldstone Communities
First Pacifica
Forecast Homes
Frontier Homes
Gibraltar Homes
Grenhill Development
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
Matthews Homes
MBK Homes
Mitchell Development
New West Builders
Odyssey Homes
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
Rising Star Communities
Standard Pacific
Stratham Group
Sun Cal Communities (Ritter Ranch)
Tandis Homes
Trimark
US Home Corp.
Warmington Homes
Western Pacific
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AV Land Market

"Supply and demand, in the end, determines the value of all things."
- Adam Smith, "Wealth of Nations"
18th century Scottish economist

Supply closed out Mar at 3,194, a slight rise from last months 3,159. The rise represents a 1% gain. Supply had fallen three straight months up until March's number. The high in this cycle was 3,373 in November of last year. As I said last month, historically, these are not levels from which Bull Markets are launched. However, on a positive note, supply does appear to be mounting an effort here to stabilize. At one point in time, up until last December, supply had risen 19 consecutive months. Year over year, March 2007 vs March 2006, supply is up 635 listings, or 25%. Since the April 2005 low of 1,751 land listings, supply has risen 82% or by a total of 1,443 listings over the last 23 months.
The rise is easy to explain as rising prices will always bring new supply onto any market. In March the amount of time needed to sell all standing inventory, or active land listings, fell to 18.7 months from 20.2 last month. It was the first time below 20 months since last September. As recently as just last June, less than one year, this number was at 11 months to sell all standing inventory. In April of 2006, this number was in single digits, at just over 8 months. This means, that in less than a year, the time needed to sell all inventory, based on the current sales pace, has more than doubled. April of 2005 was when this indicator peaked in strength, when all land listings could have been sold in just 5.6 months. Historically, rising supply, when accompanied with weakening demand, has eventually lead to a weakening of prices. In any market, excess supply, eventually, will shift pricing power from sellers to buyers.
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Supply numbers in perspective:
Supply change vs last month: + 1%
Supply change, year to date: - 2%
Supply in Mar 07 vs Mar 06: + 25%
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Supply at end Mar 2007- 3,194
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Supply at the end of 2006- 3,263
Supply at the end of 2005- 2,264
Supply at the end of 2004: 1,902
Supply at the end of 2003: 1,607
Supply at the end of 2002: 1,770
Supply at the end of 2001: 1,665
Supply at the end of 2000: 1,800
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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 it's rate of change. 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. The value comes from the magnitude of change, and that change in relation to demand.
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Demand in Mar (170) rose 14 sales which was is a rise of just under 1%. It was the third month in a row in which land sales rose vs the prior month. Last month I told you that job 1 here was for the market to hold the 150 area in monthly volume. It appears to be doing just that. At the 150 area, our market is active and fairly liquid, allowing seller's to sell. The next level of import would be 200 sales per month. Prior to this breakdown in volume in July, the land market recorded over 200 land sales per month 19 months in a row, a streak that started in Dec 2004. To get back above the 200 sales per month level would be a very bullish indicator. Although we have had a 3 month reversal of weaker sales, I am still skeptical that this trend will evolve longer term. However I am content to let the "market show me" and would be happy to be wrong. The six month volume trend is 155 while the three month trend is 158. Since the peak of April 2006, at 323 land sales, land sales are now down, on a monthly basis, - 47%.

Avg days on the market-
170 days, falling 12 days from February (182).

Demand numbers in perspective:
Land sales year to date- 475
Mar 2007 vs Mar 2006 - 40.5 %
Land sales pace for 2007- 1900
Land sales in all of 2006- 2,648
Land sales in all of 2005- 3,376
Land sales in all of 2004- 2,372
Land sales in all of 2003- 1,240
Land sales in all of 2002- 679
Land sales in all of 2001- 407
Land sales in all of 2000- 307
---------------------------------------------
Average land sales (in 2007) per month- 158
Average land sales (in 2006) per month- 221
Average land sales (in 2005) per month- 281
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month- 56
Average land sales (in 2001) per month- 34
Average land sales (in 2000) per month- 26
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Quik Sum of Land Market

The overall supply and demand structure of the market improved slightly from the trend of the previous 12 months. Supply fell slight, demand rose slightly, and average time on the market also fell slightly. While this is all good, we are still along ways off the volume top of mid 2005. However, I must give credit to the market here, as it is holding up well under the conditions it is facing. Those conditions being a slowing housing market, rising foreclosures, rising interest rates (over the past year), and an economy that is also slowing down, to about 2% growth.
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The market has four main characteristics that I watch. A question often asked is, "Are we in a seller's market or a buyer's market?" Let's take a look at the four major factors of the land market and how they stack up for both buyers and sellers.

-Supply numbers- very near the record high levels set in Q 4 of last year
For Buyers, rate this area an "B", more listings means more choice for buyers (in certain areas)
For Sellers, rate this area an "F", more listings means sellers have more competition

-Demand numbers- at 170, this is fairly good, enough land is selling so that properly priced parcels can sell
For Buyers- rate this area a "C", parcels can still disappear if buyers hesitate
For Sellers- rate this area a "B", although sales have fallen 47% since 2005, market is still active

-Demand quality- poor, very poor. To illustrate this, only 27% of March's solds are reported below,
with 73% of all of March's sales not worthy in quality of location to report. Think of it this
way: most "penny stock" quotes don't appear in your local paper. The predominance
of poor quality demand is typical late cycle behavior. "Even the turkeys fly."
For Buyers- rate this area a "D", as low quality locations are what is predominantly available
For Sellers- rate this area an "A", as almost any property, subject to pricing, can sell

-Valuation- a five year bull market has repriced everything to the upside, dramatically increasing risk.
For Buyers- rate this area a "F".
For Sellers- rate this area a "B+"

Conclusion: Although weakened from 2005, the market still clearly favors sellers.
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However, overall, the market is still in a weakening phase. If you are a seller and still want to sell, by all means, do not give up.

Over the past few months even I have been surprised by which of my listings have sold. Sometimes it just takes more time for the property to find a buyer. Everyone wants to know if the market is bottoming now, if the peak weakness in the real estate market is now behind us, or is it still in front of us? The answer to that question lies in the home foreclosure market. If the worst is over there, then so it goes for the real estate market in general. However, if more foreclosures continue to come onto the market, then of course the peak weakness would still be in front of us. I am not an expert on the foreclosure market, but experience tells me that more than likely the numbers in that segment have yet to top (or our market to bottom). Last year, 40% of all real estate loans made were sub-prime or alt-A, which means these loans were made to borrowers that did not have strong enough credit to borrow in the regular mortgage market. The danger of the foreclosure situation getting out of control is obvious: foreclosures drive down the market value of homes. I can assure you, that falling home prices will eventually lead to falling land values. Historically, there has been a lag of about 1 year between the housing market and the land market. This means that whatever is happening now in the housing market, will happen in the land market within a year or so. While the land market has weakened, it does not yet show weakness to the degree that is in the housing market. We are now well past that window of one year, with housing weakness first showing itself in late 2005. Going forward from here, it will be interesting to see what and when does happen in the markets. Remember, foreclosure action is the key here. Does it flatten out or get worse?

Historically, between Bull Markets or growth spurts, there has always been a major slow down in the real estate markets. Those slow downs have also lowered land prices and produced a great longer term buying opportunities. I expect no different in this go around either.

The AV is the only real place of substantial size that Los Angeles County has left for growth, and unlike many locales around southern California, growth in the AV is welcome. The AV today, regardless of where we are in the economic-real estate cycle, still has a great growth story and a great future. If you missed the bull market of 2001-2005, we are gradually working our way towards a buyer's market. At the very least, if not a buyer's market, it will be a better buying opportunity than we have now. Better values should arise over time. Over the next several months to years, bargains will make themselves available. The knowledgeable and courageous will snap them up, knowing from market history, that buyer's markets, like seller's markets, don't last forever either. The bull markets we have had in land have one thing in common: the old price highs of the previous bull market have been exceeded by ensuing next bull market. In between, there are price pull backs, which create value and opportunity. This is when one should build their inventory and get prepared for the next bull market. This is how big money is made in AV land; not by chasing after property at or near record high prices.


- Frank Donato, March 2007

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 2007

The west Palmdale master planned community of Ritter Ranch is moving right along. Model homes are expected to be open by the end of summer. Presently, work is underway to widen Elizabeth Lake Rd to four lanes, from 25th St West to 40th St West. Officials say that the widening will straighten out some of dangerous curves in the road. Water and sewer lines have already been installed, west of 25th St West. Developer SunCal says that the goal is to eventually have four lanes past the bridge which is the entrance to Ritter Ranch. The cost of the road improvement, from the buffalo ranch to Bouquet Canyon Rd, will be about $20M. The first phase of construction will be approx 600 homes. In total, Ritter Ranch covers about 10,625 acres and will yield approx 7,000 homes at completion. Just across the ridge, to the SE, is Anaverde, also a master planned community, which already has several hundred homes occupied. Anaverde is located on Ave S, at 20th St West.

AV New Home Sales Data (source: The New Housing Monitor, Frank Donato)

As of February 18th, 2007
-New Homes sold year to date - 467
-New homes sold since last month- n/a
-New homes selling per day in 2007 - 9. 5
-New homes projected to sell this year at current sales pace- 3,467
-New home sales year to date vs. same period in 2006 (-26%)
-Number of "new home" builders in the AV- 38
-Number of open subdivisions with sales in Q 1 2007- 66

2006 - total of all new homes sold- 2,584
2005 - total of all new homes sold- 4,579
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- 4,900 +

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)Fieldstone Communities
Fieldstone Communities
First Pacifica
Forecast Homes
Frontier Homes
Gibraltar Homes
Grenhill Development
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
Matthews Homes
MBK Homes
Mitchell Development
New West Builders
Odyssey Homes
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
Rising Star Communities
Standard Pacific
Stratham Group
Sun Cal Communities (Ritter Ranch)
Tandis Homes
Trimark
US Home Corp.
Warmington Homes
Western Pacific
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AV Land Market

"Supply and demand, in the end, determines the value of all things."
- Adam Smith, "Wealth of Nations"
18th century Scottish economist

Supply closed out Feb at 3,159 a fractional drop from last month's 3,172. It was the 3rd straight month of falling supply, however supply still remains at historically high levels. Feb.’s decline of 13 active listings represents a drop of less than 1/2%. These are not the levels from which Bull Markets are launched, but if supply could stabilize her, which it appears to be doing, that would be a positive. Up until December's decline, supply had risen 19 consecutive months. February's supply, versus February of 2006, is up 696 listings or 28%. Since the April 2005 low of 1,751 land listings, supply has risen 80%. This is a gain of 1,408 active land listings over the past 22 months. In January the amount of time needed to sell all standing inventory, or active land listings, fell slightly, from 21.2 months to 20.2 months. Again, the change of direction is good, but this is still near historic highs. As recently as just last June, this number was at 11 months to sell all standing inventory. In April of 06, this number was in single digits, at just over 8 months. This means, that in less than
a year, the time needed to sell all inventory, based on the current sales pace, has more than doubled. April of 2005 was when this indicator peaked in strength, when all land listings could have been sold in just 5.6 months. Historically, rising supply, when accompanied with weakening demand, has eventually lead to a weakening of prices. In any market, excess supply is a problem, shifting pricing power from sellers to buyers.
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Supply numbers in perspective:
Supply change vs. last month: - .4%
Supply change, year to date: - 3%
Supply in Feb 07 vs. Feb 06: + 28%
----------------------------------
Supply at end Feb 2007- 3,159
----------------------------------
Supply at the end of 2006- 3,263
Supply at the end of 2005- 2,264
Supply at the end of 2004: 1,902
Supply at the end of 2003: 1,607
Supply at the end of 2002: 1,770
Supply at the end of 2001: 1,665
Supply at the end of 2000: 1,800
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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 value comes from the magnitude of change, and that change in relation to demand.
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Demand in Feb (156), actually ticked up a bit, adding 7 sales from January's 149. This represents a gain of 4.6%. January rise was the first month of increasing land sales in 6 months. Presently, job one here for the market is to see if it can hold in the 150 area in monthly sales. At the 150 area, our market is active and fairly liquid, allowing seller's to sell. The next level of import would be 200 sales per month. Prior to this breakdown in volume in July, the land market recorded over 200 land sales 19 months in a row, a streak that started in Dec 2004. To get back above the 200 sales per month level would be a very bullish indicator. Although we have had a 2 month reversal of weaker sales, this does not qualify as a reversal of the trend of contracting volume. Presently, the volume trend is still down. The last 8 months of land sales have been 179, 182, 81, 164, 154, 142, 149, and Feb.’s 156. That 8 month average is 163. A more recent view, the 3 month moving average, is 149 sales per month. Since the peak of April 2006, at 323 land sales, land sales are now down, on a monthly basis, -54%.

Avg days on the market- 182 days, rising 2 days from January.

Demand numbers in perspective:
Land sales year to date- 305
Feb 2007 vs. Feb 2006 - 40%
Land sales in all of 2006- 2,648
Land sales in all of 2005- 3,376
Land sales in all of 2004- 2,372
Land sales in all of 2003- 1,240
Land sales in all of 2002- 679
Land sales in all of 2001- 407
Land sales in all of 2000- 307
---------------------------------------------
Average land sales (in 2007) per month- 152
Average land sales (in 2006) per month- 221
Average land sales (in 2005) per month- 281
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month- 56
Average land sales (in 2001) per month- 34
Average land sales (in 2000) per month- 26
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Quik Sum of Land Market

The overall supply and demand structure of the market remains unchanged from last month. I do not expect any changes in this over supply issue for many months.

The market has four main characteristics that I am watching at this time:

-supply numbers- at record high levels, I rate this area of the market a "F", however, this is the least important of the four areas. If prices weaken, large supply will work in favor of the buyers.

-demand numbers- at 156, this is fairly good, I rate it a solid "B", hopefully we will hold the 150 area

-demand quality- poor, over 1/2 of the monthly sales are in isolated speculative areas, a "D" grade at best

-valuation- a five year bull market has repriced everything to the upside, dramatically increasing risk. Over valuation is the causation of lower quality of demand, as investors alter their priority from quality to price, buying what appears to be "affordable". Rate this area an "F".

Right now we are in "no mans land", somewhere between a seller's market and a buyer's market. Opportunities for an investor to find a quality piece of land, at a reasonable price, are very low. If you are looking to buy something in this market, take your time, and be very value conscious.

The only question that has yet to receive a final answer is, "Will land prices hold in this cycle, or will they eventually decline." I know that many land sellers have had to cut their price to sell their land, but many of them have still received a good price for their land. If history is any guide, we should see some type of price declines across the board. Yet some purchases are still going off at or near all time price highs. Here is an example:

2.2 acres 35th St West & Ave L-8 $270,000 zoned 2 p/acre, bought w/ bank loan

The above sale, and some of my own as a matter of fact, are why I cannot call this market a buyer's market. Although sellers have lost much of their leverage from 2005, when the market was hot and peaking, they still have the advantage, albeit slightly. With prices stagnant, but not falling, buyers see that there is little risk in waiting. For sellers though, the window of opportunity to sell is still open. To illustrate why I believe sellers should not give up, recently I had two listings sell where they had been on the market for over 1 year. Prospects looked dim, but yet we are now in escrow. If your property is price correctly, do not give up and take it off the market at this time.

As of now, it looks like we are going to be able to hold the 150 level in monthly land sales. This is an area that gives our land market decent liquidity, or a reasonable chance to sell. A move back over the 200 land sales per month level would be very bullish. However, I believe chances are greater that we could first flirt with the 100 area before moving back above the 200 area. However, I will not "guess" at the future, but instead will let the market tell us what the future holds.

The AV is the only real place of substantial size that Los Angeles County has left for growth, and unlike many locales around southern California, growth in the AV is welcome. The AV today, regardless of where we are in the economic-real estate cycle, still has a great growth story and a great future. If you missed the bull market of 2001-2005, we are gradually working our way towards a buyer's market. At the very least, if not a buyer's market, it will be a better buying opportunity than we have now. Better values should arise over time. Over the next several months to years, bargains will make themselves available. The knowledgeable and courageous will snap them up, knowing from market history, that buyer's markets, like seller's markets, don't last forever either. The bull markets we have had in land have one thing in common: the old price highs of the previous bull market have been exceeded by ensuing next bull market. In between, there are price pull backs, which creates value and opportunity. This is when one should build their inventory and get prepared for the next bull market. This is how big money is made in AV land; not by chasing after property at or near record high prices.


- Frank Donato, February 2007

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

December 2006 / January 2007

Dec 4th- The Los Angeles Board of Airport Commissioners rename Palmdale's airport. The new name is LA / Palmdale Regional Airport. The new name was given in hopes of helping to market the site for a new passenger carrier. Ontario's airport was renamed also, to LA / Ontario. The reason given was as follows: much of the traveling public outside of California is not familiar with Palmdale, and many confuse Ontario with the city of Ontario in Canada. Every airline network planner that was questioned about the name change, agreed that it was a positive move, making it easier to market the Palmdale location.

Dec 5th- Greg Anderson, President of Rancho Vista Development Co, which developed the 1,300 acre master planned community of Rancho Vista in west Palmdale, spoke before the AV Hispanic Chamber of Commerce. Anderson comments on the real estate market, were to say the least, sobering. Following are his comments. "The California residential real estate market is pretty dismal; don't be looking for upturn soon. 38 of the 50 states are in dramatic downturns. The worst states are in the sun belt, and the weakest of those is California. Things are tough and are going to get tougher. Buyers have the best market in which to buy in 5 years, and it is going to get even better for the buyers. Buyers learn fast regarding the changing market." For those that already own a home, Anderson advice was simple, "Keep it and enjoy it, you need a place to live anyway. If you don't really need to sell your home, one should wait awhile. Stuff is selling, but it must be priced realistically. You are not going to be successful selling at the old inflated prices." Moving on, Anderson said, "The weak market, which I think will get even weaker, is already having a ripple effect. Construction jobs are disappearing. Concrete, which was hard to get at any price during the boom, is now being stockpiled in yards of cement companies. The Chinese market for construction materials is drying up." In closing, Anderson said, "The major homebuilders, which get feedback from the market everyday, i.e., sales vs. inventory, will be the first ones to know when the market improves."

Dec 7th- In an attempt to avoid summer shortages, the Los Angeles Waterworks District announces that they are preparing to drill 4 new water wells. The well sites are near 5th St East & Ave M (Columbia Way). A Waterworks official said that these wells are not intended to increase the amount of water they are currently pumping, but to help out in the peaking factor in the summer. The water district hopes that the new wells will be online by August of next year.

Dec 30th- Ralph's Market, owned by Kroger Co. of Cincinnati, Ohio, announces they will close their Ave K store, just east of the Fwy 14. The store will close for good on January 6th at 6pm. Comment: this store has as much square footage as many warehouse stores, yet, over the years, whenever I was in there, they was never any serious foot traffic. Frankly, I don't know why it took this long to close the store. In all likelihood, the opening of the new Winco, about 1 mile away, did them in. Winco is warehouse grocery store with tremendous selection and perhaps the lowest grocery prices. Some of Winco's prices are even lower than Wal Mart's. Winco is located on 10th St West, just south of Ave L, next to Lowe's Home Improvement. I can also tell you, having done business with Ralph's, in selling some of their commercial land, the company is not well run.

Jan 5th- The proposed west Lancaster shopping center site, the Amargosa Creek area of 10th St West, Ave K-8, 5th St West, and Ave L, is still very early in it's life cycle. Presently, the City of Lancaster is pondering the expense with dealing with the dry Amargosa creek (sometimes wet) and wants a formal feasibility study, a cost benefit analysis, all of which will probably require an environmental report. While this project will be slow going, the site is a quality one and the need is there, so this in all likelihood, will eventually happen.

Jan 5th- The City of Palmdale announces, that their efforts to recruit a new air carrier to the Palmdale Air Terminal, has born some fruit. Two major airlines, Delta Airlines and United Airlines, have submitted proposals to the City outlining under what conditions they would add Palmdale to their routes. Unfortunately, the proposals will not be opened, and their contents released, until next week, well past my publishing deadline. Obviously, one factor in attracting Delta and United is the $2M subsidy put up last year by the Federal Govt. and Los Angeles World Airports. Above that $2M subsidy, is another $2.6M in marketing and other help promised by Los Angeles, Palmdale, and the county. The Palmdale Air Terminal is located at 25th St East and Ave O-8 and is located on land known as Plant 42 and is owned by LAWA, but leased by the Air Force. The last air carrier to service Palmdale was Scenic Airlines of Las Vegas which left in Jan of 2006. Scenic claimed they were not properly supported as promised by the City and county. Prior to Scenic Airlines, the last carrier to leave Palmdale did so in April of 1998. In 2005, LAWA spent about $1M in rehabbing the air terminal.
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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. The following data in on the NATIONAL housing market, and may or may not be in "sync" with the AV housing market.

Nov housing starts (Commerce Dept), released Dec 19th, rose + 6.7% after a weak showing last month when it fell 14% in October. Starts rose to a seasonally adjusted 1.588M, which has them down, versus one year ago, -25%. Housing starts for the first 11 months of 2006, are down 12.5% versus the same period last year. Regionally, housing starts came in as follows: in the NE, they were up +8.6%, in the south they were up 18.5%, in the mid West they fell -6.3%, and in the west starts were down - 8.1% to their lowest level in five years.

Nov building permits
, (considered a leading indicator and a signal of future activity) also released Dec 19th, fell - 3% to an annual rate of 1.506M, the 10th straight monthly decline. Year over year, permits are down 31.3%. Year to date, the first 11 months of the year, permits are down 14.1%. While permits were down, they did come in 100k above expectations. One housing analysts wrote, "Completions of single family homes are running slightly ahead of last year's level, so there is still a huge correction required in home building activity in order to draw down excess inventory."

Nov existing home sales (Nat’l Asso. of Realtors), released Dec 28th, rise .6% to an annual rate of 6.28M. Inventory (supply) fell 1% to 3.82M which represents a 7.3 month supply based on Nov's sales pace. Over the past year, sales of existing homes are down 10.7%. Year over year, median sales prices fell 3.1% to $218,000. This is the 4th consecutive month that year over year median sales prices have fallen; something that has never happened since the Nat’l Asso. Realtors have kept this data (1968). The rise in existing home sales, although slight, was unexpected and is further evidence, that at the very least, the housing market is making an attempt to stabilize. Regionally, sales came in as follows: in the NE, +6%, in the Mid-west, unchanged; in the west sales were up fractionally at +.8%; in the south existing home sales fell 3.2%.

Nov new home sales (Commerce Dept.), released Dec 27th, were up 3.4% to an annual rate of 1.047M. Median sales price of a new home rose 3.2% to $251,700. October sales were also revised higher. Nov supply dropped 1.4% to 545,000 new homes, which represents a 6.3 month supply at November's sales pace. Supply is now at the lowest level since last May. Housing analysts say that mild weather around the country help boost new home sales. Regionally new home sales came in as follows: in the NE, sales rose 22.5%; the Mid west they rose 22.4%; in the west + 19%; and in the south, new home sales were down 9.3%. Over the past year, new home sales are down 15.3%. Housing and real estate analysts are careful not to declare that the bottom in housing is in, saying in lieu of such proclamations, that the housing market is stabilizing. While this report is good news, it can take up to 6 months for housing trends to become clear.

In California, in 2007, thousands of adjustable rate mortgages will have their interest rates reset for the first time. It is believed that this will contribute to foreclosure activity. In Q3, according to DataQuick, foreclosure activity in California surged to it's highest level in more than 4 years. Lenders sent out 26,705 notices of default to borrowers, which is up 28.3% from Q2, and up 111% from Q3 of 2005. Once a home is foreclosed upon, and the lender takes it back, it increases the supply of housing on the market, and competes with both new home sales and existing home sales. Too much supply, in the face of falling demand, is the major problem that has the housing market struggling right now. Although foreclosures are rising, DataQuick says that they are still below the historical average.

In Oct, DataQuick says that existing home sales in the southern Cal area were the slowest in 10 years, Oct of 1996. The median price of an existing home in Oct was $484,000, which is up 2.3% vs. Oct of 2005 at $473,000. Year over year increases have been in single digits for 7 months and are expected to go negative in 2007. For the entire southern Cal area, November 2006 existing home sales, versus November 2005 existing home sales, were down 26.2%. In November, median southland home price was $487,000, up slightly from October's $484,000. Median home prices in November of 2006 are up 1.7% vs. November of 2005. Median home prices peaked in June 2006 at $493,000. First high prices and rising interest rates kept buyers out of the market, against their will as they could not afford the down payment or monthly payment. But then as the market tops, many buyers realize that the market did them a favor by keeping them out of the market, as they begin to realize that price declines are a real possibility. If one believes that home prices are about to decline, what is the hurry in buying one? It is, essentially, the mirror image of the 2002-2005 period.
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Antelope Valley Housing Market

According to statistics released by GAVAR, our local real estate board, during the period of June thru Nov of 2006, versus the same period in 2005, existing home sales are down 7.9%. However, the average price of homes sold in those two time periods, were up 2% in 2006. Length of time a house is on the market was also up in 2006, up 21%. November of the two years was much more telling though. In Nov of 2006, versus November of 2005, 64% fewer homes were sold this year. The average sales price in Nov of 2006 though, was up 4.5% versus Nov of 2005 at $360,720. In November, number of days on the market in 2006, versus Nov 2005, is up a whopping 84%. So, we have a market in which homes can be sold, but in which pricing relative to the new realities is all important.

The California Building Industry Asso. says that new home production in November fell 9% versus October. In a year over year comparison, Nov 2006 vs. Nov 2005, new home production is down 34% statewide. Again statewide, building permits in Nov 2006 were down 38% vs. Nov of 2005. Total home starts, statewide, at the end of November were 152,551. Analysts say that it is doubtful that starts will even break the 180,000 level, let alone the 250,000 starts needed to keep up with Cal's population growth. Although there is substantial demand for entry level homes for first time buyers, government regulation and fees make it impossible to build homes for that segment of the market because profit margins would be too thin or non-existent. This has builders building to satisfy the trade up market and the upper end buyers.

The So Cal housing market has just one question left to answer: when will, if at all, the 2nd shoe drop? When will prices break and median home prices begin to fall? History suggests they will fall, but who says markets have to follow history. I am surprised and amazed that median home prices have held up this long. I have already come to the conclusion that 2007 will NOT have a recession. Also, the jobs market should be OK next year. This is a positive argument in favor of home prices holding up. However, falling prices could be driven by that old economic rule of supply and demand: excess supply in relation to demand. If the economy and jobs market are going to be OK, what could slow demand? How about the already high prices? Also, consider this: at present prices, interest rates are too high, meaning we need lower prices or lower interest rates to bring down the monthly payment, the cost of owning a home.

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

As of December 17th, 2006
-New Homes sold year to date - 2,572
-New homes sold since last month- 148 (1.55 homes per tract)
-New homes selling per day in 2006 - 7.32
-New homes projected to sell this year based on ytd sales pace- 2,672
-New home sales year to date vs. same period in 2005 (- 42%)
-Number of "new home" builders in the AV- 38
-Open subdivisions with sales in 2006- 95
-Open subdivisions with sales in Q 4- 72

2005 - total of all new homes sold- 4,579
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- 4,900 +

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)Fieldstone Communities
Fieldstone Communities
First Pacifica
Forecast Homes
Frontier Homes
Gibraltar Homes
Grenhill Development
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
Matthews Homes
MBK Homes
Mitchell Development
New West Builders
Odyssey Homes
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
Rising Star Communities
Standard Pacific
Stratham Group
Sun Cal Communities (Ritter Ranch)
Tandis Homes
Trimark
US Home Corp.
Warmington Homes
Western Pacific
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Land Market

"Supply and demand, in the end, determines the value of all things."

- Adam Smith, "Wealth of Nations" 18th century Scottish economist

Supply closed out Dec at 3,263, down 110 listings, or 3.2%, from last month (November). While it is good to see supply drop for the first time in 19 months, it did not drop because of stronger land sales. It dropped by 110 listings because many agents and brokers use Dec 31st as their expiration date when they take a listing. So the drop of 3.2% is more seasonal than anything else. Many of these listings which dropped off our MLS on Dec 31st will be relisted within a week or so. That said, the good news is that the 19 month streak of rising supply has been broken. The bad news is that there is still 3,263 active land listings on the market which is up 44% from Dec of 2005. That is 999 more land listings in Dec of 2006 vs. Dec of 2005. Since the April 2005 low of 1,751 land listings, supply has risen 86%. This is a gain of 1,512 active land listings over the past 20 months. Year to date, supply is up 38%. In December the amount of time needed to sell all standing inventory, or active land listings, rose again, to 22.9 months, up one month from November. As recently as just last June, this number was at 11 months to sell all standing active land listings. In April, this number was in single digits, at just over 8 months. April of 2005 was when this indicator peaked in strength, when all land listings could have been sold in just 5.6 months. Historically, rising supply, when accompanied with weakening demand, has eventually lead to a weakening of prices. While prices in both the housing market and land markets have held up surprisingly well, we are not yet out of the "danger zone" on this issue. In any market, excess supply is a problem, shifting pricing power from sellers to buyers. There are two ways for supply to drop: property is either sold off the market, or it is removed from the market by the seller. These supply numbers, coupled with falling demand (see below), means that the AV land market continues it's transition from a seller's market to a buyer's market.

Supply numbers in perspective:
Supply change vs. last month: - 3.2%
Supply change, year to date: + 38%
Supply in Dec 06 vs. Dec 05: + 44%
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Supply at end Dec 2006- 3,263
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Supply at the end of 2005- 2,264
Supply at the end of 2004: 1,902
Supply at the end of 2003: 1,607
Supply at the end of 2002: 1,770
Supply at the end of 2001: 1,665
Supply at the end of 2000: 1,800

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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 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 value comes from the magnitude of change, and that change in relation to demand.
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Demand in Dec (142), fell by 12 land sales, which is a - 7.7% decline vs. November. Including July's break in volume, when sales fell 32% (vs. June), and the ensuing 5 months, we now have 6 months in a row of weaker land sales. Weak meaning substantially below, the 200 per month level. Prior to this breakdown in volume in July, the land market recorded over 200 land sales 19 months in a row, a streak that started in Dec 2004. During that 19 month streak, average land sales per month was 275. So, as you can see, there is a lot work to be done to get back over that 200 number. From December's 142 number, we need an improvement of 41% in sales volume to reach that 200 number. In view of the fact that land sales have now fallen 6 months in a row, we are light years away from the 200 level. Before we can even talk about making a run at 200, we must first reverse the present trend of weaker monthly land sales. Presently, the volume trend is down, not up. The last 6 months of land sales have been 179, 182, 181, 164, 154, and Dec's 142, a clear declining trend. Getting back above 200 would be a very bullish sign for this market, however at this point in time I would be happy just to see land sales get back over the 150 area and hold it. That would be very constructive. Since the peak of April 2006, at 323 land sales, land sales are now down, on a monthly basis,
-56%. Taking the average of the last 6 months, we are now averaging 167 land sales per month. The 3 month average is 153.

Avg days on the market- 176 days, rising 10 days from November.

Demand numbers in perspective:
Land sales year to date- 2,648
Dec 2006 vs. Dec 2005 - 50% (down)
Land sales in all of 2006- 2,648
Land sales in all of 2005- 3,376
Land sales in all of 2004- 2,372
Land sales in all of 2003- 1,240
Land sales in all of 2002- 679
Land sales in all of 2001- 407
Land sales in all of 2000- 307
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Average land sales (in 2006) per month- 221
Average land sales (in 2005) per month- 281
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month- 56
Average land sales (in 2001) per month- 34
Average land sales (in 2000) per month- 26
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Quik Sum of Land Market

The overall structure of the market has not changed from last month- supply is still too high in relation to demand. The market continues its transition from a seller's market to a buyer's market, but at the present, it is neither. Buyers are backing off and in most cases, not paying top dollar. Many of the sellers are also playing it tough and not cutting prices drastically. So, in many instances, we have an impasse, where buyers and sellers just cannot agree on value. At this stage of the market cycle, this is typical. Eventually, this too will end and one or the other (buyer or seller) will win out, with the other side reluctantly facing reality. At present, my money is on the buyers in this contest; time and the fundamentals of supply and demand are on their side.

We are not "out of the woods" yet in regard to the potential of falling housing and land prices. On this issue, I am neither an optimist nor a pessimist, but a realist. Common sense and history tell us that in any market, when supply rises and demand falls off, prices weaken. Until we see demand improve and or supply fall off, I will continue to hold this view. As strange as this may sound, The sellers shouldn’t give up here and take their property off of the market. Land is still selling. 150 land sales per month, while way off of the record high's of 2005, is still a fairly active market. In addition, the way supply and demand are lining up, for at least the first half of the year, the market will likely continue to weaken. If so, the market is stronger now than it will be next month (and so on). So it is better to hang in there now and hope to get it sold, after all, 140 to 150 sellers per month are going to escrow and if you give up, you will most certainly not be one of them.

The AV is the only real place of substantial size that Los Angeles County has left for growth, and unlike many locales around southern California, growth in the AV is welcome. The AV today, regardless of where we are in the economic-real estate cycle, still has a great growth story and a great future. If you missed the bull market of 2001-2005, we are gradually working our way towards a buyer's market. At the very least, if not a buyer's market, it will be a better buying opportunity than we have now. Better values should arise over time. Over the next several months to years, bargains will make themselves available. The knowledgeable and courageous will snap them up, knowing from market history, that buyer's markets, like seller's markets, don't last forever either. The bull markets we have had in land have one thing in common: the old price highs of the previous bull market are exceeded by the next bull market. In between, there are price pull backs, which creates value. This is when one should build their inventory and get prepared for the next bull market. This is how big money is made in AV land; not by chasing after property at or near record prices.


- Frank Donato, January 2007

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