Equal Housing Opportunity
AV News Briefs - By Frank Donato

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

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First Quarter 2012 Antelope Valley News: January

January 2012

Antelope Valley Housing News

Please ask for Frank & Fidelity Title on your next Title Order

AV Existing Home Sales

- December, the sale of SF homes falls -9.8% vs. Nov 2010 and …………..
- falls -9.8% for all of 2011
- in Dec 467 homes were sold, for 2011 5,826 homes were sold
- in Dec the average selling price was $145,122
- the average selling price for all of 2011 was $140,158, -3.8% vs. 2010
- realtors report: the key issue is lending, banks are still being overly cautious on loans, making it harder to enter the home market
- investors continue to buy a lot of homes for rentals; this is seen as positive as they wouldn’t be doing so if they didn’t think the market would improve

RealtyTrac, a real estate reporting firm, says that of the nationwide zip codes with the highest foreclosures, the AV had five in the top 100 for 2011.

Following are the zip codes, their foreclosure numbers, and national ranking.   

93535  east Lancaster  1,783, ranked 7th highest out of 100
93536  west Lancaster 1,701, ranked 10th
93550   mid Palmdale  1,636, ranked 15th
93551  west Palmdale 1,225, ranked 60th
93552   east Palmdale 1,072, ranked 96th 

Why did AV homes rank so high nationally?  Because it has a large new home market.  Said a RealtyTrac official, “The area was ripe for foreclosure.  There had been a lot of building and a lot of homebuyers who stretched themselves to buy. Thus, when the market rolled over, many homes in the AV were “severely underwater”, prompting many buyers to simply stop making payments.  The good news is that California, and the AV, have passed the peak in foreclosures.”

Palmdale / Lancaster REO Inventory

Here are the Dec foreclosure inventory (supply) numbers.  These numbers tell us how many homes are in the foreclosure “pipeline”.  This is THE most important category to track in regard to the progress of the housing recovery.

Palmdale- 2,415 homes are in default, in foreclosure, or are bank owned (REO)
Dec versus prior month:  down 283 homes /  -10.48%    
Dec 2011 vs. Dec 2010:  down -1,302 homes or -35%
Number of months needed to sell off foreclosures at the “12 month trailing pace” (2,415 / 1,302) = 22.2 months

Lancaster- 2,243 homes are in default, in foreclosure, or are bank owned (REO)        
Dec versus prior month:  down -291 homes or -11.48%
Dec 2011 vs. Dec 2010:  down - 919 homes or -29%.
Number of months needed to sell off foreclosures at the “12 mo trailing pace” (2,243 / 919) = 29.2 months   

Dec summary:  While AV banks still control/own 4,658 homes in Palmdale and Lancaster, last month the rate of decline in their supply accelerated notably.  We are now well below the 3 year (36 months) supply mark.  While we will not see any immediate improvement in housing prices, it is none the less encouraging that the market has picked up the pace in absorbing the lender’s supply.  Three years ago the number was 8,000, so we are making progress and that progress just may accelerate even more.  I have been tracking these numbers for several years now and the Dec report (above) is the most positive I have seen to date.  If the banks could continue to sell their inventory at Dec’s pace, which is unlikely, Palmdale and Lancaster supply would be cleared out in 7-8 months.  This assumes that the banks do not take on any new inventory, which again, is also unlikely.  But these numbers do us a ray of hope that perhaps the end of the housing glut is not as far away as we once thought. 

California Housing News

New California Law !

If you have not heard, as of January 1st all new residential construction must include residential firefighting sprinkler systems (in ceilings).  Depending upon the size of the home, this will add $3,000 to $8,000 to the cost of a new home.  In addition, if you are remodeling, you will have to install sprinkler systems in the remodeled portion of the home.  If your home is destroyed for any reason, when you rebuild it, you must include a sprinkler fire protection system. 

California Statewide

- permits pulled on all types of housing, multi-family & SF homes, 47,015, up +5% vs. 2010
- the lowest level on record for all types of permits was in 2009 at 36,421 
- permits pulled for SF homes in all of 2011 was 21,420, dn. -16% vs. 2010, an all-time low
- in Dec, statewide, existing SF home sales were up +3.3% vs. Nov and up a fraction versus Dec 2010
- in Dec, statewide, median prices of SF homes fell 6.3% vs. Dec 2010 to $285,950
- in Dec statewide, sales between $300k & $800k fell 10.7%.  Sales of homes above $800k fell 21.2%
- in Dec, statewide, the median price of all new and existing homes and condos was $270,000, which was down -1.8% from November, and down -6.9% from Dec 2010

In regard to the above numbers, officials at the Construction Industry Research Board say that, “We are far from being out of the woods just yet.  Perhaps the only positive to take out of these numbers, is that at least they are headed mostly up, not down.  We strongly encourage state lawmakers to seriously examine any legislation that may harm the housing industry and further impair the broader economic recovery.”  The CIRB was making an obvious reference to a new law, effective in 2012, that in all new homes fire sprinkler systems be included.  This adds $3,000 to $8,000 to the cost of a new home.

So. Cal Housing Market

- in Dec in the 6 counties that make up southern Cal, sales of SF homes were up +14% vs. Nov. Versus the prior month, Dec sales were down -1.4%
- in Dec, in Los Angeles county, sales of SF homes and condos were up +.8% versus November, but median prices fell -7.6% to $305,000            
- in Dec, the sales price of a new home, versus Dec 2010, fell -12%
- in Dec in southern Cal, distress sales are still high, 52.5% of all sales
- in Dec in southern Cal, investors buys were 26.4% of all sales with a median sales price of $200,000
- in Dec, new home sales for southern Cal were down -12%, the weakest Dec on record  

AV Aerospace & Defense News             

Jan 14- Testing at Edwards Air Force on improving the strike capabilities of the B-1 Bomber have been successfully completed.  The result is that the B-1 Bomber will be updated so that it can strike moving targets.  This will allow the B-1 B to act in close support of troops on the ground, with targeting done by computer.  The B-1B has an interesting history.  Designed in the early 1970’s, its production was killed off by President Jimmy Carter in 1977, saying the country could not afford it.  In 1981, after the election of Ronald Reagan, the B-1 was put back into the Pentagon budget and built.  In the late 1980’s, as Soviet communism crumbled under its own weight, the plane was referred to as the Bomber that won the cold war, even though it never dropped any bombs.  Proponents say the B-1 B convinced the Soviets that they could not compete with US defense technology and convinced the Russians to fold their cards.

Jan 16- Here is a fascinating video from December 2011 of the F-35 Joint Strike Fighter going through its daily workout on the USS Wasp off Hampton Roads, Virginia.  Notice, on take offs and landings, no more catapult and tail hook! Click here:  F-35B

Jan 27- Defense Secretary Leon Panetta has submitted his 2013 Defense budget to the President. In it Panetta is calling for the halting of production of the Global Hawk 30, an unmanned spy plane built at Plant 42 in Palmdale.  At the same time though, the budget asks for the funds to resurrect an old air frame, the U-2.  The U-2 was first used in the Eisenhower administration in the late 1950’s and has been out of production for decades.  The U-2 though has been providing jobs in Palmdale as the aircraft has been having its avionics updated for the Air Force and Great Britain which also still uses the plane.  The budget request is to discontinue the Global Hawk 30 in favor of the U-2 which can do the same job as the GH 30, but for less money.  The Pentagon would retain the Global Hawk 40 (another version) but install it with a more advanced radar system which is able to track moving vehicles.  Four to five U-2’s are modified each year in Palmdale, but the modifications are classified.  The U-2’s that the Air Force uses now were built in the 1980’s and are larger than the original 1950’s version.  The U-2 does have the disadvantage of putting a pilot at risk.  The GH 30 is equipped with cameras, radar, and sensors for monitoring enemy transmissions on the ground.  The GH 40 has a high performance radar that allows it to see through most types of weather, day or night.  None of these proposed changes can occur until Congress votes their approval.  To say the least, the U-2 has an interesting “Cold War” history, having been shot down over Russia and Cuba both.  The Cuban shoot down was during the Cuban Missile Crisis, October 1962.

Jan 31- With the Pentagon looking to cut spending, another round of Base Realignment and Closure
Process (BRAC) could be in the offing.  The last round of military base closures was in 2005.  It’s a tough process as every member of the Congress comes out defending bases in their own districts/states.  The Air Force, with 500 fewer planes than in 2005, is a likely target to have some bases closed and or consolidated.  The process is in the very early stages, so much so that even preliminary dollar savings numbers have not even been projected yet.  The process usually takes longer than the one year that this President has left, so if not re-elected, who knows how the new President will view spending priorities.    

AV Solar & Wind Energy News

Jan 15- Arizona based First Solar, who in late December laid off ½ of their construction crew (37) at their solar farm at 170th West & Ave D, announces they are increases community incentives from $140,000 to $280,000.  Residents of the area consider the fee as “mitigation” for changes made to the area landscape.  The $280,000 is in addition to the six contributions of $10,000 each to schools in the area.  At least ½ of the $280,000 is expected to come in the form of scholarship money for college age students or adults seeking additional job training.  One possible reason the workers may have been laid off, is that the project could be well ahead of schedule.  In response to the criticism of the unannounced layoffs on Dec 30th, First Solar said that it decided long ago to slow down construction of the project around Jan. 1st, then furlough workers.  Officials say they were initial hurrying to reach certain construction goals that would quality the project for loan guarantees and other benefits provided by the federal govt.  Comment:  For those that didn’t know, electricity produced by solar and wind is more expensive, much more expensive, than electricity produced by other traditional sources, i.e., coal, nuclear, natural gas, and hydro turbines.  While alternative may be clean energy, it’s very high development costs are forcing up the cost of electricity for the average consumer.  This is a trend that will go on for years.  Starting with Governor Schwarzenegger and continuing with Gov. Brown, by law, the state has committed to green energy production, regardless of cost. 

Jan 17- Lancaster Mayor Rex Parris is in Abu Dhabi, United Arab Emirates (middle east) for the World Future Energy Summit.  In attendance at the summit are over 26,000 people, 3,000 delegates from various nations, and 650 exhibiting companies.  The summit provides an opportunity for Parris to meet and greet several “Crown Princes” and to tell the story of Lancaster’s lead in the alternative energy market.  The summit is also a great opportunity for “networking and attracting investment” to Lancaster and the AV.  Parris says that he is very surprised at how much interest there is in what the City of Lancaster is doing in their quest to make Lancaster a “net zero” energy user.  A net zero energy user would be one that produces more clean energy than the “dirty energy” it uses.  The Mayor’s longer term goal is to remove Lancaster’s reliance on the state’s power grid.  From the summit Parris said, “It is astonishing how far ahead of the world we are in Lancaster in actually using alternative energy.  Here people are talking about it, but we’re actually doing it.  Our goal is to make Lancaster the solar capital of the world.”……………… Also in attendance at the summit was the Beautiful Earth Group which is building a two solar farms on 180 acres between 80W & 90W on Ave H.  Dubbed Del Sur 1 and Del Sur 2, the solar plants when done will produce electricity for 9,200 homes.  Parris during the summit had meetings with the mayor of Dubai and the CEO of the Dubai World Investment firm.  While he does not know specifically what will come of the meetings, Parris said, “It’s all about relationships.”         

Jan 24- The Los Angeles County Board of Supervisors voted 5-0 to kill off two  proposed wind farm projects along Portal Ridge, west of Palmdale and Lancaster.  The area is question is south of the Poppy Preserve.  NextERA Energy Resources of Florida and Element Power out of Oregon had their projects rejected.  Both companies wanted to put up 200 foot tall wind tower turbines.  Supervisors expressed a concern of the dangers the tall structures could pose.  The 5-0 vote was a victory for the residents of the far west Antelope Valley who had been fighting to keep their community free of “hillsides covered with wind turbines”.  As of this date, there are no wind turbines in the AV portion of Los Angeles County. All of the wind turbines are north of Ave A, in Kern County.  There was a lot of money riding on this decision, in more ways than one.  It has been reported that the Fairmont Town Council was verbally offered $2M not to oppose the project, which they didn’t.  But residents in the Fairmont area went around their Town Council and showed up at public hearings to oppose it anyway.   

Antelope Valley News
Jan 8- California’s proposed high speed rail train, which eventually would have gone 520 miles from San Diego to San Francisco, is all but dead.  So says the state’s own High Speed Rail Peer Review Group, saying that the rail system is “not financially feasible”.  This means that the state cannot afford to build it, nor can it afford to run it.  If ticket prices are raised to a level needed to get the system to break even or earn a slight profit, the numbers will not work as no one will pay that much to ride it.  If ticket prices are reduced down to a level to bring in more riders, the state would have to subsidize the system just to pay its bills.  Early in the last decade, the systems total cost was estimated at $30B.  However, recent cost estimates have soared with the number rising to $100B, a number that has killed off all hope that the system could be built.  Rising cost estimates, a lack of federal funding, a lack of private investor funding, and inflated ridership numbers, have all put the kabosh on the rail system……………Although too little, too late, on Jan 9th, the California High Speed Rail Authority said that according to their own $700,000 study, the AV route of the high speed rail system is superior to the alternative route along the Fwy 5, over the grapevine area.  In support of a rail system that may never be built, the Cal High Speed Rail Authority said, “The staff recommendation to discontinue studying the I-5 Grapevine alignment and to recommit to a Palmdale station makes the most sense for the future of our region.  With the Palmdale Airport, High Desert Corridor (proposed highway to Victorville/Fwy 15), potential inland port, and future DesertXpress connection to Las Vegas (another proposed rail system), the Antelope Valley is poised to become the new transportation crossroads of southern California.”  On Jan 12th, the Cal High Speed Rail Authority, in what must feel like a hollow victory for AV officials, voted and gave their approval for the AV route IF the high speed rail system is ever built.  In the out years though, as the argument over the viability of the high speed rail system resurfaces, as it surely will, who is to say that a “new” study won’t indicate that it is better and cheaper to by-pass the AV???   Comment:  Las Vegas has a 3 mile rail system (not high speed) that connects several hotels.  It cost $400M, has pickup and drop off locations that are not convenient, and when I rode it, was 80% empty.  It costs almost as much as a taxi, but is far less convenient, as the taxis are closer and take you to the front door of your destination.  If you take the Las Vegas rail system, be prepared to do a lot of walking. I rode it once out of curiosity, and that was enough for me.  If ever built, the high speed system could have the same fate.  Due to all of the stops along the way, the high speed advantage is also greatly minimized.

Jan 10- In a move that will partner the City of Lancaster with Solar City Corporation, the Lancaster city council voted their approval for the Lancaster Power Authority to go into the energy business. LPA will be able to establish, own, operate gas & electric utilities, acquire and operate real property, and to set up separate entities for large projects to limit liability and risk, ALL for the benefit of the City of Lancaster.  Lancaster and Solar City will jointly market alternative energy facilities to other communities in California.  The Lancaster City Council will be directors of the LPA. 

The Lancaster Power Authority will be able to:
- issue revenue bonds or other forms of indebtedness
- can sue or be sued
- designate a service area or areas for service
- engage in business and housing retention
- implement energy conservation programs
- distribute revenues to member entities for any lawful purpose

Jan 25- The Home Town Buffet in Lancaster has been shut down as part of the company’s bankruptcy filing and restructuring.  Corporate evaluated all of its almost 500 restaurant locations and is closing 81 under performing sites.  In California, only 3 are closing, Lancaster, Long Beach, and Union City.  As part of their restructuring agreement, Home Town Buffet will try and negotiate more favorable lease terms with their landlords as well.   

Jan 30- construction of the new Quartz Hill underground flood / drainage channel on 50th St West begins.  The $15.8M project begins at Ave K, then will move south up 50th St West.  The project will be built in 3 different phases.  In the area of QH Elementary School, 50th St West & Ave M-4, the work will end in late summer, winding up before school starts.  The overall project will run into October.         

Jan 31- The Antelope Valley Enterprise Zone, which since 1998 has helped over 1,100 businesses in the AV,  expired.   The Zone has provided numerous tax breaks and benefits for both new and existing businesses and has been a magnate for business in the AV.  Officials estimate the tax savings to AV businesses over the past decade at $100M.  The zone consists of 61 square miles and essentially includes all of the commercial and industrial land in Lancaster and Palmdale.  Led by Gov. Brown, the state is refusing to take applications to renew all EZ’s in the state.  Enterprise Zones all over California (42) will eventually expire too.  Gov. Brown says, that since their inception, EZ’s have cost the state $3.6B in tax revenues.  The Gov. has also won State Supreme Court case that upholds a law passed in 2010 to eliminate all (400) Redevelopment Agencies in local cities in California.  Again, this move is a pure state money grab.

Antelope Valley Building Permit History\\

Source of data:  Antelope Valley Building Industry Assoc.
bold = housing boom years

This is the 1st time that this 25 year data has appeared in my newsletter. 

1987-  5,948
1988-  6,750
1989- 12,384
1990-  2,020
1991-  2,124
1992-  2,764
1993-  1,348
1994-  1,115
1995-   861
1996-   900
1997-   965
1998-   861
1999-  1,442
2000-  1,129
2001-  1,712
2002-  1,588
2003-  2,225  
2004-  3,985
2005-  5,076   
2006-  3,565
2007-  2,194
2008-  1,019   
2009-    565  
2010-    528    
2011-    292   

Comments- the building boom of the late 1980’s (25,118 homes in 3 years) far exceeded the boom of 2003-2007 (17,045 homes in 5 years).  The weakest year during the 1990’s was 1995 at 861 permits pulled.  That is almost 3 times stronger than last year, 2011, the low so far in this down cycle.  During the slow 1990’s, a lot of pent up demand was formed.  If the pent up demand of the 1990’s lead us into the strong market of the 2000’s, how much pent up demand is being developed right now with an even slower market?  In markets, one extreme leads to another…………this Bear market is creating conditions for the next Bull market.        
Antelope Valley Land Market

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

Supply- January 
active land listings,  1,494
Dec vs. prior month, - 222 listings
mo over mo % change, -12.93%
yr. over yr. % change, - 6.21% (-222 listings)

Comments & Summary
- supply finally falls below the 1,500 level, a forecast I made in 2007
- supply, along with demand, are now at 10 year + lows
- supply has even gone below the March 2000 level of 1,548
- as forecasted last month, most of the listings that expired on Dec 31st and Jan 1st did not get renewed, with the discouraged sellers giving up  
- the number one reason most land is not selling, is price, most listings are over priced
- next major target for supply is 1,000; if we get there, it will take 1 – 2 years
- falling supply makes it tougher to find deals
- falling supply and weakening monthly sales mean only one thing:  this market is not done going down.
- land can only recover after the housing market has recovered, and even then it will not be immediate, land will lag the housing recovery

Supply at end of Jan 2012:  1,494
Supply at the end of 2011:  1,716
Supply at the end of 2010:  1,620
Supply at the end of 2009:  1,673
Supply at the end of 2008:  2,100
Supply at the end of 2007:  3,134
Supply at the end of 2006:  3,263 (market peak in prices)     
Supply at the end of 2005:  2,264 (market peak in sales volume)       
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
Supply  in  May  of  1989:      587 (market peak in price)


- Frank Donato, First Quarter 2012

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