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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Second Quarter 2006 Antelope Valley News: April May June


April 2006

Antelope Valley Real Estate & Economic Outlook

April 10th- Antelope Valley is Red Hot!

March 13th- With most of the grading already done, Universal Health Services announces that it is now taking construction bids for work on the facility's outer shell. This would include the superstructure or steel supports and the exterior walls. Bids are also being sought for the retaining walls that will go around the facility. Universal hopesto have all bids in within 4 weeks and a contractor selected within 6 weeks, or early May. The hospital is expected to be completed by the end of 2007 and will have 171 private rooms and a 35 bed emergency room.

March 16th- The Palmdale Planning Commission holds a public hearing on changing the use of the NW and NE corners of Ave S & Tierra Subida, to commercial. Total acreage at the two sites is 27 and the applicant is Empire Land Commercial Real Estate. Empire Land is a major player in Palmdale and southern California in master planned communities. The intersection is the entrance to the luxury homes on the hillside of Ana Verde and also to the new master planned community of Anaverde, which is at 20th St West and Ave S. Empire Land is one of the developers for Anaverde. Eventually, Anaverde will have 1,000's of homeowners seeking a convenient place to buy groceries and to obtain other basic services. While existing homeowners in the Ana Verde hillside area will resist what they see as an encroachment on their rural life style, the commercial centers will be built in some form. The hearing is being held to discuss concerns of residents which include: more traffic, traffic flow into and out of the centers, noise, trash, bright lights, blocked views, and possible crime that commercial centers might attract. The NWC will be 12.5 acres and have 82,450 sq feet of commercial space, while the NEC will be 14.5 acres and have 102,619 sq feet of space. Expected uses for the sites are a grocery store, a bank, a retail store, and up to 7 fast food restaurants. It is also believed that someday, new homeowners in the Ritter Ranch project might also choose to shop at these sites.

March 28th- The City of Lancaster announces that several new restaurants have agreed to set up shop in mid Lancaster. Chili's Bar & Grill, Panera Bread, Rubio's Fresh Mexican Grill, Farmer's Boy, and Jamba Juice have all agreed to put restaurants in the Lancaster Town Center, located at 10th St West & Ave K, which is anchored by Lowe's Home Improvement. Joining the restaurants will be: 3 Day Blinds, CVS Drug store, Verizon Wireless, and Wells Fargo Financial. Construction has already begun, with Wells Fargo slated to open later this year. AWinCo Foods, a grocery store that offers a variety of items, including fresh meat, fresh produce, baked goods, and bulk and specialty foods, will also locate at the Lancaster Town Center.

March 30th- Official ground breaking takes place on a new Senior Housing complex, located near Courson Park at 9th St East & Ave Q-9. By January, 75 units are expected to be completed, with later phases to add 225 more units. The $11.8M project is the beginning of the revitalization of the downtown area.

April- Venture Corporation announces they will break ground this month on a group of office condominiums on 5.4 acres on Commerce Ave in the Palmdale Trade and Commerce Center, just west of the Fwy 14. The group of 5 buildings will have a total square footage of 69,000 sq feet, and are being developed for the small business community.

April 3rd- The battle over Palmdale's new hospital site, located at Tierra Subida & Ave Q-8, appears to be over, or at the very least, winding down. In mid Feb, the AV Hospital Board agreed to give up any claim to the Palmdale hospital property. The AVHB claim was based on the property being located in their "hospital district". Then on April 3rd, a Superior Court Judge dismissed Palmdale's law suit against AV Hospital in regard to the Hospital Board's alleged violation of the Brown Act, which requires public entities to hold open and public meetings. Under the theory that the best defense is a good offense, Palmdale has 3 other law suits pending against the Hospital Board. While it is possible that AVHB could reinitiate their eminent domain threat to acquire the land, it is unlikely this will happen. Public opinion is strongly against such a tactic. In all likelihood, as construction on the new hospital by Universal Health Services progresses, the Palmdale law suits are likely to disappear, as the threat of interference by the AV Hospital Board, fades away.

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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.

February housing starts (Commerce Dept), released March 16th, after soaring to a 12 year high in January, fell - 7.9% in Feb to an annual rate of 2.12M units. Housing starts in January were revised upward to +15.8% and was the highest rate since March of 1973. Although down in Feb, the report was still stronger than most forecasts. Starts fell in all regions of the country, except in the West. Most analysts feel that the steady raising of the Fed Funds rate will sooner or later lead to a slowing in the housing market. Analysts are quick to point out, that demand side statistics, i.e., mortgage applications and existing home sales, have slowed.

February building permits, (considered a leading indicator and a signal of future activity) also released Mar 16th, was down as well, falling - 3.2% to an annual rate of 2.15M.

February existing home sales (Natl Asso of Realtors), released Mar 23rd, after falling five straight months, rose strongly + 5.2%. The rise was at an annualized rate of 6.91M and was the biggest percentage gain in two years. The rise handily beat economists forecasts of 6.52M. Analysts say that warm weather in January may have been a factor in the February closings. Since Feb of 05, existing homes sales are down only .3%. The report points out that the fundamentals in the housing market are still good, and that interest rates are still market friendly. The consensus opinion from housing analysts is that the housing market is still cooling, but had a strong counter-trend month after 5 down months. Unsold inventory was at 5.3 months, the same as January.

With the next FED meeting only a week away, this report did nothing to convince Bernanke and friends that the housing market had slowed to their satisfaction.

February new home sales (Commerce Dept.), released March 24th, did not show the strength of the existing home market, falling -10.5% to a annual rate of 1.08M, the lowest since May 2003. On a percentage basis, it was the largest monthly decline in almost 9 years. Inventory (supply) increased +4.4% to a record 548,000 new homes which represents a 6.3 month supply. The monthly time of supply is the largest in 10 years. Year over year, the median of a new home price fell - 2.9% to $230,400. The average sales price of a new homerose + 2.96% to $296,700. While some forecast an abrupt end to the housing boom is near, due to rising interest rates, the data seems to indicate that the "air is coming out of the balloon gradually". The FED is forecasting a modest slowdown in housing this year, which appears to be happening as we speak. What about 2007? Let's see where interest rates go first and when and where the FED stops. Any time news is released that indicates any part of the economy is slowing down, the bond market rallies; this day was no exception. Stocks rallied a bit in the hope the FED would not take rates as high as some feared.

Leading Home Price Index (ECRI) leads peaks and troughs in real home prices by an average of 10 months

Feb 2006- 124.4

last month- 125.3

June 2005 (cycle peak) at 129.1

6 months ago- 125.4

1 year ago- 128.2

2 years ago- 126.1

The ECRI does not see the present pull back in home prices as entering a cyclical downturn; rather they see it as a normal pullback after a large move upward. The overall long term trend of rising prices in homes is still in tact. No change from last month.

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Cal & AV Housing Market News

In February, southern Cal home prices rose slightly on falling volume. The median price paid for a home in the six counties of southern Cal was $480,000, up 2.3% from January, and up 12.9% from February of 2005.

Although setting a record price high, it was done so at the slowest pace in 5 years. The decrease in volume, vs January, was down .9%, but down 7% vs Feb of 2005. DataQuick comments on the southern Cal housing market are as follows: indicators of market distress are still largely absent. The use of adjustable rate mortgages has dropped significantly. Foreclosure activity is edging up, but is still low. My comment: As a general rule, when prices rise on falling volume, that is usually an indication that the new price highs, will not hold, and that eventually, prices will decline.

The Los Angeles County Economic Development Corp. says that the AV, over the past 5 years, is growing twice as fast as the county itself. From April 1, 2000 until January 1, 2005, the population growth rate for Lancaster was 12.5%. For Palmdale, that number was 17.2%. During this same time period, Los Angeles County grew at a 7.4% rate. The LACEDC said, that if you average Lancaster and Palmdale's growth rates over this period, the two cities are growing over twice as fast as the county as a whole. LACEDC went on to say that most of the new residents of the AV come from the Los Angeles basin, with workers choosing to commute to gain homeownership.

Local residential brokers/agents say that, yes, home sales are down, and inventory has risen, but they also say that the inventory increase, while steady over the last 9 months, has been moderate. This means that the housing market is slowly shifting away from sellers to buyers. Most agents in the AV feel that we will have a soft landing in the housing market, versus the rest of California.

Here are how median home prices in the Antelope Valley break down by region. (Data Quick News)

Region median price 11/05* % gain since price per sq foot

Nov 2004

mid Lancaster $275,000 + 20.1% $203

east Lancaster $300,000 + 27.7% $205

west Lancaster $372,000 +35.3% $201

Littlerock $303,000 + 40.7% $245

mid Palmdale $313,000 + 23.3% $224

west Palmdale $425,000 + 17.1% $212

east Palmdale $345,000 + 25.9% $214

*Sorry, but this is the most recent data that has been published locally.

Antelope Valley Building Permit Data

Through February of 2006 vs the same period in 2005 % +/- $ Valuations

Palmdale 184 vs 255 - 27.8% -15.2%

Lancaster 412 vs 256 +61% +68.7%

Unincorporated 87 vs 92 -5.4% +11%

AV in total 683 vs 603 +13.3% +21.1%

While at the present, it looks like Lancaster is dominating Palmdale, that is only the trend for the moment. When the new home housing boom began in 2003, Palmdale got off to a faster start due to it's superior commercial - retail development, and it's location of being 10 miles to closer the LA area (vs Lancaster). But now in west Palmdale, save for the master planned communities of Anaverde and Ritter Ranch, west Palmdale is out of land. New developments in Palmdale, for the most part, will now be on the east side.

As the Ritter Ranch and Anaverde projects gain speed, Palmdale's numbers will pickup. Palmdale also has another major development, called Joshua Hills, which is located on the ridge at about 25th St West.

The streets and lots of Joshua Hills are being graded now by Eliopoulos Construction. Most lots will have views, lots will vary in size, and it may be gated as well. Lancaster, being 10 miles out into the valley has something home builders love, plenty of flat land with infrastructure nearby. Lancaster is flat, both to the east and west.

The way the city boundaries are drawn now, Lancaster can grow west to as far as 110th St West.

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

As of March 5, 2006

-New Homes sold year to date - 687

-New homes sold since last month- 247

-New homes selling per day - 10.73

-New homes projected to sell this year based on current sales pace- 3,916

-New home sales pace in 2006 vs 2005 (- 14%)

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 +

Number of new home builders in the AV- 35

Open subdivisions with sales in 2006- 55

Home builders in the AV (alphabetical order)

American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)
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
New West Builders
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
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 closed out March at 2,559, a gain of 8.2% vs last month (February). This indicates that we still have a clear trend of rising supply, with no apparent near term end in sight. An 8% jump in supply in just one month, is quite large.

Supply has now risen 11 consecutive months, from 1,751 in April of last year, to this month's 2,559. That is a rise of 808 listings, or + 46%. Year over year, March 2005 vs March 2006, supply is up + 41%. The amount of time needed to sell all standing inventory, or active land listings, has gone from a low of 5.6 months in May of 2005, to it's present level of 8.9 months. Due to stronger demand in March (see below), the supply number, as expressed in "months to sell", actually fell in March, by about 1/2 a month.

Supply numbers in perspective:

Supply change vs last month: + 8%

Supply change, year to date: + 13%

Supply in Mar 06 vs Mar 05: + 41%

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Supply at end Mar 2006- 2,559

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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 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, and the magnitude of change.

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Demand in March, at 286, showed an increase of 27 sales (vs February) for a gain of + 10.4%. Looking back over the past year, land sales volume peaked in mid-summer 2005, than weakened into 2006. However,we have now had two consecutive months of rising volume. It would appear, that land as well as housing, is benefiting from the AV's historically strong spring and summer seasons. Land sales in March 2006, vs March of 2005, was down about 6%. Based on the current pace of land sales, which of course could change either up or down, land sales in 2006 will be about 7% less than in 2005. This is not a number that indicates that a crash is about to occur, or that "the bubble" is about to burst, rather, it indicates, as I said last month, that the air is coming out of the market gradually. This is a good thing. This market has come a long way since 2000. In year 2000, our entire MLS sold 307 land deals for the entire year; our MLS now does that number in one month.

Demand numbers in perspective:

Land sales year to date- 786

Mar 2006 vs Mar 2005 - 5.9%

Land sales projected for all of 2006- 3,144

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- 250

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

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 the bull market in AV land, is now 48 months old (4 years). With volume, historically, still on the high side, and prices stubbornly hanging on, I am not ready at this time to declare this bull market over.

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Summary of Land Market

Late last year, land sales began declining and indicated that the peak of the market was now behind us. For longevity, this bull market in AV real estate is the longest that I can recall. In the land market, it started in April of 2002. That is four years of very strong land sales. For AV housing, it has gone on even longer, since 1998. Pent up demand from a very weak 1990's period got it kicked off, then 40 year lows in mortgage rates added even more fuel. The question now is, where do we go from here? What is this market capable of from this point?

In my view, the answer to this question is in the hands of the Federal Reserve. If you have read all of this newsletter up to this point, then you know to what I am referring. The land market, for the most part, follows the housing market. In fact it lags the housing market by about 6-12 months. There are two good examples of this. In 1989, the housing market hit a wall, but the land market stayed strong through out 1990. In 1998, when housing prices began to move up and volume increased, land did not. Land stayed practically dormant until early 2002. Back to the Federal Reserve. If the FED stops raising short term rates, without causing a recession, most of these price increases in real estate are going to hold. Even that will vary deal to deal, based upon how badly sellers need to sell etc. If on the other hand, the FED goes "one bridge too far", and pushed the US economy into recession, then all bets are off. Recessions destroy jobs, and job losses hurt the housing market.

When the housing market starts to get hurt, then investors turn away from real estate, especially land. This all adds up falling volume and falling prices in both the housing and land markets. If this were to happen, price declines in the land market, historically, have been more dramatic. So, presently, I see the economy nearing a fork in the road. One road leads to a continued recovery, as the FED winds down this cycle of rate increases. The other road leads to economic slow down and or recession, due to too many rate increases by the FED. Keep in mind, the FED would not deliberately throw the economy into recession. That would not be the FED's goal. However, due to the long lag times between an actual rate hike, and the time it takes that rate hike to work it's way through the economy, it is not too difficult to make a mistake. Even FED officials, as bright and experienced as they are, can make a mistake and accidentally cause a slow down. History is replete with such examples.

I came to the Antelope Valley in 1978. I could see then that the AV had a great future ahead of it. As I look at the AV today, I still see a great future, perhaps even greater than in 1978. The AV is more economically mature now; it is now easily attracting corporate money which no longer considers our valley a gamble. 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 here, is welcome. That said, future growth will not be in a straight line; eventually, there will be slow downs and buying pportunities. Presently, we are in the "mother of all selling opportunities", take advantage of it, for who knows how much longer it will last?

 


- Frank Donato, April 2006

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

May 2006

Antelope Valley News

May 4th- The Dept of State Finance announces, that on a percentage basis, the City of Lancaster was the fastest growing city in Los Angeles County in 2005. Palmdale, which was 2004's fastest growing city, was announced as the 2nd fastest growing city in 2005. As of 1-1-06, Lancaster's population was 138,392 and grew + 4.5% in 2005. Palmdale's total population now stands at 141,012 as they grew at a + 3.8% rate in 2005. In comparison, the state's population grew by 1.2% in 2005. Kern County grew by 2.9% and California City by 4.2%. Bakersfield went over the 300,000 mark, giving California 11 cities with over 300,000 people each. "The LA Basin is full, making our growth rates (in the AV) continually rise. I expect this trend to continue for quite a few years", said Palmdale Mayor, Jim Ledford.

May 15th- The City of Palmdale announces that the new sheriff's station, at the SE corner of Sierra Hwy and Ave Q, will be open for duty next month. The City purchased the land in 1997 and construction began in 2004. The tentative date for opening is the first week of June. The facility, at a total cost of $24M, will have 24,000 sq ft of operating space. The Palmdale facility will speed up the arrest and booking procedures for any felon's arrested in Palmdale, as the 10 mile trip to the Lancaster station will no longer be required. This will allow arresting officers to be back on the street much quicker, saving perhaps an hour of driving and processing time per arrest.

May 17th- The cable TV show, "Made in America", shoots an episode in west Palmdale at the manufacturing plant, US Pole. The show's host is John Ratzenberg, who played Cliff the mailman on the 1980's show, "Cheers". The "Made in America" show travels the country and has visited factories producing everything from silly putty to snowblowers. US Pole manufactures outdoor lighting of all sizes and shapes and is located in the Fairway Business Park at 660 W. Ave O.

May 26th- The High Desert Dialogue for Higher Education was held, which is the first phase of exploring the possibility of landing a permanent four year university in the AV. Some of the basic requirements are: a minimum of 360 acres of land, a minimum of 2,000 full time enrollees, adequate housing in the area, transportation routes, access to retail, a master plan with input from business and industry, and community support. Supporters and prime movers for an AV University hope to have a comprehensive master plan within one year. At this point in time, the Antelope Valley has established the need for a 4 year university, but next needs to come up with the funds and the land.

June 2nd- Los Angeles Mayor, Antonio Villaraigosa announces that he is bringing back a panel to study regional airport operations. The panel, after a 3 year hiatus, is being brought back to study ways to relieve ground traffic and air traffic congestion at LAX by sharing traffic with other airports. The panel will include representatives from the City of Los Angeles, the County of Los Angeles, as well as reps from the counties of Orange, Riverside, and San Bernardino. Villaraigosa said, "We have got to work together regionally to address this issue." The general task of the committee will be to decide on how to disperse airtraffic around the So Cal area. Los Angeles World Airports "is expected is expand operations at it's Ontario and Palmdale airports", said Lydia Kennard, a LAWA director.

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Defense & Aerospace News

May 9th- Mojave's XCOR Aerospace announces it will help develop the rocket engine for NASA's next manned spacecraft. XCOR is teamed up with Alliant Techsystems for the first phase of developing the rocket engine. XCOR's portion of the contract is $3.3M. Reportedly, the rocket engine will run on liquid oxygen and liquid methane, both of which are non-toxic fuels that could help lower the overall cost of spaceflight. In the first phase of testing, the rocket engine must be able to produce 7,500 pounds of thrust, enough power to return the spacecraft from a lunar orbit to earth and to perform inspace maneuvering. Since it's founding in 1999, XCOR has designed and built a number of different rocket engines, one of which is a 10,000 pound thrust liquid oxygen-methane version that will be the basis for the rocket engine that NASA requires.

May 17th- The City of Lancaster releases their budget for 2006-07. Totaling $219.7M, which is a 6.1% increase vs the previous year, the budget adds 8 more sheriff deputies, 28 more city employees, includes various capital improvement projects, and includes a conservative 5 year financial forecast for future planning. This budget model holds over reserves during good times to make up the difference during bad times. Most of the new employee salaries will be paid by developer fees, not direct tax payer dollars.

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.

May 15th- The National Asso of Realtors says that in the 5 hottest states for existing home sales, sales are down 15%. Year over year, Arizona is down 22%, California -19%, -15.7% in Florida, -15% in Nevada, and -18% in the District of Columbia. Median home price appreciation has slowed to 10.3% year over year.

The NAR says that the "hot" markets now are New Mexico, Louisiana, Montana, and Mississippi. Even though sales are off from a year ago, median home price are still higher today than one year ago. Versus one year ago, prices in the West are up 12%, the Midwest +6.7%, and +6.6% in the south and northeast.

April housing starts (Commerce Dept), released May 16th, falls - 7.4% to a seasonally adjusted annual rate of 1.85M. Largest drop since Nov of 2004. The decline was larger than expected. After peaking in January, starts have fallen 3 months in a row. Housing analysts say that a sharp correction cannot be ruled out due to this weakness. In the south and west, housing starts fell, but in the mid west and northeast, they rose.

The prior day, Wells Fargo Bank reported that their monthly housing market confidence index of national home builders, fell to a 11 year low.

April building permits, (considered a leading indicator and a signal of future activity) also released May 16th, fell as well, down - 5.4% to a 1.98M annual rate. Permits are now at their lowest level since Feb 2004.

There is little doubt that 16 consecutive rate increases by the FED has taken it's toll on the housing market.

April existing home sales (Natl Asso of Realtors), released May 25th, fell 2% to a seasonally adjusted annual rate of 6.76M. The decline was in line with expectations. Inventory rose 5.8% to 3.38M homes for sale. At the April sales pace, this represents a 6 month supply. Over the past year, the median sale price has risen 4.2% to $223,000, the lowest price gain since Sept 2001. Relative to sales, supply is now at the highest level since January 1998.

April new home sales (Commerce Dept.), released May 24th, surprised everyone by rising 4.9% to an annual rate of 1.2M, the highest level of the year. After falling the first 2 months of the year, new home sales have now increased two months in a row. Inventories rose 2.4% to 565,000 units, which represents a 5.8 month supply. That is down slightly from last months 6 month supply. The median price of a new home, versus last month, rose 2.8% to $238,500. Analysts said, "The fact that both inventory and prices are rising shows that homebuilders continue to see demand. The report fits in with the FED's view that the housing market will have a soft landing."

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Antelope Valley Median Home Prices (source: DataQuick)

City - April 2006 - % Change vs 4/2005

Lancaster- west $295,000 + 22.7 %

Lancaster- west & Quartz Hill $360,000 + 13.2 %

Lancaster- east $316,000 + 25.4 %

Palmdale- west $430,000 + 15.9%

Palmdale- mid town $320,000 + 15.7 %

Palmdale- east $355,000 + 22.2 %

Littlerock $340,000 + 23.6 %

In data recently released by the California Building Industry Association, Lancaster, in 2005, ranked 3rd in the state in housing starts. Ranked ahead of Lancaster (2,799) was the unincorporated areas of Riverside County (8,253) and the City of Bakersfield (5,218) in Kern County. Palmdale was ranked 23rd on the list, but should do better as the master planned projects of Anaverde and Ritter Ranch go full steam ahead in 2007. State wide, Cal had 208,804 housing, condo, and apartment starts in 2005. That is down slightly from 2004's 212,960 starts.

In 2005, California produced 10% of all of the nations new homes. Home ownership in California is at 57%, which is 13% below the national average. If California were at the national average on home ownership, an additional 1.6M families would own homes. CBIA officials say that, on average, the state's population increases 500,000 per year and that 250,000 new homes per year are needed just to keep up with population growth.

DataQuick Information Systems is reporting, that in April of this year, southern California home sales slowed to their slowest pace since 2001. Home resale's in the southern Cal counties of San Diego, Orange, Los Angeles, Ventura, San Bernardino, and Riverside, were down 16.1% in April, vs March, the previous month. The six county So Cal area was also down 21% in April of 2006 vs April of 2005. The year over year decline was the steepest since April of 1995. In April the median price paid for a home in this six county area was $485,000, which is up 9% vs April of 2005. DataQuick says that indicators of market distress are still largely absent from the market. The use of adjustable rate mortgages, in recent months, has also declined. Foreclosure activity is edging up, but is still low. In the So Cal area, Orange County remains the most expensive county in which to own a home, with a median price of $628,000. Ventura County is 2nd at $584,000 with Los Angeles County 3rd at $508,000. Marshall Prentice, DataQuick President said of the southern Cal real estate market, "March and April have shown us that the boom phase of this cycle is behind us, so it's just a question of how the cycle will end.

Right now it looks like changes in the real estate market are happening gradually. But there's a lot of uncertainty among analysts regarding the effect of higher interest rates." My comment: There is also a lot of uncertainty as to how high the FED will take short rates, which is why the financial markets struggled so badly in mid May.

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

As of May 21st, 2006

-New Homes sold year to date - 1,304

-New homes sold since last month- 271 (April 9th)

-New homes selling per day - 9.25

-New homes projected to sell this year based on current sales pace- 3,376

-New home sales pace in 2006 vs 2005 (- 26%)

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 +

Number of "new home" builders in the AV- 36

Open subdivisions with sales in 2006- 67

Home builders in the AV (alphabetical order)

American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)
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
New West Builders
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
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 closed out May at 2,855 which means that supply continues to rise. In May, supply was up 4.6% vs April. Supply has now risen 13 consecutive months. We still have a clear trend of rising supply, with supply up 63% since April (1,751) of 2005. That 63% increase of supply over the past 13 months represents 1,104 more land listings. The good news is that the rate of the rise appears to be slowing, with 4% rise in May after a 8% rises in both March and April. If the current trend continues, we could see supply flatten out sometime in the next 2 to 3 months. The amount of time needed to sell all standing inventory, or active land listings, has gone from a low of 5.6 months in May of 2005, to it's present level of 10.5 months.

Supply numbers in perspective:

Supply change vs last month: + 4.6%

Supply change, year to date: + 26%

Supply in May 06 vs May 05: + 59%

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Supply at end May 2006- 2,855

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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 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, and the magnitude of change.

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Demand in May, at 271, fell off quite a bit from April's 323 land sales. This represents a 16% drop of land sales in May vs April. For all of 2006 though, May sales were about on target, as the average for the first 5 months of 2006 is 276 per month. Up until this month's number, demand had risen three months in a row. Last month we revisited the mid 2005 volume highs, so going forward, it will be interesting to see how this market handles the challenge of rising interest rates and the fear that the FED may go too far and give us a recession.

Almost daily, you can see the stock market struggling with the same issue. Land sales year to date, versus, land sales the same period last year are almost dead even. Through May of this year, we had 1,380 land pendings, versus last year's 1,378 for the same time period (first 5 months of the year). Land sales in May of this year, compared to May of 2005, are down 15%. May of 2005 was last year's strongest month at 320 land sales.

Demand numbers in perspective:

Land sales year to date- 1,380

May 2006 vs May 2005 - 15.3% (down)

Land sales projected for all of 2006- 3,312

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- 276

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

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 the bull market in AV land, is now 49 months old (4 yrs, 1 month). With volume, historically, still on the high side, and prices stubbornly hanging on, the Bull market in AV real estate lives on. Measured in time (months), this is the longest Bull market in AV land on record. The last Bull market in AV land was the 1988-1990 period (3 years). While I was not in the AV for any Bull markets prior to 1988, in talking to the "old timers", nothing like the current move has ever been seen in the AV.

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Summary of Land Market

Quik Sum- Supply is still rising, but may try and flatten out over the coming months. Demand remains strong as land sales are averaging 276 per month in 2006, which is just slightly below 2005's average of 281 land sales per month. While there is a difference in the quality of what is selling now, versus last year, strong sales numbers indicate the investor money flow in the AV is still strong.

Last month I discussed the two Q's of volume are quantity and quality. On a quantity basis, we are putting up strong numbers, but the quality of those numbers is suspect. More than 1/2 of the land sales are in the junk category. Most of these buyer's are land dealers or late comers to our market that are buying the only thing they can afford, land way out of town. In May, we had 245 land escrow close; I reported only 88 as meaningful by their location and or size. The balance would be in the junk category. Many perceive the "junk market" as having less risk due to their lower prices. These type of parcels usually don't appreciate until late in the cycle. As properties in town move up in value, investor money begins to be pushed outward, west, east, and to the north.

While these properties are considerably lower priced than acreage in town, on a percentage basis, many of them have had bigger moves than land in town, and thus, if there is a major price correction, stand to suffer larger percentage draw downs. Many of these parcels were $1,000 per acre two and three years ago, but are now selling for $7,000 to $10,000 per acre. That is a huge percentage gain. On these parcels too, it is a seller's market. On ANY asset that has appreciated that much, a 50% pullback at some point, would not be out of the ordinary.

But when? Ah, that is the question isn't it. Forecasting this market is the tough part. The FED has the economy, and every investment class, held hostage, held hostage to future FED actions, which may or may not slow the economy into a recession. The outcome of FED policy will determine which asset class does well and which ones will go out of favor, even if only temporarily.

As I look at the AV today, I still see a great future. The AV is economically mature; it is now easily attracting corporate money which no longer considers the AV a gamble. 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 here, is welcome. That said, future growth will not be in a straight line; eventually, there will be slow downs and buying opportunities. In summation, buyers of this market should be cautious, very cautious on price and location, while land owners should be using the present market strength to sell. There is nothing wrong with cash in the bank during a rising rate environment. This puts an emphasis on capital preservation, versus capital appreciation. Any at given point in time, the investor must decide which strategy should take priority.

 

- Frank Donato, May 2006

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

June 2006

June 5th- The community of Rosamond dedicated their new fire station, which will be a county facility. The fire station is located on 35th St West, near the library and community services district building. The new fire station replaces the existing one, which was built in 1947 and is located near 20th St West and Rosamond Blvd. The new fire station is located on 1.13 acres with a 5,600 sq ft building on it, which is almost 3 times larger than the old fire station. The new facility can sleep up to 6 firefighters and has automatic roll-up doors. Said a long time advocate of the new fire station, "We may still be a township, but we can still look like a city."

June 7th- The City of Palmdale announces that the improvements to the Ave S corridor are now complete. The improvements cost $24M and run from the Fwy 14, east to 40th St East. The improvements include the widening of Ave S to 4 lanes (2 each way), bike paths, improved turn outs and traffic signals, bike paths, and a landscaped median. The City estimates that 25,000 cars per day use Ave S to access the Fwy 14, or to drive across town.

June 15th- Palmdale Mayor, Jim Ledford, has proposed that the first leg of the state's high speed rails system go from Palmdale to Los Angeles. The Palmdale to LA leg would cost $3B, with funding coming from several different sources. The train would connect Palmdale with LA's Union Station, then go on to LAX. It is believed that the train would help lighten traffic on the 405 Fwy around the LAX area, and get Palmdale commuters into Los Angeles in about 30 minutes. Since the train would go in both directions, it would also make Palmdale's unused air terminal immediately viable. The statewide system would one day be 700 miles long and cost somewhere in the area of $35B in 2006 dollars. Ledford pitched his idea last Spring to Los Angeles World Airport (LAWA) officials. This summer LAWA officials have agreed to review research
on the technology of high speed trains as to their cost and reliability. High speed rail and mag-lev are the two technologies being reviewed. A Palmdale City official said, "Everyone agrees that we need to set the route and then later determine which technology to use to move us forward."

June 19th- The City of Palmdale learns that the House version of their Transportation Appropriations bill includes $500,000 for a key Palmdale road project. The money will be used to widen Rancho Vista Blvd / Ave P from 4 lanes to 6 lanes. The first phase of the project will be from Sierra Hwy to Lockheed Way. Eventually, the widening will extend east to 30th St East and will service the Plant 42 area as well as relieve traffic congestion in the area. When completed, Rancho Vista Blvd (Ave P) will be 6 lanes wide from Fairway Dr, near the AV Country Club, to 30th St East. The intersection of RV Blvd and 10th St
East will be improved and get a traffic signal.

June 21st- According to 2005 US Census Bureau estimates, Lancaster was the 14th fastest growing city in the nation, with Palmdale coming in at 31st. The estimates included cities of 100,000 or more in population. Demographers say that this confirms a national trend that has been ongoing for decades; in general, people are moving to the south and west and are moving into communities that have affordable housing and better schools. The other trend that is also working in the AV's favor, is that people are also seeking to get out of the large cities, preferring to find smaller communities where the schools are better and where they feel safer, but yet are in proximity to the big city amenities. In case you are wondering, Elk Grove, Ca was THE fastest growing city in the nation with 11.6% growth rate in 2005. Lancaster grew at a 4.2% annual rate
while Palmdale a 2.8% rate.

June 23rd- The AV Mall, located in west Palmdale and open since 1990, holds celebrates the end of it's renovation. Some lucky shoppers had their purchases paid for by roving mall employees. Others received promotional items, giveaways, drawings, and the like. The renovations included a change of the color scheme from dark green to lighter colors, new granite flooring, remodeled food court and restrooms, updated landscaping, and new "soft seating" areas to allow tired shoppers to take a rest. The AV Mall is 1M square feet and has 140 stores and currently has an occupancy rate of 98%. Additional changes are coming: the theater inside the mall will be closed and move outside as a free standing structure. The
exterior walls are already up on the new theatre. New, as yet to be named restaurants are also coming. While it has not been confirmed, one rumor has the "Claim Jumper" restaurant moving into part of the vacated space of the old movie theater, but as I said, this is only a rumor, and not confirmed.

June 25th- Hwy 138, as it heads east from Palmdale towards the Fwy 15, is having two additional lanes of traffic added as part of an overall $44.4M project. This phase of the widening is occurring in San Bernardino County, between the Phelan cutoff and Hwy 2 cutoff to Wrightwood, a 2 mile stretch of road. Summer time was chosen so as to not interrupt school bus schedules. In the 2 mile portion of the work, speed limits have been reduced from 55 mph to 25 mph. In the summer of 2007, another stretch of Hwy 138 will be widened, working it's way east, closer and closer to the Fwy 15.

July 6th- The Lancaster Redevelopment Agency will acquire two parcels on 10th St West that will expand the Lancaster Auto Mall to the east side of the street. The City's goal is to land an upscale luxury car dealer that is currently not offered in the AV. Presently, the car dealers in the auto mall include Ford, Honda, Toyota, Subaru, and Dodge.

July 6th- Mojave airport officials report that over the last 4 years their facility has gone from under utilized to one where now all of the airports industrial space is fully occupied. With the successful flight of SpaceShipOne, a private venture into commercial space, airport officials say that the facility now has a major reputation as the "Silicon Valley" of the emerging commercial space industry. Proponents of the commercialization of space say that Mojave could become an "incubator" for
this emerging industry. The airport is also located at a crossroads for major highways (Hwy 14 and Hwy 58) and rail routes which has it's industrial park growing as well. One of the young companies thriving at Mojave is XCOR, which builds rocket engines. Founded in 1999, has recently had to increase it's work force to 30 to handle the ever-growing number of contracts. XCOR has a $3.3M contract with NASA to develop an engine for NASA next manned space vehicle.
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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.

May housing starts (Commerce Dept), released June 20th, surprises everyone and rises + 5% to an annualized rate of 1.96M. The strong gain follows three months of declines. Last January was the highest level of housing starts in 33 years. Versus May of 2005, housing starts are down 3.8%. Starts increased in 3 of the 4 regions of the country. In the West, housing starts were up 15.8%, while in the mid-west, they were down 15.8%. The FED has predicted a slow down in housing, but not a sharp decline. Housing analysts comments: "With inventory of new homes high and rising rapidly, it makes no sense for home builders to continue adding new supply at anything like the current pace."......................and, "The underlying slowdown in residential construction is likely to be gradual."....................and, "We don't see any reason to
take interest rates higher; bond yields don't indicate any concerns that inflation is out of control."

May building permits, (considered a leading indicator and a signal of future activity) also released June 20th, fell 2.1% to an annual rate of 1.93M, the lowest level since November of 2003. It was the 4th monthly decline in a row for building permits. Year over year, building permits are down 8.5%.

May existing home sales
(Natl Assoc of Realtors), released June 27th, fell 1.2% to an annual rate of 6.67M homes. Existing home sales have now fallen in 3 out of the last 5 months. Supply of existing homes rose 5.5% to 3.6M, a 9 year high. At May's sales pace, this represents a 6.5 month supply. One year ago supply was at 4.3 months. However, over the last 12 months, the median price did increase 6% to $230,000. Existing home sales were fractional higher in the west and south, but down in the mid-west and NE. Most analysts feel that the existing home market will continue to weaken over the next 3 months. As one analysts said, "Consumers are being hit by 3 forces: higher interest rates, higher energy prices, and shrinking home equity."

May new home sales (Commerce Dept.), released June 26th, surprised everyone by rising for the second consecutive month. May's rise was + 4.6% after April's 4.9% rise. May's increase was at 1.234M annualized level. May, which was expected to be down, was the strongest month since last December. New home supply fell .7% to 556,000 from April's record high of 560,000. May's inventory number represents a 5.5 month supply. Regionally, new home sale rose in all areas of the country, except for the NE, where they fell - 7.9%. Analysts say the overbuilding does not appear to be a problem. The median price of a new home in May was $235,300, up + 3.1% over the past 12 months. During this same time frame, new home sales are down - 5.9%.

For what it's worth, on June 20th, UCLA's Anderson Economic Forecast released their annual economic outlook for California. In the report, a bit late I may add, they say "the housing boom is over; the only question that remains is whether it will be a hard landing or soft." And, "As of April, there are few signs of this housing slowdown spilling over into the wider economy."
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Antelope Valley Median Home Prices (source: DataQuick, most recently published data)

City April 2006 % Change vs. 4/2005

Lancaster- west $295,000 + 22.7 %

Lancaster- west & Quartz Hill $360,000 + 13.2 %

Lancaster- east $316,000 + 25.4 %

Palmdale- west $430,000 + 15.9%

Palmdale- mid town $320,000 + 15.7 %

Palmdale- east $355,000 + 22.2 %

Littlerock $340,000 + 23.6 %

DataQuick Information Systems is reporting that homes sales in southern California slowed for the 6th consecutive month, with May 2006 sales the slowest since May of 1999. The slowdown appears to be most evident in the upper end (most expensive) of the market. Entry level and mid-market homes are not slowing as much, and are still appreciating, albeit at a slower pace. In May, the median price for a home in the 6 county southern Cal area was $485,000, which is up from May's 2005 figure of $456,000 (+ 6.4%). That increase was slowest yr over yr gain since July 2000. Dataquick also says that indicators of market distress are still largely absent, that foreclosure activity is edging up, but is still low, and that the use of adjustable rate mortgages has dropped over the past 6 months.
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AV New Home Sales Data (source: Frank Donato, The New Housing Monitor, a Hanley Report)

As of June 25th, 2006
-New Homes sold year to date - 1,570
-New homes sold since last month- 266
-New homes selling per day - 8.92
-New homes projected to sell this year based on current sales pace- 3,256
-New home sales pace in 2006 vs. 2005 (- 29%)

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 +

Number of "new home" builders in the AV- 36
Open subdivisions with sales in 2006- 75

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)
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
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
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 closed out June at 2,975 which means that supply continues to rise, if only slightly. Supply, versus last month, was up 4.2%. Supply has now risen 14 consecutive months, having risen almost 70% since the low of April of 2005 at 1,751 active land listings. That is an additional 1,224 more active land listings. The good news is that the rate of the rise appears to be slowing, with 4% rises in both May and June after several months in which the rise was in double digits. If the current trend continues, we could see the rise in supply flatten out sometime over the next 6 months. The amount of time needed to sell all standing inventory, or active land listings, has gone from a low of 5.6 months in May of 2005, to its present level of 11 months. Historically, rising supply, when accompanied with weakening demand, has eventually lead to a weakening of prices.

Supply numbers in perspective:
Supply change vs. last month: + 4.2%
Supply change, year to date: + 31%
Supply in June 06 vs. June 05: + 65%
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Supply at end May 2006- 2,975
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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 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 when it changes, and the magnitude of that change.
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Demand in June, at 266, fell off slightly from May's 271 figure. This is a decrease of only 1.8%, a statistically insignificant number. Since April's number of 323, land sales have fallen two months in a row. Versus the record month in April of 323 land sales, volume is down 17.6%. Average sales per month for 2006 now stands at 274, so June's performance was below the average. The April volume number was a revisiting of the mid summer strength of 2005. Going forward, it will be interesting to see how this market handles the challenge of rising interest rates and the fear of the unknown: how far will the FED will go. In June, this struggle was evident almost daily in the stock market. Land sales the first 6 months of 2006, versus the same period last year, are down about 2%. May of 2005 was last year's strongest month at 320 land sales. In June, the average time it took to sell a land listing was 142 days. This is a new statistic just recently made available by our MLS system and will now appear here monthly.

Demand numbers in perspective:
Land sales year to date- 1,646
June 2006 vs. June 2005 - 12.2% (down)
Land sales projected for all of 2006- 3,292
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- 274
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

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 the bull market in AV land, is now 51 months old (4 yrs, 3 months). With volume, historically, still on the high side, and prices stubbornly hanging on, the Bull market in AV real estate lives on. Measured in time (months), this is the longest Bull market in AV land on record. The last Bull market in AV land was the 1988-1990 period (3 years). While the character of this market is changing, it is none the less still putting up strong volume numbers. For this reason, and until I see a major break in volume, or in prices paid, this bull market remains intact.
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Quick Sum of Land Market

Supply is still rising, but should flatten out over the coming months. Also over the coming months, I expect to see most land sellers reduce their listed prices or take their property off the market. This process, if history is any guide, will take many months to play out. If the US economy avoids recession, and the often talked about "soft landing" is achieved by the FED, a 2nd leg of this bull market in real estate is possible and cannot be ruled out. While sales volume is still strong at 266 land sales per month that volume number is a bit deceiving as the quality of the parcels selling are not what it was last year.

As I have told you over the past two months, over 50% of the land sales are in the low end or junk category. These are areas way out west, east, and north where little to no development is ongoing. These markets are pure investor markets, with no development to support prices when investor dollars dry up in these areas. While these areas have the lowest prices, and for that reason are perceived to be the least risky, the opposite is actually true. These areas are the most risky, and can experience the greatest draw downs in prices when the market weakens. The reason is quite simple: in markets where only investors play, when investors stop buying due to market conditions, who is left to buy? Answer: no one. In these markets, there are no developers buying to help support prices in a slower market. Thus these areas do get wild price swings. If one were to buy these areas when the market is weak, then sell when it is strong, they can be very profitable, but you have to get your timing right. This takes great patience and courage. Patience to wait for the right buying opportunity, and the courage to buy it when no one else wants to, then patience again to sell into the proper environment.

As I look at the AV today, I still see a great future. The AV is economically mature; it is now easily attracting corporate money which no longer considers the AV a gamble. 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 here, is welcome. That said, future growth will not be in a straight line; eventually, there will be slow downs and buying opportunities. In summation, buyers of this market should be cautious, very cautious on price and location, while most land owners should be using the present market strength to sell. There is nothing wrong with cash in the bank during a rising rate environment. This puts an emphasis on capital preservation, versus capital appreciation. It is up to the individual investor to decide which strategy should take priority.
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- Frank Donato, June 2006

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