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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Third Quarter 2004 AV News Briefs:

September 2004 - AV News Briefs:

AV Breaking News: Chinatown Redux! Well not quite, but in a fast growing area like the AV, a battle over water was bound to happen sooner or later. Two large carrot farmers have filed suit over rights to who owns the water underground. Because of the filed law suits, LA County Waterworks has told at least two tract home builders that "water may not be available" for their projects. This was viewed as a knee jerk reaction, and later a planning deputy said, "there is no definitive change in policy concerning water for new homes in the AV." As reported here in previous years, there is enough water in the AV to support a population of 700,000, about double of what it is now. The water is there, but who owns it is in question. The farmers feel they have the right to pump all the water they need from under their land. Sounds fair, but the underground bodies of water, extend beyond the boundaries of these farms, with no way to determine underground water boundaries. As it is now, anyone with a water pump and well can extract as much water as he wants, meaning that water in the AV is unadjudicated. Adjudication would set limits on the amount of water available to all users, including water agencies. That in turn would require water agencies and growers to rely on more expensive state water imported from the California Aqueduct. All parties in the suit, the water agencies and the growers, are accusing each other of pumping water like mad. LA county officials are now considering ways to raise fees on developers to help pay for new water storage and delivery to new homes. The fees could also be used to dig more wells for LA County Waterworks. No estimates are yet available re: fee increases on developers. Diamond Farming and Bolthouse Farms are the two main plaintiffs in the suit. About a dozen AV farmers are trying to negotiate a settlement to end the lawsuit. The farmers solution would begin a water use monitoring program and spell out rights for all users, existing and future. Since unlimited pumping of water is ongoing now, water companies are reluctant to store water underground; there is no way to protect it. Last year, AVEK, the AV's wholesaler of water, allowed 13B gallons of water to flow into the Pacific Ocean because there was no way to store it and none of the water agencies or growers wanted to purchase it. Clearly, the problem is NOT supply, but storage and distribution.


Ritter Ranch has a new owner, a clean balance sheet, and is in a position to move forward with development. In bankruptcy court since 1997, Ritter Ranch, the 10,000 + acre master planned community of west Palmdale, now has a new owner. After 75 rounds of bidding, SSC Acquisitions LLC, is the new owner of Ritter Ranch. Their winning bid at the bankruptcy trustee's sale, held August 5th, was $57.2M. Each of the 6 bidders had to put up a $2M deposit to qualify for bidding. SSC now has 14 days to close escrow, or lose their $2M deposit. Upon close of escrow, $34.3M will be paid to senior bondholders. The balance of the funds will be held in trust, and paid to junior bondholders. Palmdale Mayor, Jim Ledford, said, "We are happy that RR is finally moving forward. The new owners have a vested project, which means they have done a lot of due diligence to give them development rights within the city". Upon completion, Ritter Ranch will house 7,200 residential units. No word yet as to what date the new owners will begin to push dirt around. A project of this size is a major long-term commitment. Some estimates have the project taking up to 20 years, or more, to build out.


Fox expansion- the LA County Board of Supervisors have approved of the construction of a 70,200 sq ft aircraft storage complex at Fox Airfield. Valley Pacific Aviation LLC has entered into a 30 year lease to have the facility built. The hangar is capable of housing 40 airplanes. Owners of private planes would lease the parking spots in the hangar, much like boat owners rent a dock in a marina. Other Fox projects previously announced: Fischer & Co., a Dallas consulting firm, has scouted out a 20 acre site for a 117,500 sq ft warehouse distribution center; Brightstar Properties plans to develop a business park near 50th W & Ave G for small and medium sized businesses; Regent Aerospace, a major refurbisher of aircraft seats, has announced plans to build a 75,000 sq ft manufacturing facility; Three Springs Corp. has plans to build 210,000 sq ft of spec industrial space in the area of 45th St West & Ave G.

The City of Palmdale's budget, for 2004-2005, is proposed at $207M. This is a $24M increase (14.5%) over the pervious year's budget.

Martin Properties has broken ground on a new self-storage complex in west Palmdale. Called Storage Express, the facility is located behind the Ramada Inn on, in the area of 300 W. Palmdale Blvd. The facility will be 80,000 sq ft and have 600 storage units, with some units climate controlled. Martin Properties, hoping to capitalize on the new and pending hospital (Tierra Subida & Q-8), will also build a 100,000 sq ft office complex on 5th St West. A two-acre site, next door to the future hospital, is also on the drawing board for development. In addition, Martin Properties has a triangular commercial parcel, at the SWC of 10th St West and Ave O-8, which is under talks to with a hotel chain for a 110 rooms.

AV Follow Up News: Grading and construction is moving ahead on the new driving range and Golf Academy, on 10th St West, near Ave M-10. Called Birdie's Driving Range & Teaching Academy, the complex will include a full driving range, an 18-hole putting green, a 40-yard pitching green, a pro shop, and a cafe called The Whole Nine Yards. One of the goals of the owners is to teach golf to kids, ages 7 to 10 years. Located on the east side of 10th St West, golfers, for most of the day, will have the wind and sun to their backs. No word yet on a completion date.

Fieldstone Communities, Valencia, which has two moderate housing projects in west Lancaster, has agreed to agreed to conduct environmental impact reports to satisfy nearby Homeowners. The EIR, say the homeowners, is necessary due to the fact that Fieldstone's two projects, one a 66 lot tract, and the other just 39 lots, is located near a Prime Desert Woodland area. The tracts are located between 35th St West & 40th St West, in the area of Ave K-4. The EIR will delay approval of the project by 6-9 months. Opponents of housing in this area are using the law as a stalling tactic, hoping that during the 6-9 month period, something else could happen to derail the project.

Recreational renovation at Marie Kerr Park, at 30th St West and Rancho Vista Blvd, are well underway and are expected to be completed by June 2005. The renovations include a swimming pool, amphitheatre, gymnasium, and softball fields.

The Entenmann's Oroweat Bakery, formerly on 23rd St West, north of Ave I, has moved to their new and larger location on Trade Center Drive, in the Palmdale Trade & Commerce Center. The Center is located along Palmdale Blvd, between the Fwy 14 and 10th St West. The 14,000 sq ft bakery will serve as both a regional distribution center and a walk-in bakery. The bakery is owned by Bimbo Bakeries USA, which he headquartered out of Fort Worth, Texas, which in turn is owned by Grupo Bimbo, Mexican company. Founded in Mexico City in 1945, Grupo Bimbo distributes it's products in Mexico, the US, and 11 Latin American countries and has annual sales of $3B.

The Hampton Inn, an 85-room hotel under construction at 5th St West & Ave P-4, is on track to be finished at the end of January 05. The new hotel will be geared towards business travelers with a boardroom that can seat up to 12 and a meeting facility that can handle up 60. The hotel will employ 25, but have no on-site restaurant. Hampton Inn is part of the Hilton Hotel family. The hotel is being built by K Partners Hospitality Group of San Antonio, Texas.

After 10 years of work and nearly $600,000 paid to consultants, the City of Palmdale may be close to finding out if they will be included as a station stop on the new high-speed rail system that will connect San Diego to San Francisco. On August 30th, the city sent out, via Fed-X, a 200 + page report re: the City's comments on the projects environmental impact report. The report is being sent to the California High Speed Rail Authority and had to be in by August 31st. The City has come up with a litany of reasons why Palmdale should be included in the route, both economic and environmental. Jim Ledford, the mayor of Palmdale, believes that, if included, it will have as big an impact on the AV as did the Fwy 14 when it opened up. Jack Kyser, economist for the LA County Development Corp, is also on record stating that including Palmdale is also the best thing for the state, not just the AV. Kyser's reasoning is based on the fact that the AV is one of the state's fastest growing areas, and is a major part of the state's economic development. The Cal High Speed Rail Authority is expected to make a decision later this year, perhaps by October. Once built, the trip from Palmdale to Los Angeles is expected to take a mere 26 minutes. If approved, the actually beginning of the project is 1-2 decades away; with no real start date or funding source.

The Lancaster Veterans Home has taken another step towards reality. $100M in lease-revenue bonds has been approved by both the state senate and assembly. Assembly bill 1077 now awaits Gov. Schwarzenegger signature to become law. It is a certainty that the Gov will sign it. Projections are that the Lancaster Vet's Home will be substantially completed by Oct of 2008.

Housing Market:

National Housing Market
JULY housing starts, after being down in June (-8.5%), bounced back strongly at + 8.3%. Housing starts were up in all 4 regions of the country. July's stronger than expected number has many analysts calling the June weakness an "aberration".

JULY building permits, also bounced back nicely, at +5.7%. June had been down over 7%.

JULY existing home sales, released August 24th, -2.9%, just a bit weaker than the expected -2.0%. However, behind May and June of this year, this is still the 3rd highest level ever. Nationwide, the supply of homes is 4.3 months. Also nationwide, the median price of a resale home is $191,300, which is up + 8.7% versus 12 months ago. The resale market is still very strong.

JULY new home sales, released August 25th by the Commerce Dept, fell more than expected, at -6.4%. While the report revealed weaker new home sales, the new home market is not weak. With new home sales at record levels, strong pullbacks off of record numbers should be expected. On a relative basis, the west was the strongest sector of the country, as new home sales only fell slightly. June was also revised downward, from the original -.8% to a much larger -5.6%. That is two fairly strong down months in a row now. Two months does not make a trend, but the next two monthly reports could be telling. While down from June, year over year, the median home price is up 9%, and now stands at $207,400.

JULY construction spending- released by the Commerce Dept on September 1st, came in at + .4%. The annual rate of construction spending is now approaching $1 trillion dollars for 2004! Year over year, it is up + 9%, and this year, has been up 7 months in a row. June construction spending was revised upward, from slightly negative, to flat.

Summary- With the economy moderating in it's growth rate, and inflation pulling back, things look good for the housing market for the balance of this year. Why? Moderating growth and friendly inflation numbers are good for bonds, which means mortgage rates should remain soft, if not go lower. From current interest rates, all the housing market really needs is for mortgage rates to move sideways in a narrow band, i.e., 5.75% to 6.25%. The housing market's best friend, affordable mortgages, is alive and well, and so is the housing market.


AV Housing Market
Data Quick, in mid August, released Southern Cal housing data that indicates home prices peaked, at least for now, in May of this year. In July, median home prices in southern Cal fell 1% from June, from $406,000 to $402,000. Year over year, July 04 vs. July 03, median home prices are still up though, at + 22.6%. DataQuick says that year over year home price increases peaked in May, at + 26.9%. Volume in the So Cal resale home market is also down, but only -1.7%. All markets, after a big run, need to rest and consolidate, and that appears to be the behavior here.

According to the Nat’l Assoc of Realtors, California has 4 out of the top 5 most expensive metropolitan areas in the entire country in which to buy a home. Nationwide, here are the top five metropolitan areas and their median home prices:
1. Orange County, Ca. - $655,300
2. San Francisco Bay area- $647,300
3. San Diego- $559,700
4. Honolulu- $451,000
5. Los Angeles- $438,400
Two other Cal communities placed in the top 20:
14. Sacramento- $308,600
15. Riverside/San Bernardino- $294,500


What was an almost "frantic" resale housing market in the AV, has settled down to more rational behavior. It is still a very good resale environment, but homes are now taking 3 to 4 weeks to sell, versus the 3 or 4 days earlier this year. According to one residential agent, over the past 60 days the supply of homes on the resale market has rise from 400 homes to about 1,300. While on a percentage basis, that is quite a jump, it still only represents a 45-60 day supply, which historically, is on the low end. As more new homes come onto the market, from the various tracts, that supply could rise even more. This gives agents more choices from which to place a client. Pricing is also important, as the rate of increase in homes has flattened out. This does not necessarily mean that home prices cannot go higher, but it does mean, that in the near term, home prices will move sideways, and maybe even slightly down. The deals will vary due to the different levels of buyer and seller motivation. With properly priced homes selling in 1-2 months, it is still a very liquid market. Buyers are welcoming the "reprieve", as they now have more time to consider their purchase. Earlier this year, the buy decision was like a "cocked pistol" at their head- an immediate decision was needed, or someone else bought the house. As one residential agent put it, "Business is brisk; we are far from having enough supply to meet demand".

Statewide, the supply of resale homes is 1.9 months, versus one year ago, when it was 2.1 months. Either number reveals a very thin supply, which is bullish for homeowners/sellers. In Cal, the median price of a resale home made a new high, at $461,730.

AV New Home Sales: As of August 22nd, year to date, 19 homebuilders, in 41 different tracts, have sold 1,510 new homes. 294 additional new homes have sold since July 18. At this pace, this is an annual run rate of 2,354 new homes for 2004. (Source: The Housing Monitor, Fidelity National Title)
New home sales the last two years:
2003- 1,820
2002- 1,162

New Homebuilders in the AV: Forecast Homes, Pulte, Standard Pacific, Eliopoulos Construction, First Pacifica, Western Pacific, DR Horton, KB Homes, Trimark, Stratham Group, Pacific Communities, Richmond American, Larwin, American Premier, John Laing Homes, Beazer Homes, Frontier Homes, Rancho Vista Development,
Fieldstone Communities, and New West Builders.

Outlook: on a historical basis, the new home market still has plenty of room to grow, before challenging the 1990 all-time high volume numbers. As long as mortgage rates stay below the 7% fixed level, new home sales should remain very good. Even as rates rise, albeit gradually, mortgage lenders are creating new and innovative loan products to keep buyers "in the new home market". Due to our larger population base now, versus 1990, it would not surprise me to see new home sales numbers exceed 5,000 per year in the coming years. Five thousand new homes in one year is a historical number, not a wall. Seven years of absolutely no new home construction in the 1990's, created huge pent up demand, which held down the housing market like a "coiled spring".

Through the end of July, a full 23% of all homes planned for LA county received building permits in the AV. It is estimated, that by the end of the year, a total of $500M worth of new homes will have been built in the AV in 2004. Although new home construction, statewide, is at 10-year highs, building industry officials say that it is still not enough to meet Cal's growing population.

With 7-10M people only an hour away by car, and much higher home prices in our feeder markets, the case for moving to the AV remains strong. "Growth is going to continue to come; We're (the AV) the only place left in Los Angeles County with dirt," Gretchen Gutierrez, executive director of the AV chapter of the Building Industry Association.


Land Market: Supply closed out August at 1,971 up for the 4th straight month. This is a new high, exceeding the previous supply high of last month. Versus last month, supply is up 3%, and year to date, the supply of active land listings is up 23%. In general, rising supply is bad for sellers and good for buyers. Rising supply means that sellers have more competition, and that buyer's have more choices. This level of competition and choice though, varies from area to area. In some areas, supply is very tight, with higher prices. In other areas, the supply of land is almost at surplus levels, which is a limiting factor on price appreciation. As I watched this bull market develop from the mid 2002 period, I knew that supply would go one of two ways: either it would expand as more and more sellers decided to take advantage of the strong market to sell positions, or demand would overwhelm the rate of new supply, drawing it down to very low levels. In the 1988-90 market, supply levels were drawn down to very low levels, to the 580's by May of 1989, which in hindsight, was the top of that market cycle. The current behavior of the supply and demand equation is preferable to the type of "blow off top" market we had in 1988-90. As it appears now, eventually, rising supply will moderate land prices. This will be a long drawn out process that will test the patience of many buyers waiting to invest their capital.

Supply numbers in perspective:

Supply at end of August- 1,971
Supply at the end of 2003- 1,607
Supply change, year to date- + 23%
Supply in August 04 vs. August 03- + 12%
average monthly supply in 2004- 1,754
average monthly supply in 2003- 1,743

Current status: The fact that we have supply rising this year, tells me that many sellers have figured out this is a bull market and a good time to be selling long held positions. Rising supply, if it were to rise dramatically, due to weaker sales, would be a negative indicator, but we are not seeing that. We still have record sales volume, so the rising supply issue does not bother me. When supply was in the 1,800's in 2001, as it was for 7 different months, it did not forecast weakness - it revealed it. This year, supply has moved up + 15%, but for different reasons- seller optimism in the face of a strong market. As always, I will be watching this indicator closely for any early warning signs that supply is beginning to overwhelm demand, which could soften prices, OR if demand begins to overwhelm supply, drawing it down dramatically, which could indicate a speculative blow-off as in 1989. Presently, I see neither.

Why is the supply number is important? The market value of all things, eventually, comes down to the basic principle of supply and demand. The supply number helps to tell us the psychological condition of buyers and sellers, by its change and its rate of change. Large drops in supply could be signaling speculative behavior as investors fight it out to get into our market. If supply were to increase rapidly, that could be telling us that buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down.


Demand: August (187) land sales, put in another very strong month. Although strong, 187 land sales in August did break a streak of 5 months in a row of 200 or more. As you can see from the numbers below, 2004 is shaping up to be a very strong year in land sales. The challenging part of this market is finding property that is suitable for investment, meaning many listings are over priced, and unattractive from an investment point of view. One should always consider both location and price when making a buy decision. Going forward, it will be interesting to see if sales volume has peaked for the intermediate term, or if it can make another run above the 200 level. In the context of the big picture, the future growth of the AV, it matters little. Volume numbers above 100 provide a very active and liquid market, and currently, we are a long way from that level.
If there is a period of weakness that will provide the longer term investor an opportunity to pick up a few deals.

Demand numbers in perspective:


Land sales year to date- 1,648
Land sales pace for the year- 2,472
Land sales last year (2003)- 1,240
Average land sales (in 2004) per month- 206
Average land sales (in 2003) per month- 103
First 8 mo of this year vs. same period last year- + 107%
August 2004 vs. August 2003- + 70%

Strong volume shows that this market has strong conviction, which tells me this market has years to run, not just months. Increasing sales volume means that the number of participants, and the total dollars they are bringing into our market, has increased, and increased dramatically, vs. last year. In many areas, prices have had major moves. Investors, tired of stock market losses and volatility, are moving money out of stocks, and into real estate. This is a phenomena that has been going on since the second half of year 2000. From 1960 through 1980, real estate was the investment asset of choice. From 1980 through 2000, the stock market was the dominant investment vehicle. Is it real estate's turn to be the magnate of investment capital for the next 20 years, until 2020? From year 2000 until now, it has a very good start. Bull markets usually climb a wall of worry. All of this talk about a "housing bubble" fits that bill perfectly. The time to worry, in my opinion, is when no one is worried, and the talk of the "bubble" completely disappears.


Current Status: I now expect volume to move into a trading range of 150 to 200 + sales per month, which is still very strong sales numbers. Overall, volume is strong and is in bull market territory. Next year, these volume comparisons, 2005 vs. 2004, are not going to look nearly as good as 2004 vs. 2003. No matter, any month where we have over 100 sales still indicates we have an active market with strong interest.


The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 as the beginning of this bull market in AV land. This means that this bull market in AV land is now in it's 3rd year.

- Frank Donato, September 2004

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