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 2005 AV News Briefs: July August

Antelope Valley News – July 2005

June 7th- Wal-Mart officials reaffirm their committment to have their new super Wal-Mart store, in west Palmdale, open by August. When it does open, the new Super Wal-Mart will be only the 5th of its kind in California. The store is located on 10th St West & Ave O-4, just north of Sam's Club and is part of the shopping center known as Destination O-8.

June 16th- State Veterans Affairs officials say that the Lancaster Veterans Home, to be built at the NWC of 30th St West & Ave I, is on schedule. The Lancaster home would be built with a group of three new Vet's homes; the other two being in west Los Angeles and in Saticoy (Ventura County). The Dept of State Veterans Affairs, last November, did give their approval to fund $125M for the project. The Federal side of the projects funding is still in doubt as the Bush Administration will juggle their priorities over the next two years. Also, the VeteransAdministration is conducting a study of it's sites, to determine their highest and best use. That study "may" conclude to sell off some of their sites. If the Los Angeles site is selected to be sold, that could jeopardize the Saticoy and Lancaster sites, as the three are suppose to be funded and built at the same time. The state funding legislation was passed in that manner.

June 20th- Western Development & Storage, a water storage company out of Los Angeles, is talking with Kern County officials on creating a water bank in which to store AV water. The "bank" would be located beneath 1,700 acres of farmland east of Rosamond, and could store up to 500,000 acre feet of water. One acre foot of water is approximately 325,000 gallons. A draft version of the company's environmental impact report could be ready by the fall. Western's plan calls for water districts to purchase extra water and bank it in their facility. Presently, local water districts in the AV are studying the plan.

June 20th- the UCLA Anderson Forecast on the economy for Los Angeles County and California is released. The report says that they find "a number of troubling signs on the economy, that the economy has the look and feel of one that is near the end of an expansion, not in the midst of one." Christopher Thornberg, senior economist with the Anderson Forecast was also very critical of Alan Greenspan, the Federal Reserve Chairman. Thornberg said, that by April of 2006, it will be obvious to all that the economy is losing steam. The premise in the Forecast is that, presently, real estate is holding up the economy, that the rise in housing prices is fueling the economy. Some homeowners are refinancing their homes and spending the money in the private economy, a trend that cannot go on indefinitely. In closing, Thornberg said, "At best, we have mediocre growth in our future. Our California forecast calls for a soft landing in 2006, with growth slowing throughout the balance of 2005."

June 24th- Although it has been open since April 25th, the Palmdale Transportation Center held it grand opening. The center has been "in the making" for over 10 years and cost $14.85M. Located at 6th St East and Sierra Hwy, just south of Technology Dr (Ave P-8), the center is located on 26 acres. The depot now acts as a junction for several means of transportation: Metrolink train, Greyhound bus service, Amtrak Throughway bus service, Antelope Valley Transit (local bus service), and local taxis. Future plans include a pedestrian overpass across the rails, a light rail system to connect up with the Palmdale Air Terminal (a distance of approximately 3 miles), and to act as a stopping point for the future high speed Bullet trains. The station itself is 3,150 sq feet and has a 45 foot tall clock tower at the center of the passenger plaza. The center also has 600 parking spaces, 24 hour security, restrooms, and concessions. It is the 54th station along the 500 mile Metrolink system. Construction began on the center in December of 2003.

June 27th- Two months after announcing the opening of their new food distribution center in the Fox Field area, SYGMA, a subsidiary of Sysco Foods, announces that they will open with double the amount of employees then first anticipated. SYGMA will hire as many as 350 by the open and double the size of their facility as well. Originally planned at 110,000 sq ft, the facility plans now call for a 239,000 sq foot distribution center. The site is on 20 acres at 47th St West & Ave G. SYGMA, which had announced that expansion was a future possibility, said they moved up their expansion plans due to the cooperative attitude of the City of Lancaster and the favorable economics of building on a larger scale. SYGMA also saw local opportunities to increase the volume of their business. The original 110,000 sq feet should be done by November with completion of the additional space coming soon after. SYGMA provides food and restaurant supplies to the food industry. Some of their local AV clients include: Panda Express, Wendy's, Subway, Panera Bread, and the Olive Garden.


July 6th- now 15 years old, the AV mall will be getting it's first "facelift" since it opened in 1990. The renovation is management's effort to bring the AV's prime shopping center into the 21st Century. It is hoped that the redesign will draw even more residents to the mall and attract new tenants. To be remodeled: the main entrance which faces south, new granite tile through the mall, new mall signage, and a redesigned food court. The remodeled main entrance will feature palm trees and a plaza for community events and entertainment. The plaza will be built with decorative pavers, with the fountain being redone as well. All work will take place during "after mall hours" and is expected to be done by November.

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.

May housing starts (Commerce Dept), released June 16th, inched up +.2% to a seasonally adjusted 2.009M annualized units. Although this number came slightly weaker than expected, housing starts are none the less at historically very high levels. May 2005 housing starts are + 1.8% higher than May of 2004. Unless there is a major decline in new home sales, analysts expect housing starts to "hover around this area", meaning the 2M homes per year run rate.


May building permits, (leading indicator and a signal of future activity) were down - 4.6% to a 2.050M annualized rate. It was the largest decline since June of 2004, but followed a very strong April, which was up a revised + 6.3%.


May existing home sales (Natl Assoc of Realtors), released June 23rd, fell - .7% to a seasonally adjusted annual rate of 7.13M units. The figure was in-line with expectations. Although down, May was the 2nd strongest month on record for existing home sales. Year over year, existing home sales are up + 3.5%. Nationally, the median price of an existing home is now $207,000, up %12.5% from 12 months ago. Standing inventory is now at 4.3 months. Analysts say the supply is still very thin, and when coupled with the current low interest rates, upward pressure on prices is the result.

May new home sales (Commerce Dept.), released June 24th, rose + 2.1%, to a seasonal adjusted 1.30M annual rate, the second highest level ever. The record was set in Oct of last year at a 1.31M annual rate. April sales were revised down slightly, to 1.27M. The median sales price of a new home is now $217,000, a +2.5% increase vs one year ago. The number of unsold homes rose + 1.1% and now stands at a 4.2 month supply. Analysts expect the housing numbers to stay strong as long as interest rates stay cooperative.

AV Home Market
The Cal Assoc of Realtors, on June 9th, has rated the high desert region as having a home affordability ratio of 34%. This means that 34% of the households in the AV can afford to buy a home. That may not sound like a high number, but it is the best in the state of California. In a distant 2nd place was Sacramento, at 21%. Least affordable in the state... the wine country, north of San Francisco, at only 8%.

As of April 2005, here are median home prices in the Antelope Valley, and their percent change since April 2004.

East Lancaster- $252,000 + 32.6% $171 per sq ft
West Lancaster- $240,000 + 37.1% $178 per sq ft
West Lancaster/Quartz Hill- $317,000 + 24.8% $176 per sq ft
Littlerock- $275,000 + 52.8% $197 per sq ft
East Palmdale- $280,000 + 37.3% $194 per sq ft
West Palmdale/Quartz Hill- $371,000 + 12.3% $182 per sq ft


Also released in mid June, was building permit data for the month of April. Valley wide, building permits were up 90% in April of 2005 vs April of 2004. Palmdale, lead by the master planned community of Anaverde, was up 110%, Lancaster up 73%, and the unincorporated areas were up 98%. Later this year, Palmdale should put up even more impressive numbers when it's Ritter Ranch project starts to build homes.


Nationally, Cal homes, over the past 5 years, have appreciated + 103%, second best in the nation only to Washington D C's + 108%. Over the past year, Cal is again in second place, at + 25%, versus Nevada's + 31%. Since 1980, Cal homes again come in second, at + 426% vs Rhode Island's + 446%. Demographic studies indicate that 250,000 new homes per year are needed in Cal to keep up with demand and population growth. This year,Cal home builders will be just south of the 200,000 mark.

Dataquick Information Systems, a real estate data firm, says that the median price paid for a southern Cal home in May was $456,000, a new record. That was up 2.5% from April, and up + 15.2% from May of 2004. Dataquick also says, that year over year price increases peaked one year ago, at + 26.9%

A local residential office manager in Lancaster says, "Homes under $300,000 will sell in under a week; within that week, the property will have 4 or 5 offers with the winning offer being over the listed price." In May, the Lancaster - Palmdale area saw 1,105 homes sell, with the median price well above $260,000. That median price is about 50% below the Antelope Valley's closest competing market- the Valencia, Canyon Country, Newhall area.

Housing data for May has been released. The median price of a AV home in May of 2005, is up nearly 30% vs May of 2004. For the first time ever, the median price of a California home topped the $500,000 level, at $522,500. In Lancaster and Palmdale, collectively, the median price of a home is around $330,000. Statewide, new home construction will top 200,000 for the second year in a row.

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

As of June 12, 2005 (most recent data that is available)
-New Homes sold year to date - 2,164
-New homes sold since last month- n/a
-New homes selling per day - 13
-New homes projected to sell for all of 2005- 4,844

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

Number of new home builders in the AV- 34
Open subdivisions with sales in 2005- 61

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
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
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

Supply closed out June at 1,813, up just 1 % from last months supply number of 1,793. The reason I follow the supply numbers is to watch for any meaningful changes, which could signal a trend change. In 2005, in the supply numbers, no such trend change is even being hinted at, let alone being revealed. In the face of record and near record demand, I do not see anything meaningful in the supply numbers; to me this means that this market is capable of giving us more of the same- strong sales performance. I do see a strong, very strong market, but not one that is excessively speculative. Supply looks fairly stable here, which means, that for the most part, supply and demand are in equilibrium. In summation, the current supply numbers, and the magnitude of their movement, are not giving off any warning signals.

Supply numbers in perspective:

Supply at end of May- 1,813
Supply change from last month: + 1 %
Supply at the end of 2004: 1,902
Supply change, year to date: - 4.83 %
Supply in May 05 vs May 04: + 5.2 %

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; how much it changes and how fast it changes.

Demand: June demand, at 303 land sales, as reported through our MLS, was off slightly from last month's record number of 320. As of July 8th, July is on pace to do 280 to 300 land sales. In June, sales went over the 300 level for the second month in a row. June was the third month this year that sales exceeded 300 and the 7th month in a row that sales went over 200. Based on June's sales pace, standing inventory is now at a 6 month supply, which is historically low. All of these numbers point to a continued strong seller's market.

Demand numbers in perspective:
Land sales year to date- 1,681
May 2005 vs May 2004- + 47 %
Land sales projected for this year- 3,362
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 2005) per month- 280
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 39 months old (3 years and 3 months).

Supply & Demand Dynamics:
No major changes here. The character of this market has been unchanged for many months. Inventory, or supply, has been in a fairly narrow band of 1,750 to 2,000. Demand has been strong with sales at or near new volume high's in three of the last four months. With supply stabilizing in the face of record land sales, the two appear to be in equilibrium. Strong demand is not drawing down supply, nor is supply increasing at an alarming rate. Supply and demand numbers have their greatest value when they move to historical extremes. When these numbers, in tandem, move to historic extremes, they can be helpful in determining market bottoms and tops- i.e. major turning points. Presently, as a pair, they are not at extreme levels, nor anywhere near extreme levels, so I see no pending warning signs re: this market. That said, it should also be known that prices in many areas have made big moves. While the market is strong and liquid, it also has more than it's share of risk. This is not a market where one can throw money at it indiscrimately and expect to make a profit within 1-2 years.

- Frank Donato, July 2005

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

Antelope Valley News – August 2005

August 6th- The City of Palmdale announces joint effort with Scenic Airlines to promote that airlines routes from Palmdale to Las Vegas. In addition to ad time, the City has purchased 90 tickets at a cost of $20,000 to give away to the public at many public events held by the City. It is the hope of the City, that success by Scenic will encourage other air carriers to Palmdale. The flight time from Palmdale to Las Vegas is 53 minutes. Once in Las Vegas, Scenic Airlines offers free shuttle service to strip hotels and McCarran International Airport. Scenic Airlines, which has been in business 38 years, may be reached at 661-267-6702 or visit www.scenic.com. Scenic Airlines is now using Beechcraft 1900 jet aircraft, which has a passenger capacity of 19. The Beechcraft is pressurized and flies at altitudes above turbulence, which makes the trip smoother and faster; 53 minutes to be exact. Scenic says they need 21 passengers per day to break even on it's flights between Palmdale & Las Vegas.

August 17th- The City of Palmdale, in what looks like the use of the old phrase, "the best defense, is a good offense" announces they have filed a law suit against Antelope Valley Hospital. The suite alleges that AV Hospital did not adhere to the Brown Act, which requires any government entity to hold open and public meetings when discussing policy. The City of Palmdale does not seek monetary damages, but would like the court to declare null and void AV Hospital's board authorization to pursue the acquisition of the land on which Palmdale is already building their new hospital - Tierra Subida & Ave Q-8. Over the past several months, AV Hospital has been exploring the potential use of eminent domain to acquire the Palmdale acreage. AV Hospital has also offered to buy the site for $9M. The offer was rejected by Palmdale. Palmdale wants the court to take away AV Hospital's ability to use eminent domain. They are also asking that all future meetings held by AV Hospital, regarding the site, be held in open and public sessions, and that any closed sessions be recorded to ensure that AV Hospital is living up to the court order (if awarded). The City of Palmdale is also asking that they be reimbursed for unspecified costs. These costs are associated with the defense of their site from AV Hospital.

August 18th- In preparation of their scheduled opening on August 31st, the new Wal-Mart Super Center, located in Destination O-8, holds a media and vendor day. More than 300 employees have been working to prepare the store for it's opening. Resembling a pep rally, the event included music and short presentations by the store's various workers on it's upcoming deals. The Palmdale Super Wal-Mart is the first such store to locate and open in Los Angeles County. When the store opens, it will employ 735 and be open 24 hours a day, 7 days a week. The 205,000 sq ft Super Wal-Mart is located on 10th St West, just north of the Fwy 14, at Ave O-8. Also in the center are Sam's Club, Kohl's Dept store, Office Depot, Jo-Ann's fabric, and various other stores and food vendors. Reports in the local newspaper said that some customers were lining up at 5-6am, waiting to get in the store on opening day. I was in the new Super Wal-Mart parking lot on the day after it opened, and finding a parking spot was difficult. It was like being in the parking lot of an amusement park. By my estimation, there were over 3,000 cars in the parking lot. Inside, the store has nearly 30 check out registers. Floor space in the store is almost 5 acres.

August 22nd- The Palmdale City Council discussed funding a preliminary study for the "Glendale tunnel", a 23 mile tunnel that would connect Palmdale and Glendale through the mountains. The tunnel is projected to cost $130M per mile, or a total cost of $3B. The route would go under and through the Angeles National Forest. The cost of a more detailed study could run $2M to $3M. Don't expect this to happen, as most officials are on record for spending
transportation money on projects that can help the AV now, not in 20 years, i.e., the continued widening of Fwy 14 to Santa Clarita and the San Fernando Valley, and Hwy 138, as it goes east to the through Littlerock and Pearblossom, towards Victorville and the Fwy 15. In addition, a study by the URS Corp reveals, that while the tunnel itself will cost $3.1B, it will generate only $1.5B of revenue after the first 30 years of operation. Or as one Palmdale official said, "After 30 years of use, the tunnel's tolls wouldn't even pay for 1/2 of the project."

August 23rd- The AV Film Office says that the estimated film revenue generated from commercials, television, music videos, and movie productions, in 04-05, was more than $5M, up from$3.5M the previous year. The Film Office says that the ongoing war in Iraq has helped the AV film production business, as the AV "easily doubles" for Iraq with it's desert environment. Both "ER" and "Over There" have filmed episodes in the AV. To keep more filming in California, Gov. Schwarzenegger is pushing a bill to give a 12% tax credit for film productions inside California, with a cap of $3M per production. TV movies could get an additional 3% tax credit. Over the past 20 years, the trend has been to move outside of Cal for shooting movies, due to Cal's higher cost of doing business.

August 25th- In what is step 1 in revitalizing the Lancaster Power Center, The 99 Cent Only store held it's grand opening in it's new building. Just a few doors from it's old site, the new building 24,000 sq feet. The Power Center, located on Valley Central Dr, north of Ave J, along the Fwy 14, has other plans "on the drawing board" to improve the center. Next year, a Super Wal-Mart will be built, with the current Wal-Mart site being subdivided and leased to smaller firms. A water park and a hotel are also in the planning. The 99 Cent Only store, which has over 100 stores in Cal and 226 in four states, will employ 40.

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.

July housing starts (Commerce Dept), released August 16th for July, fell slightly to an annual rate of 2.042M. However, building permits for single family homes rose to a record 1.69M annual rate.

July building permits, (considered a leading indicator and a signal of future activity) also released August 16th, + 1.6% to an annualized rate of 2.167M. Permits for July single family homes were up 2% vs June.

July existing home sales (Natl Assoc. of Realtors), released August 23rd for the month of July, down - 2.6% to seasonally adjusted annual rate of 7.16M. The expected number was 7.29M. Although down, it was the third highest level ever on record. Existing home sales were up though, versus July of 2004, + 4.7%. Also in July, mortgage application rose to an all-time high, which is expected to keep resale's strong, even if they are off of their record levels. The median price of a existing home is now $218,000, which is up + 14.1% vs July of 2004. Statistically, 14% annual appreciation is not sustainable. Inventories rose + 2.6% and now represents a 4.6 month supply. It is the highest inventory since May of 1988. One of the first signs of a slowing market would be rising inventory. Condo's was the weak link in the inventory number, with the supply
of condo's on the market rising + 24%. Over the past year, condo inventory has risen 67%, which of course is not good for the condo market (nationally). By region, existing home sales were flat in the south, down - 3.3% in the northeast, down - 1.8% in the Midwest, and also fell in the west - 7.5%.

July new home sales (Commerce Dept.), which were expected to dip a bit, especially after a weak existing home sales report the day before, surged + 6.5% to a record 1.41M annual rate. Year over year, new home sales are up 27.7%. The median price of a new home fell 4% to $203,800. This is seen as a move by builders away from more expensive homes towards more moderately priced homes (under $250,000). In the west, new home sales rose 36%; in the northeast they were up 10.1%; in the Midwest, new home sales were down 13.5%, while in the south they were also down- 3.5%. Nationwide, the supply of new homes rose 1.8% to 460,000 (also a record), which at July's sales pace is a lean 4 month supply.

AV Home Market News

The median price of home in So Cal continues to increase, rising to $469,000 in July, reports Dataquick a real estate reporting firm. The July figure was up $4,000 from June, and up $67,000 from July of 2004. The year over year increase comes out to a gain of + 16.6%. Sales volume was down though, falling - 12% July vs June, and down - 5.8% vs July of last year (04). Dataquick says that, "Indicators of market distress are largely absent." Dataquick says that foreclosure activity is still low. Marshall Prentice, Dataquick President, said, "We're watching carefully for signs of a turn, for any signs of a bursting bubble. So far we're not seeing anything other than the normal incremental changes you would expect in the ebb and flow of a real estate cycle."

The AV existing home market remains strong, with prices up, in some areas, as much as 36% vs one year ago. In July, in the LA County portion of the AV, 700 existing homes traded owners, with prices ranging from $269,000 to the $600,000 area. The buyers are those that are moving to the AV, away from more expensive urban areas, and those that already live in the AV who are trading up. Gretchen Gutierrez of the AV Chapter of the Building Industry Asso., says that NEW homes are selling as fast as they can be built. Many of the larger, major builders have multiple tracts under construction.

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

Region median price 7 / 05 % gain vs July 2004

Mid Lancaster $269,000 + 29.6%
East Lancaster $274,000 + 27.5%
West Lancaster $335,000 + 24.1%
Littlerock $298,000 + 36.2%
West Palmdale $395,000 + 14.2%
Mid Palmdale $295,000 + 21.9%
East Palmdale $315,000 + 16.7%

The masterplanned project of Anaverde is starting to look like a small city as phase 1, totaling 1,500 homes is well under way and the 5 acre park is now being graded........Santa Clarita, a feeder market to the AV, located 35 minutes south down the AV Fwy 14, is actually seeing building permits fall in 2005 (vs 2004). Building permits in Santa Clarita (2005) are actually down 65%. Reasons cited are land costs and high median home prices, now well over $500,000. Topography is also a problem as most of the flat land in Santa Clarita is already built out. Grading hillsides is expensive and drives up home prices. The AV on the other hand, as you can see below, is still seeing permits rise.

Building Permits Issued (through July 31st)

2005 2004 % change
Palmdale 1,082 674 + 60%
Lancaster 1,437 930 + 54%
Santa Clarita 540 1,440 - 65%

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

As of August 14, 2005 (most recent data available)
-New Homes sold year to date - 3,064
-New homes sold since last month- 318
-New homes selling per day - 13 +
-New homes projected to sell for all of 2005- 4,945

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

Number of new home builders in the AV- 35
Open subdivisions with sales in 2005- 73

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
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

Land Market
Supply closed out August at 1,965, up 6.6% versus last month (July). Supply has now risen four months in a row, dating back to April, when supply was at 1,757. From the April low, supply has risen 11.8%. While supply has risen over 11% in just 4 months, I would not jump to any conclusions that this could be signaling a trend change in the supply numbers. When compared to the supply of one year ago, Aug 2004, supply is unchanged. In the face of record / near record demand, I do not see anything meaningful in the supply numbers; to me this means that this market is capable of giving us more of the same- strong sales performance. I do see a strong, very strong market, one that is being driven by both investment and development, not just pure investment. Supply, although climbing now, looks fairly stable here, and has been for well over a year, which means, that for the most part, supply and demand are in equilibrium. In summation, the current supply numbers, and the magnitude of their movement, are not giving off any warning signals or potential trend changes. Based on Aug's sales pace, standing inventory now stands at 6.4 months, which is up slightly from July's 6.3 months. This market has real power, purchasing power, and in all likelihood, is far from being done.

Supply numbers in perspective:
Supply at end of Aug- 1,965
Supply change from last month: + 6.6 %
Supply at the end of 2004: 1,902
Supply change, year to date: + 3.3 %

Supply in Aug 05 vs Aug 04: - 3/10 %


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; how much it changes and how fast it changes.

Demand: August demand (305) moved back above 300, and now has been above 300 in 3 of the last 4 months. The gain of 14 land sales, versus July, is insignificant. The last 6 months have seen land sales at 281 or higher. In 4 of the last 6 months, land sales have been above 300; Aug was the 9th month in a row of land sales of 200 or more per month. Whether it is 280, or 290, or 310, it all means the same thing: a very strong land market. After the first 5 days of Sept, we have XX land sales, which is once again on pace to exceed 300. There is only market strength reflected in these numbers.

Demand numbers in perspective:

Land sales year to date- 2,272
Aug 2005 vs Aug 2004- + 63 %
Land sales projected for this year- 3,408
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 2005) per month- 284
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 39 months old (3 years and 3 months).

Supply & Demand Dynamics
No major changes here. The character of this market has been unchanged for many months. Inventory, or supply, has been in a fairly narrow band of 1,750 to 2,000. Demand has been strong with sales at or near new volume high's in four of the last five months. With supply stabilizing in the face of record land sales, the two appear to be in equilibrium. Strong demand is not drawing down supply, nor is supply increasing at an alarming rate. Supply and demand numbers have their greatest value when they move to historical extremes. When these numbers, in tandem, move to historic extremes, they can be helpful in determining market bottoms and tops- i.e. major turning points. Presently, as a pair, they are not at extreme levels, nor anywhere near extreme levels, so I see no pending warning signs re: this market. That said, it should also be known that prices in many areas have made big moves. While the market is strong and liquid, it also has more than it's share of risk, to be more specific, price risk. This is not a market where one can throw money at it without some thought, and expect to make a profit within 1-2 years. Sellers should be running to the "sell window" to place their order. Sellers should not fall into the trap of putting off selling because they don't need the money. Sell now when the market is good. Worry about what to do with the money later; that is a separate issue. I have never heard of a stock market investor putting off selling a stock because he didn't need the money. Why should real estate be any different? It is unlikely that any market will conform itself to one's time table re: when one actually needs money. Buyers should be careful and patient, waiting for the right opportunity, which means taking into consideration price and location.

- Frank Donato, August 2005

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