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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 2010 Antelope Valley News: July Aug/Sept


July 2010

Antelope Valley Home News

The Antelope Valley existing home market continues to frustrate residential agents and their buyers with the issue of low supply.  Inventory of available homes in the MLS up here is around 1,100 and historically has been 2 to 2 ½ times higher. With only 1100, and if you’re not a member of SoCal now competing  with GAVAR over 800 listing in their MLS. With 70% of the buyers coming from LA area it makes it difficult to compete if you’re not a member of both MLS’s.  In light of the fact that the banks in Palmdale and Lancaster collectively are holding 9,000 homes, the frustration is justified.  The frustration is also being felt by the buyers, with many of them dropping out of the home buying market at this time.  As one realtor put it, “the two MLS’s need to work together so everyone has access to both areas with one fee.”

June existing home sales were up 13% vs. May, the prior month, but were down -28.8% vs. June of 2009.
As one might expect, this tight supply is forcing up home prices, with the average price up 17.2% vs. June of last year.
In June 2010 the average price was $150,721, a very decent bounce from the $130,000 level just a few years ago.
Antelope Valley median home prices topped in April of 2006 in $334,000 price range. 

Antelope Valley New Home News

Antelope Valley Tract Builder’s Sales

1990-  total of all new homes sold- 4,900 +
1999-  total of all new home sold-  694  (The Siracusa Co.)
2002-  total of all new homes sold- 1,162 (Hanley Housing Report)
2003 - total of all new homes sold- 1,820 (Hanley Housing Report)
2004 - total of all new homes sold- 2,730 (The Siracusa Co.)
2005 - total of all new homes sold- 4,510 (The Siracusa Co.)  
2006 - total of all new homes sold- 2,584 (Hanley Housing Report)
2007 - total of all new homes sold- 1,720 (Hanley Housing Report)
2008 - total of all new homes sold-    906 (The Siracusa Co.)
2009 - total of all new homes sold-    669 (The Siracusa Co.)  20 year low
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Antelope Valley Aerospace & Defense

While the general economy struggles, aerospace in the AV is doing quite well.  Employment at Edwards Air Force Base now stands at 12,500 and will go up by 1,200 more for the testing of the F-35 Joint Strike Fighter.  The F-35 will be used by all branches of the military and is a supersonic next generation aircraft that will eventually replace several platforms, the Air Forces A-10, F-16, the Navy’s F-18, and the Marines Harrier.

The F-35 can take off and land conventionally or vertically like the Harrier.  The F-35 fuselage program at Plant 42 in Palmdale also employs 1,200, with final assembly of the aircraft in Fort Worth, Texas.  In addition, Lockheed Martin employs about 500 workers at Plant 42 that make special parts for the F-35.    
Northrop Grumman is wrapping up testing on its first Euro Global Hawk which is being sold to Germany. Dubbed the Euro Hawk, the aircraft already has Germany’s insignia on it and will ferry itself to Germany when testing is completed.  The Global Hawk series is an unmanned “recon” aircraft, which can also carry a weapons payload.  The Global Hawk is flown remotely.

July 15- Scaled Composites next spacecraft to fly into space, the SpaceshipTwo, undergoes a powered test flight with both a pilot and co-pilot on board to monitor and evaluate systems and procedures that will be used for upcoming flights.  Essentially, SpaceShipTwo flew a simulated flight while be carried by the mother ship, the WhiteKnightTwo.  The test flight was flown to 51,000 feet to expose the aircraft to cold to test its robustness.  SpaceShipTwo is being built for Richard Branson’s Virgin Galactic which plans to use the aircraft commercially.  Virgin Galactic says already have $45M in deposits for a seat that will cost $200k per flight.  Branson says that they have 330 potential passengers waiting for the opportunity to experience sub-orbital space flight. SpaceShipTwo will carry 6 passengers to 62 miles above the earth where passengers will experience several minutes of weightlessness and witness the black sky of space. 
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Antelope Valley News

July 3-  The new Palmdale Hospital is inching towards its opening, sometime in the fall.  Palmdale has been without a hospital since 1996.  Initially it will open with 127 beds and then expand over time to 239.  At the open, the hospital will employ 750 full time positions.  The hospital is expected to have an annual economic impact of $280M.  Other events of merit:  the new Macy’s at the AV Mall will be open in September.  The Yard House restaurant is also expected to open up, in the Mall, sometime in 2011. 

July 3-  The City of Lancaster has finished its first phase of its downtown makeover, the remaking of Lancaster Blvd.  The city is aiming to make the BLVD a major destination for arts, dining, entertainment, and shopping. The easterly 1/3 of the Blvd has been completed, up to Sierra Hwy.  The mid section is under progress now.  The Blvd makeover will stop at 10th St West.

July 9- With the City of Palmdale’s tax revenue down $20M over the past 4 years, city employees have been cut from 355 to 191.  The personnel cut backs come from a combination of layoffs and early retirements.  Over the past 3 years the City has made over $35M in budget cuts.  City officials describe their new budget as a “no frills” budget. 

July 13- The City of Lancaster announces they will team up with SolarCity, a Foster City based solar company, with the goal to change Lancaster into the nation’s first city with a fixed energy cost.  Commercial businesses in Lancaster, and homeowners, are being urged to go solar.  City sites such as Clear Channel Stadium, City Hall, and the Lancaster Performing Arts Center will all go solar.  The solar systems will be leased from SolarCity, who will also do the installation, with no upfront costs from the City or homeowner (end user).  In Lancaster, KB Homes has partnered up with BYD, a Chinese solar and battery maker, to build 5 solar demonstration homes in the Alamosa tract, at 60th West, north of Ave L.  The homes produce more electricity than they consume.  BYD is also an electric car maker, the largest in China, and is looking to open an assembly plant in the southern Cal area, with Lancaster still in the game to bring BYD to the AV.  Same day, KB Homes,  Lancaster Mayor Rex Parris, and BYD, hold an open house at KB’s first solar demonstration home.  The home is located on 58th West & K-11 in the Alamosa subdivision and uses BYD solar panel, energy storage batteries, and LED lights.  The home also has an electric outlet for recharging BYD’s electric cars.  The home is a single story model and is the first of 5 homes that will have BYD solar products in them.  The home has 18, 220 watt solar panels on the roof and four 48 volt batteries. Monthly electric bills are expected to run between $8 and $10, providing a pay back of the entire system over 7 years.  As mass production drops the payback period to just 4 years, demand for solar systems are expected to take off.  The demonstration home also includes a tank less water heater, heavier insulation in the walls and attic, and radiant barrier plywood on the roof deck.

July 21- Lancaster officials announce they have succeeded in getting the AV approved as an EB-5 immigration visa area.  The means that foreign investors that come to the area with $1M to invest, that can create 10 or more local jobs, that investor can be granted a green card, permanent residence.  Lancaster officials feel that becoming a “green city” could be huge in attracting foreign investment, not to mention the immediate ongoing campaign to land China’s largest auto maker, BYD (Build Your Dream).  BYD is a mass producer of electric cars, develops batteries for cars, and also solar panels for residential and commercial use.

July 22- Two members of the Cal Energy Commission have given their backing to the 250 megawatt solar plant to be located north of Mojave and California City.  The two members say that the plant will have no significant impact on the environment and complies with state laws and standards.  The solar plant will cost $950M and be located on 2,000 acres next to Hwy 14 as it heads north to Ridgecrest.  The two member backing of the project is in the form of a report that has 30 days for public comment, then the report goes to the full five member commission for a vote.  THE biggest issue for this plant remains water; where will they get 1,400 acre feet of water per year for cooling?  There are two proposals to solve this problem, but both are very expensive.  One is to purchase the water from Rosamond Community Services District, which will require a 45 mile water line to be built, OR to buy treated sewer water from California City, which would require that 2,500 homes in the CC area be added to their existing sewer system to ensure enough water would be available.  The plant proposed will hook into the Los Angeles Dept of Water and Power transmission lines.

July 27- Terra-Gen Power holds a ground breaking ceremony for its new wind energy project in the Tehachapi mountain area, north of Rosamond Blvd, along Willow Springs Rd (90th West).  One hundred federal, state, and local officials attended the ceremony, which when completed, will be the world’s largest wind energy project.  At completion, the project will provide 1,550 megawatts of electricity which is enough for 1.1M people or about 275k homes.  The first portion of the project has begun and will be completed by April 2011, and will have the capacity to produce 720 megawatts.  The project, known as the Alta Wind Energy Center, is on 9,000 acres and located west of Mojave and south of Tehachapi.  Most of the land was in private hands and has been either purchased or leased by Terra-Gen.   Construction of the project will create some 1,500 jobs and at completion will have an annual economic impact on the AV of $1.2B.  Kern County has 23 renewable projects in the pipeline.  Terra-Gen has had wind energy projects in the Tehachapi area since 1997.  Terra-Gen will be selling the electricity they produce to So Cal Edison.      

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Antelope Valley Land Market

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

Supply closed out July at 1,790, a one month drop of 51 listings for a percentage drop of - 2.77%.  July was just another typical month in this Bear market.  In late 2005, when supply was hovering around the 3,000 level, I set a minimum forecast for supply to drop to the 1,500 level before this Bear market would be over.  The 1,500 level was chosen because it represented an approximate pull back of 50% in supply. Will getting to 1,500 mean the end of the Bear market?  No, but it could mean that it is the beginning of the end.  A 20% drop from current levels would put us well below 1,500.  My expectation that seller capitulation will be the primary force to move supply lower.  Some owners will cut their price to get their land sold, while others will get discouraged and remove the property from the market.  With the current weak selling environment well known, I do not expect new listings to come onto the market faster than those that leave the market, thus we should get falling supply.  As long as the housing market continues to struggle, the land market should follow.  And as long as the federal govt stays in the housing market, trying to fix it, the housing market should remain chaotic and weak, with the land market not far behind.
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Supply numbers in perspective:
Supply change vs. last month:   + 2.77%            
Supply change during 2010:      + 7.00%     
Supply change year over year:   + 9.41%
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Supply at end of July 2010: 1,790
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Supply at the end of 2009:  1,673
Supply at the end of 2008:  2,100
Supply at the end of 2007:  3,134
Supply at the end of 2006:  3,263 (market peak in prices)     
Supply at the end of 2005:  2,264 (market peak in volume)       
Supply at the end of 2004:  1,902
Supply at the end of 2003:  1,607
Supply at the end of 2002:  1,770
Supply at the end of 2001:  1,665
Supply at the end of 2000:  1,800
Supply  in  May  of  1989:      587 (market peak in price)
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Demand- July demand (28) fell 12 sales which on a percentage basis, represents a - 30% drop from June. Demand continues to slug along, putting in typical numbers for a Bear market month.  I continue to expect monthly sales volume to stay in the range of between 20-35.  Occasionally we will see months above or below that range, but only a month here and there.  Three months in a row of sales, either above or below the range, could indicate the market is getting ready to change- get better or worse.  It is a safe bet, that as long as the housing market is backlogged with distress type sales, there is little to no reason for new homes to be built. Local banks and lenders in the Lancaster – Palmdale area, own, and are holding off the market, some 4,000 homes per city, for a total of 8,000 homes.  That trend will keep the land market weak for several more years.  For this reason, developers are essentially out of this market, both residential and commercial / industrial. Land dealers and investors are the primary buyers in this market and are driven by price, not terms. Extended periods of time of low volume markets wear out sellers and drain their patience, with the eventual outcome being repeated price reductions until a sale occurs, or the property is taken off the market out of the frustration of waiting. Eventually, as sellers wear down from the waiting, we move into the capitulation phase as listed prices find the level that attracts new buyers.  The capitulation phase can last several years.
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Land- Median Listed Prices

July 2009 median price-  $49,000
July 2010 median price-  $45,000
Median price change, year over year:  - 8.16%       

Land- Average Days on the Market377

Demand numbers in perspective:   
Land sales year to  date-------- 219 (thru July)
Land sales forecast 2010------- 375 (projected)
Land sales in all of 2009--------325                                                                             
Land sales in all of 2008------- 475
Land sales in all of 2007------ 1,637              
Land sales in all of 2006------ 2,648 
Land sales in all of 2005------ 3,376
Land sales in all of 2004------ 2,372   
Land sales in all of 2003------ 1,240
Land sales in all of 2002------   679
Land sales in all of 2001-------  407
Land sales in all of 2000-------  307
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As you can see from the average monthly sales below, on a projected basis, we are back to 2000-2001 sales numbers, which were at the tail end of the last Bear market, and 2 years before the 2002-2006 Bull market began.                      

Average land sales (in 2010) per month-  31
Average land sales (in 2009) per month-  27
Average land sales (in 2008) per month-  40
Average land sales (in 2007) per month- 129
Average land sales (in 2006) per month- 221
Average land sales (in 2005) per month- 281
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Average land sales (in 2002) per month-  56 
Average land sales (in 2001) per month-  34
Average land sales (in 2000) per month-  26
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California Housing News

July 15- In California, again in data gathered by RealtyTrac, California had 192,422 foreclosure filings in Q 2, a +24% jump from Q 2 of 2009 and a +11% jump vs. Q 1 of this year.  Notices of Default, the first action a lender takes to notify a delinquent borrower, were down 43% vs. Q 2 of last year, and also down -15% vs. Q 1 of this year. RealtyTrac says that California lenders are postponing the auctions of homes to keep a flood of properties off the market, but that this cannot last forever.  RealtyTrac officials say, that going forward, because of runaway prices, out of control lending practices, and a high unemployment rate, California is going to be the center of foreclosure crisis until it’s over. 

June Existing homes sales in California fell 4.2%, as compared to June 2009, says the Cal Assoc of Realtors.  The June sales pace was at a 492,800 annualized rate.  Statewide, the median price of a California home rose 13.6% over the past 12 months to $311,950.  Unsold inventory rose to 4.8 months as compared to 4.2 months in June 09. Median prices, from the trough of Feb 2009, are up +27.2%, but remain 47% below the peak prices of May 2007. According to Freddie-Mac, the average interest rate in June on a 30 yr fixed mortgage was 4.74%.  The median days it took to sell a home was 43.3 days.  Versus May, statewide, June home values fell -3.8%, while in LA County June homes fell -3.3% in value.   Los Angeles area median home prices in June, vs. May, are up +3.44%.  Versus last June, LA area homes are up +8.28%.  Cities with the greatest one year price moves include:  National City +59%, Newport Beach +52%, Richmond +52%, San Bernardino +47%, Walnut +34%, Colton +32%, Imperial Beach 31%, Poway +30%, San Pablo +38%, and Fairfield +37%.  (source:  California Association of Realtors)  

Statewide, building permits were up 16% during the first five months of 2010 vs. the same period in 2009.  Also in May, month over month, permits pulled were up 4%.  However, versus April, the prior month, permits were down 6% in May.


August/September 2010

Antelope Valley Existing Home News

In July, the Antelope Valley existing home market continued its trend of falling sales and rising prices.  According to GAVAR statistics, 509 homes were sold in July, which is down -44% from July of 2009.  Year to date (Jan – July), existing home sales are down -33% vs. the first 7 months of 2009.  In July, the average sales price was $132,713, up +12% vs. July 2009.  However, in June, the average selling price was much higher at $150,721.  Why are sales so slow in the face of record low interest rates?  Banks continue to withhold 1,000’s of homes off the market which they own (REO’s), with estimates of 4,000 in Lancaster and another 4,000 in Palmdale.  Low supply and the low quality of supply, are affecting both sales volume and making the average sales price volatile.  In July, inventory did climb, up 4% yr over yr, to 1,309 residential units.  Low supply, and the inability of mid-range homeowners to be able sell to trade up, are giving the AV home buyers very little from which to choose.

If the current trend can hold, building permits issued in 2010 will exceed those issued in 2009.  Through the first 5 months, building permits in the AV are up 27.5% vs. the same period last year.  According to the firm, California Economic Forecast, the AV’s population is expected to grow by 28,000 over the next 6 years.  This means, says CEF, that 16,000 more housing units will be needed.  Their forecast for the years 2012 – 2015 are for an average of 3,100 building permits per year, well below the 5,000 issued in 2005, but well above current levels.      

Antelope Valley New Home News

Antelope Valley building permits, through July of this year, are up +18.7% versus the same period last year.  This represents 338 permits pulled for SF homes and 75 permits pulled for multifamily units.  

Antelope Valley Tract Builder’s Sales

1990-  total of all new homes sold- 4,900 +
1999-  total of all new home sold-   694  (The Siracusa Co.)
2002-  total of all new homes sold- 1,162 (Hanley Housing Report)
2003 - total of all new homes sold- 1,820 (Hanley Housing Report)
2004 - total of all new homes sold- 2,730 (The Siracusa Co.)
2005 - total of all new homes sold- 4,510 (The Siracusa Co.)  
2006 - total of all new homes sold- 2,584 (Hanley Housing Report)
2007 - total of all new homes sold- 1,720 (Hanley Housing Report)
2008 - total of all new homes sold-    906 (The Siracusa Co.)
2009 - total of all new homes sold-    669 (The Siracusa Co.)  20 year low
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Antelope Valley News

Aug 1-  The City of Palmdale has announced a new tenant for the vacated 34,000 sq ft building that was once occupied by the bankrupt Circuit City.  Thornton, Colorado based, Ultimate Electronics will move into the site on 10th St West, across the street from Best Buy electronics, at Amargosa Commons.  The move is part of Ultimate Electronics goal to open 10 stores in the Los Angeles area market.  Each Ultimate Electronics store ranges in size from 30k to 35k square feet, so the old Circuit City site is a perfect fit.  Ultimate Electronics  looks like a successful turnaround project.  The current owner bought the company (32 stores) out of bankruptcy in April of 2005, brought in new management, and has since invested $40M to upgrade existing stores.  

Aug 6 -  the City of Lancaster announces they will add a Chevrolet dealer to their Auto Mall by approving $1.1M in agency bonds.  Lancaster Mayor, Rex Parris, says that the Chevrolet dealership for the Antelope Valley region became available when the Rally Auto Group’s Chevrolet line was shut down by the Obama administration early in 2009.  Palmdale officials will be meeting in the coming week, with their attorneys, to determine if a court action to keep Chevrolet in Palmdale has any merit.  The Lancaster Redevelopment Agency would buy the vacant auto site from JCH Automotive in the Lancaster Auto Mall for $1.1M and assume the existing note for the purpose of providing parking for the new dealer.  No comment was available from GM as to what they thought about the controversy.  In the middle of the transaction is veteran AV auto dealer, Lou Gonzales, who is said to have an agreement with GM to sell Chevrolets in the AV.  According to local media, Gonzales was not available for comment. Pending advice from their attorneys, it is possible that Palmdale may sue Lancaster over this issue.  The Lancaster Auto Mall is bordered by Ave K, 10th St West, Ave K-8, and the Fwy 14.  Over the years, Lancaster and Palmdale have had their fair share of battles over vendors, which necessitated a 2003 state law that cash incentives, cash breaks, or other financial incentives could not be used to lure large stores or auto dealers away from one city to another.  Bottom line:  an aggressive Lancaster Mayor saw a crack in the door, and kicked it open in an effort to bring a Chevrolet dealership to his city.  Parris said, “I am absolutely confident of the legality and morality of our position.” For years, Parris has been one of the most successful personal injury lawyers in the country. 

Aug 7th - Gonzales tells his side of the story.  Gonzales, who owned a Saturn dealership at the Palmdale Auto Mall for 18 years, said he did everything possible to remain in Palmdale, but that he and city leaders could not come to an agreement.  Gonzales’s old Saturn site is not large enough for a Chevy dealership.  Gonzales wanted the one vacant parcel left in the Palmdale Auto Mall, but the City did not want to give that one up.  At that point, Gonzales decided to approach the City of Lancaster to see what they could do.  It is Lancaster’s view, that since Gonzales recently obtained the right to sell Chevrolets, and has not done so yet from any existing store front, that it is a new business and not one enticed away from Palmdale.  While this issue looks like it could be headed to court, GM may have the final say.  Many of the GM dealers that were originally closed down have appealed and have been allowed to reopen.  If the Rally Auto Group at the Palmdale Auto Mall is allowed to reopen their Chevrolet dealership, will GM still grant Gonzales a Chevrolet dealership in Lancaster, only 6 miles away?  Or will GM favor the new Lancaster site?  Rally Auto also sold the GMC line of trucks, Cadillac, Buicks, and Hyundai autos, before losing their Chevrolet line.  Rally Auto is not commenting at this time.

Aug 9- An 11 year old battle over the rights to groundwater, and how much one has the right to pump out, looks like it is winding down.  Most of the litigants have told the judge that they can live with the pumping 150,000 acre feet of water per year from local wells.  The accord, which is being called “A Statement of Agreement Principles for Settlement”, will be 100 pages long.  Participants in the suit have included, land owners that pump water, land owners that do not pump water, farming interests, industrial users, and wholesale and retail water agencies. Beneath much of the AV are large water basins, or aquifers.  These aquifers, in some cases, can go down 1,000’s  of feet, but not all of the water in them is safe or potable.  Some of the water has naturally occurring arsenic and or other contaminants.  A group will be appointed, called “water masters” and over the next 10 years, will monitor water use to determine if the 150,000 number needs to be lowered or adjusted in some way. 

Aug 10- Lancaster City Council holds a public hearing on the Chevrolet dealership issue, discussed above.  At the hearing was a Los Angeles attorney representing the City of Palmdale.  The attorney was limited to 3 minutes to make his case that Gonzales’s move from the Palmdale Auto Mall to the Lancaster Auto Mall was illegal.  Lancaster’s attorney had already told the Council that the Gonzales move was NOT a relocation of an existing dealership, but a new dealership that did not exist in Palmdale.  Gonzales acquired the right to sell Chevrolets after the Rally Auto Group lost their Chevy dealership in 2009.  After the hearing, the City Council voted 3-0, with two members absent, to approve of the Redevelopment Agency’s plan to bring Chevrolet to the Lancaster Auto Mall.  Gonzales says he will remain at his Saturn dealership in Palmdale until Oct 31, and then hit the ground running on Nov 1st, selling Chevrolet’s in Lancaster.  Gonzales also says he will bring all of his current 40 employees with him, plus hire 20-30 more.

Aug 12- Lancaster and Palmdale go before a Superior Court in Los Angeles to plead their case over the Chevrolet dealership. While the judge did grant Palmdale an application for a hearing on Sept 14th on the merits of the matter, the judge also refused Palmdale’s request to slap Lancaster with a restraining order.  The judge said that Palmdale failed “as a matter of law, to prove that there was an urgent need for a restraining order or that Palmdale would suffer irreparable harm.”  On Sept 14th, the two cities will go back to the same Superior Court and argue the merits of the 2003 law which prevents cities from using municipal funds to entice a business away from another city, and to discuss the portability of auto dealerships.

Aug 13- The Rally Auto Group, located at the Palmdale Mall, and the former owner of the Chevrolet franchise in the AV, files suit in federal court in Los Angeles to fight the loss.  If Rally wins this suit, it would of course call into question and interfere with, Lancaster’s plans to bring the Chevy dealership to its auto mall.  Rally was caught up in the mandatory closures of dealerships in the spring of 2009 when dumping dealerships was a requirement in order to receive federal bailout monies.  GM’s idea was to close weaker performing dealerships to shift sales to the remaining Chevy dealerships. In their suit, Rally claims that their dealership scored high enough under GM criteria to avoid closure.  Rally’s sales numbers include all GM brands sold, Chevrolet, Buick, Cadillac, and GMC.  Rally says that federal law requires that brands cannot be separated to determine whether a dealership should remain open.  Last June, an arbitrator gave the Chevrolet dealership to the current Saturn dealership at the Palmdale Auto Mall, which would be Gonzales.  The law suit says that the arbitrator did not have the authority to take a brand away from one auto dealer, and give it to another. According to Automotive News magazine, Rally’s law suit is the first in the nation seeking to overturn an arbitrator’s decision.  Rally’s attorney said that there were trying to work out this problem within the GM family, but when Gonzales announced he was moving to Lancaster, with the Chevrolet dealership given to him by the arbitrator, Rally felt the law suit was necessary.  If Rally wins this suit, I would expect other similar suits like it to be filed around the country.    

Aug 15- Lancaster announces they will take a more proactive approach in recruiting business to the City.  In a program called “Positioning for Prosperity”, step 1 will be for the City to pay CB Richard Ellis of Bakersfield $110,000 to help in marketing and branding the City in such a way as to attract private investors and business people.  Lancaster officials say that all City employees must change from being a business regulator to a business facilitator.  The effort will also include the City helping store owners improve their outlets, assist developers with construction of new shopping centers, and work to bring more auto dealers to the Lancaster Auto Mall.  The City says they will also engage in efforts to help people start their own firms, fill empty buildings, build business parks for new firms, and lure new firms from around the world.  The City says the plan will include seeking to attract tourists and visitors to sporting events, special events, and promotions to bolster hotel occupancy.  A CB Richard Ellis spokes person said, “We envision this as a long term private-public partnership.”  The City has set a lofty goal of creating 17k new jobs via this program.  With an unemployment rate of 17% and 1.5M sq feet of vacant space available, there is plenty of potential and room to grow.  CB Richard Ellis, within 90-120 days, will produce their plan on how the city should proceed.  CB Richard Ellis has 300 offices around the world, which includes 11 offices in China where BYD, the largest auto producer in China, is being recruited by the City of Lancaster.       
    
Aug 19- The City of Lancaster and the Rick Clutter, owner of the Honda dealership at the Lancaster Auto Mall, announce that Subaru will be coming to the Lancaster Auto Mall.  Clutter will own the new Subaru dealership and occupy a 28,000 sq ft building immediately north of the Honda dealership.  Subaru will carry about 200 cars and employ 50 people.  The new dealership will open Dec 1st.  Comment:  this is a gutsy move by Clutter, who must be banking on a sustained recovery. In 2009, over 1,600 dealerships closed, and this year, thus far, another 258 have shut down.  Chrysler says they will shut down 700 more dealerships by the end of this year or early next.  GM, which has shrunk from 6,000 dealerships to 5,100, say they intend to be down around 4,500 by year’s end.  Subaru’s sales are up 35% in 2010, versus last year.  On the other side of the coin though, perhaps with so many going out of business, there is opportunity to grab some market share as there will be fewer dealers to service this market.  That of course will depend upon overall demand.  On Aug 24th, the Lancaster City Council voted 5-0 to sublease an empty auto showroom in the Lancaster Auto Mall for the new Subaru dealership.  Subaru joins Chrysler, Dodge, Ford, Honda, Jeep, Lincoln, Mazda, & Toyota who are already in operation.

Aug 21- Republican candidate for Governor, Meg Whitman, tours the Antelope Valley.  To keep it short and sweet, her message was:  The weather is fabulous in California, but that is not enough to attract and keep business here. Whitman’s goals are to grow jobs, cut state government spending, and improve the K-12 school system.  Only Nevada and Michigan have higher unemployment rates than California. 

Comment:  California leaders are so out touch with business in their own state, that not only do they not know who is planning to leave, but when they do find out, usually through the media, no one in state govt picks up the phone to find out why or to try and find a solution to entice them to stay.

Aug 25- According to the Los Angeles County Assessor’s Office, the City of Lancaster’s property values dropped -14.4% between 2009 and 2010.  During the same period, property values in the City of Palmdale fell -11.7%. This includes all real estate, houses, commercial buildings, and all raw land within the city limits of each city. These declines in value do not include improved property or land located in unincorporated areas.

Aug 31- The City of Lancaster and its mayor, Rex Parris, announce a second trip to China to continue relationship building to eventually bring Chinese investment dollars to Lancaster.  The trip will take place from Sept 9th through Sept 17th.  The ultimate goal is to create jobs.  Lancaster has chosen Huainan, China, as its sister city.  Parris is hoping, that over the next two years, he will be able to bring in some $200M in Chinese investment. In addition, Lancaster has been designated an EB-5 center, where the City is empowered to facilitate the issuance of permanent residency cards if the foreign investor puts $500,000 into a business that hires at least 10 people.           

California Housing News

California, according to the firm Strategic Economic Research, will build more homes in 2010 vs. 2009. SER projects that Cal will build 52,000 new homes in 2010 versus the 35k last year.  If so, this would represent a gain of +48.5%.  SER also says that construction jobs are expected grow from 35,000 to 51,000.  In 2005, the peak of new home construction, construction jobs in California totaled 219k. In a report by the California Building Industry Association, for every $1 spent on new housing construction, another $.80 cents of total economic activity is generated, and that for every 1 construction job that is directly created, another 1.2 jobs is supported by that 1 construction job.

Southern California-   DataQuick says homes declined in value in July, -21.4% vs. July of 2009.  In the year over year comparison, sales volume was also down, -20.6%.  That makes perfect sense, since price, eventually, will always follows volume.  DataQuick also says that it appears that some of July’s sales were accelerated into May and June to take advantage of the federal tax credit.  If so, that would make July look artificially weaker.  Versus June, the median home in July was down -1.7% to $295,000.   However, median prices, year over year, were up +10.1% from $268,000 and are up from the cycle low of $247,000, +19.4%.  The all time price high for southern Cal median home prices was $505,000 in mid 2007. Also in July, foreclosures accounted for 34% of all sales.  The all-time high was 56.7% in Feb of 2009.  FHA financing accounted for 36% of all mortgages taken out.  Sales over $500,000 were 21.6% of all sales, vs. 19.2% one year ago.  DataQuick says that sales of higher end homes would have been better if jumbo loans (those over $417k) and adjustable rate mortgages were easier to obtain.  In July, jumbo loans accounted for 18.4% of all sales, versus 15.2% in July 2009.  Investors bought 21.9% of all homes in July, paying a median price of $220k.  

National Housing News

Foreclosures in July surged higher as banks are now moving quicker to take back properties from homeowners, behind on their payments, against which a foreclosure action has already been filed.  Actual repossessions were up + 9% (93k) vs. June, the prior month, and up + 6% vs. July 2009, said California based RealtyTrac.  The pace of foreclosures, year over year, has now increased 8 months in a row.  The number of homeowners being allowed to stay in their homes, without making their payments, and without being filed against, is also rising as banks appear to be reluctant to add to the glut of current foreclosures.  The number of homes receiving an initial “notice of default” from lenders, was up only +1% vs. June, but was down - 28% vs. July of 2009.  N of D’s have fallen the last 6 months.  RealtyTrac went on to say that the fastest growing group of foreclosed homeowners are those with good credit and took out a conventional loan fixed rate loan, but are suffering from reduced income, i.e., a job loss of some kind.  

The percentage of REO’s (lender owned homes) breaks down as follows:
FHA 19%
Freddie Mac 26%
Fannie Mae 55%

Collectively, FHA, Fannie Mae, and Freddie Mac own 236,338 homes.  Nationwide, it is estimated that the Big Banks own another 97,000.  Private label repossessions, individuals and private lenders, are estimated at 203,665.  Then lastly, if we add smaller banks and lenders that don’t report to anyone where it can be tracked, about 60,000, and total all of these categories, you get 600,000 homes owned by banks, thrifts, and other govt agencies.  If we divide the number of distress sale per month, about 150,000, into the 600,000 homes owned some sort of lender or govt agency, we come up a 4 month supply of just foreclosed properties.   

Antelope Valley Land Market

Supply closed out Aug at 1,812 which is a one month gain of 22 listings and a percentage gain of 1%. Over time, it is still my expectation that supply will eventually work its way down to the 1,500 level. The way to 1,500 will be sellers giving up or capitulating, taking their property off the market or caving in and cutting the price so the property sells.  With the current weak selling environment well known, I do not expect new listings to come onto the market faster than those that leave the market, thus from current levels, over time, we should get falling supply,   As long as the housing market continues to struggle, the land market will follow.  I see no indications that the housing market is on the mend, so I anticipate several more years of the type of market environment we have presently- slow sales due to lack of buyers and declining prices. 

 


- Frank Donato, Third Quarter 2010

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