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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Fourth Quarter 2004 AV News Briefs: October November

October 2004 - AV News Briefs:

AV Breaking News: Anaverde, the master planned west Palmdale community, held an open house to introduce their new community to the public. The event was held Sept 18 and 19, in a huge tent, just behind the Anaverde Visitor's Center, at the Fwy 14 & Ave S. The event was sponsored by the five homebuilders in the project: KB Homes, Beazer Homes, Forecast Homes, Richmond American, and John Laing Homes. Officials say that 2,000 people showed up on Saturday, with another 750 on Sunday. Beazer Homes said that they sold out their phase 1 of 30 homes, in ten minutes. Some homebuyers camped out on Friday night to ensure getting a home. By 10AM Saturday morning, when the visitor center opened its doors, there were 500 people in line. Beazer was also taking back-up offers in case some of the first buyers drop out. A Beazer official said, "We have back-ups, on top of backups, on top of backups (offers)". Beazer hopes to have those first 30 homes ready for occupancy by March or April of 2005. Beazer and KB will have models open by the 3rd week of October. Each builder is building it's own distinct neighborhood, which are named as follows: The Groves, Parkwood, Arbor Place, and The Meadows. Ana Verde is a 2,000-acre, 5,000 home, master planned community. It is located west of the Fwy 14, on Ave S, from 25th St West to 40th St West. In it's totality, Anaverde will be built out in 4 phases.


The results of a recent demographic study by Gobar Associates of Anaheim, CA, has been released. Here is a synopsis of Gobar's latest findings: the AV population is now in the area of 389,326. Of that number, 68.3% work inside the AV. In all, 52,380 workers still commute outside of the AV for employment. Although a greater percentage of workers are remaining in the AV, in raw numbers, more are commuting outside of the AV. This is due to the AV's increase in population, which has been primarily driven by the AV's affordable housing. In 2003, nearly 10,200 new and existing homes were sold. Combined, the cities of Palmdale and Lancaster have approved 22,000 lots for residential development, with more in the planning stages. The total economic impact of housing on the AV is $263M per 1,000 homes built. Commercial growth over the past 5 years has also kept more AV incomes in the valley, as the survey revealed that only 1%-6% of resident's income is being spent outside of the AV. Diversification of the AV economy, since 1990, has reduced it reliance on aerospace. In 1990, 22% of all manufacturing jobs were in aerospace; in 2003, that number had dropped to only 7%. The survey, completed in 2003, was done by telephone to a random sample of 600 AV residents, who answered 50 questions. Gobar Asso. has studied the AV for many years.


Defense & Aerospace News: Northrop Grumman has won a multi-year $388M contract to upgrade the radar system of the B-2 bomber. The new radar system will be a substantial upgrade. The contract work will be performed at NG's facility at Plant 42 in Palmdale, but it is not expected to raise the current employment levels for the B-2, which is in the 60 to 70 range. El-Segundo based Raytheon is the contractor primarily responsible for the design of the new radar system. The contract work should extend through 2011 and have a total value of $900M. The new radar system has no moving parts, increases reliability, and eliminates blind spots. This contract is the second phase of radar upgrades, which began in October of 2002.

On Oct 4th, SpaceShipOne, out of Mojave, made it's 2nd safe round trip into space within two weeks, and won the $10M Ansari X prize. Many believe that the event, which was covered by major media from around the world, may lead to a new era of commercial human space flight. SpaceShipOne was designed by Burt Rutan and his Mojave based company, Scaled Composites.

AV Follow Up News: The Los Angeles Airport Commission has approved of an incentive based 3-year lease for the first 3 airlines to sign up at Palmdale. The first of those three airlines has already been determined- Scenic Airlines of Las Vegas. Scenic, which has tourist and commuter flights in 26 countries, has been working on beginning air service to Palmdale since last fall. The Air Force, which runs security at Plant 42, on which ground Palmdale is located, has required that new passenger and baggage screening
equipment be installed before they will approve of air service. The screening equipment has been installed at Palmdale, but is still a work in progress at the north Las Vegas airport. The three-year lease incentives are as follows: year 1- no fees, 100% discount; year 2- 66% discount; and year 3- 33% discount from the typical airport leasing contract. These incentives, over 3 years, total hundreds of thousands of dollars. If more than 3 airlines desire to begin air service out of Palmdale, discounts will be provided for them as well, but at a smaller percentage. Coincidentally, or not, the Los Angeles Times ran a major editorial calling for Airport officials to build a brand new state-of-the-art airport at the one place that wants one- Palmdale. The hi-lite of the editorial was this quote: "Airport planners have long counted on an airport in the northern LA county city (Palmdale) as part of a regional airport system that eventually would handle 4 million passengers per year. But why not think even bigger?"

On September 10th, SSC Acquisitions Inc, closed escrow on the Ritter Ranch project and is now the proud new owner. SunCal Company, a subsidiary of SSC, has announced that they hope to break ground on the first homes by the spring, with the first buyers moving in by the end of 2005. Much like the Anaverde project, Ritter Ranch will be built out by an array of homebuilders. Ritter Ranch is designed to have 7,582 acres of open space, 2,332 acres for 7,200 homes and apartments, 369 acres of parks, 73 acres of commercial development, 7 school sites, and a golf course. In general, the Ritter Ranch boundaries are 40th St West on the east, 80th St West on the west, Elizabeth Lake Rd on the north, and the Pelona Vista ridge on the south. The list of builders has yet to be released. Regarding the sale, Said Palmdale Mayor Jim Ledford, "I think Ritter Ranch is worth far more the $57.2M paid, due to entitlements and environmental approvals that were part of the package."

In an informal meeting, the Cal High Speed Rail Authority has given their recommendation that the AV and Palmdale be included in the San Francisco to Los Angeles high-speed rail route. A formal decision is due at their December meeting. Over the last decade, the City of Palmdale has spent $600,000 on consultants to prepare reports and studies making their case to state officials. Officials say that the 200 mph train will be able to travel the Palmdale to Los Angeles route in 26 minutes. For construction to begin, a $10B bond issue must first be passed by voters, and that probably won't happen until the financial condition of the state improves. Projected cost for the 700-mile rail line is $35B (in 2004 dollars). From beginning to the end, the project, if it does not have any delays, will take 8 years to complete.

Russ Fuller, general manager of the AV East Kern Water Agency, THE major wholesaler of water in the AV, said in a public meeting to the AV Building Industry Asso, that the AV had plenty of water. But Fuller added, unless local governments, water agencies, and providers come to terms, may lack the infrastructure to store the water that is needed to continue to grow as desired. Fuller said that much of the water that is brought into the AV is lost, due to the fact that currently, there is no capacity to store surplus water. Fuller went onto to say that the treatment plants and distribution facilities needed will cost $100M, and that more than likely, consumers will, over time, absorb that cost. At this time, no agency is taking the lead to put the infrastructure in place. Fuller says that the solution is for the county, AVEK, and water providers to get together and discuss these issues. According to AVEK officials, the county has turned down several invites to meet with AVEK. Antelope Valley has the lowest developer fees for water in the state, at $231 per acre foot. The next cheapest is $550 per acre-foot. That may be about to change.

On Sept 28th, Gov. Schwarzenegger signed into law Assembly bill 1077, which creates the authority to sell $100M in bonds. The purpose of the bond sale? Fund the building of five veteran's homes around California, including the one at the NW corner of 30th St West & Ave I, in Lancaster. Although construction has not yet begun, substantial completion of the project is expected by Oct 2008.

Wal Mart employees tell me that the new west Palmdale Super Wal-Mart, located north of Sam's Club in the Destination O-8 shopping center, should be completed by Feb of next year. Super Wal Mart's sell all of the traditional Wal Mart inventory, plus groceries, i.e. produce and meat etc.

The new National Guard Armory, which will be located on 45th St West, north of Ave G, in the Fox Field area, is moving closer to ground breaking. On Sept 30th, the Pentagon warded a construction contract to Utah based ProTech Corp. Located on a 28+ acres site, the work is expected to be completed by March of 2006. Other Fox Field projects on the drawing board: Regent Aerospace will build an 80k sq ft facility for refurbishing aircraft seats; Brightstar Properties LLC of the San Fernando Valley, plans to build several spec industrial buildings on 31 acres near 50th W & Ave G; Three Springs Corp, the commercial arm of the Larwin Co., plans to build 210,000 sq ft of spec industrial buildings at the NW corner of 45th W & Ave G; Metro Acquisitions LLC has signed a contract for 20 acres along Barnes Ave, north of G, to construct a 117,500 sq ft distribution center (expandable by another 129k sq ft) for a yet unidentified Fortune 50 company.

Housing Market:


National Housing Market - August housing starts were up .6%. In August, housing starts rose at an annual rate of 2M. Apartment building starts were up + 1.5%, and single family homes put in the strongest performance in 9 months. Housing starts were up in 3 out of 4 regions, with the west the only area that was down.


August building permits were down -5.5%, with permits for single family homes down a bit less at -3%. These are volatile numbers, and are subject to wide revisions. For this reason, one month's weakness is not meaningful. The Commerce Dept says that it takes 5 months to establish a change of trend.

August existing home sales, released September 24th, - 2.7%; weaker then the forecasted -1.3%. Now down 2 months in a row. Year over year, up +2.3%. Higher mortgage rates, in July, hurt sales, but since then rates have fallen about 19 basis points, from 6.06%, to 5.87%. Sales are picking up and should be reflected in next months figures. One analyst put it best, saying, "this is not the beginning of a major downturn, but a pull back from unsustainable levels." I agree.


August new home sales, released September 27th by the Commerce Dept, up a very strong +9.4%. Biggest percentage increase since Dec of 2000. Not surprisingly, the west was the strongest sector of the country, at +19.5%. Year to date, new home sales are up + 10.8%. The inventory of new homes is at 4.2 months, vs July's 4.4 months. Since mid June, falling mortgage rates have given the new home market a late summer boost.

Summary- With the economy moderating in it's growth rate, job creation below trend for a recovery, 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, as they are doing now. 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 mortgage money, is alive and well.

AV New Home Sales:  

On Sept 16th, the Palmdale Planning Commission approved of two housing developments, one on the west side and one on the east side. The west side development will consist of 175 lots (7,000 sq feet), and be located on Elizabeth Lake Road and 15th St West. To mitigate traffic concerns, the project has several cul-de-sacs. The east Palmdale development is a 92 lot tract on 47th St East and Pearblossom Hwy. This tract should attract buyers commuting to the south, as Pearblossom Hwy leads west to the Fwy 14.

The City of Lancaster has approved a 72 lot subdivision at the SE corner of 45th St West and Ave M-8. This is directly south of the 129 lot Portifino subdivision which is being built by Forecast Homes. The project's applicant for the map is the current owner, Olympus Development, which will now sell the mapped acreage, and it's 72 paper lots, to a major home builder. Local residents expressed concerns over drainage and water runoff. The project is designed to drain into the city's retention channel and basin, with the channel located on 42nd St West, and the basin at 42nd West and Ave M-4.


Falling interest rates, which has boosted the natl home market, has done the same for the AV home market. July and August were very active in the resale market. Both Palmdale and Lancaster, in July and August, saw resale numbers in the high 300's (number of houses sold) each month. The past year has seen strong home appreciation. Comparing August 2004 with August 2003, Lancaster saw resale home prices move up between 35% and 41%. In Palmdale, those numbers were between 32% and 48%.

From Dataquick News Service, here are some median home prices from August:
In California- $474,370, +2.6% from July
Acton- $470,000, $216 psf
West Palmdale- $360,000, $174 psf
Palmdale (mid town)- $240,000, $170 psf
East Palmdale- $265,000, $169 psf
Littlerock- $220,000, $189,000 psf
West Lancaster- $270,000, $169 psf
Lancaster (mid town)- $203,000, $155 psf
East Lancaster- $229,000, $152 psf

What was an almost "frantic" resale housing market in the April, May, June period, has settled down and has come back to earth. The resale housing market is still very good, but the "froth" has been removed. Supply during this time has gone from 300 + to over 1,200. Homes that are priced at market, are selling within 30 days, instead of the previous 1-3 days. In the coming months, the resale market faces two challenges: rising mortgage rates, which will happen eventually, and added supply from the new home market. The emotional appeal of a new home is very strong, and something the resale market has few answers for. One obvious answer would be a better value, which would mean more house for one's money, when comparing a resale with a new home. With the frantic atmosphere of the 2nd Q gone, agents have more time and more choice to place their buyers. Buyers also welcome the "reprieve", as they now have more time to consider their purchase. One outcome of increased supply: the housing market, over $400,000, has become sluggish, with sales taking much longer than 30 days. Comment: Many are asking the question, "how much higher will home prices go?" I don't think that is the right question to ask. The real question of import, at this juncture of the housing market, is, "How much of the gain will the home market hang onto, when the home market consolidates?" This is not to say that a major downturn in housing is coming, BUT, it is normal behavior for any investment, that has had a big run, which housing has had, to eventually consolidate it's gains by exhibiting sideways to down behavior. Eventually, mortgage rates will go to levels that will bump buyers out, and challenge the housing market. And from that point, eventually, mortgage rates will also move back down. This is all part of the business and interest rate cycles. Over the next year, mortgage will probably rise and home values will probably drift lower- nothing to become overly concerned about as it is just part of the economic cycle. Statewide, the underlying demand for housing is still very strong, so on a big-picture view, the AV is still a solid choice for new home buyers and land investors.

AV New Home Sales: As of September 19th, year to date, 20 homebuilders, in 46 different tracts, have sold 1,721 new homes. 211 additional new homes have sold since late August. At this pace, this is an annual run rate of 2,397 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 Home builders 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, New West Builders, and US Home Corp. 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. TIt 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 September at 2,005, up for the 5th straight month, and to my knowledge, the highest number on record. Versus last month, supply is up 1.7%%, and year to date, the supply of active land listings is up 25%. Compared to the AV existing home market, this is nothing. The resale home market, since June of this year, through September, has seen its inventory rise by 300%! 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 felt 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.

Supply numbers in perspective:

Supply at end of September 2004- 2,005
Supply at the end of 2003- 1,607
Supply change, year to date- +25%
Supply in September 04 vs September 03- +16%

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 + 25%, 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 would eventually soften prices, OR for signs that demand is beginning 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 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.


Demand: September (211 ) land sales, put in another very strong month, breaking back above the 200 level after falling below it in August (187). Land sales have been above 200 in 5 out of the last 6 months. As you can see from the numbers below, 2004 will be a very strong year for AV land sales; perhaps the
strongest ever. The challenging part of this market is finding property that is suitable for investment, meaning most 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. Last I month, I raised the question, has sales volume peaked? From September's performance, it appears not. In the context of the big picture, the future growth of the AV, it matters little. Volume numbers above 100 will still provide a very active and liquid market. Currently, we are a long way from that level. To approach the 100 sales per month level, volume, from current levels, would have to fall 50%. When and if this happens, it will take many months to work its way down to that level. When this period of weakness does happen, it will provide investors with a major buying opportunity.

Demand numbers in perspective:

Land sales year to date- 1,814
Projected Land sales for this year- 2,418
Land sales last year (2003)- 1,240
Average land sales (in 2004) per month- 201
Average land sales (in 2003) per month- 103
Sept 2004 vs Sept 2003- + 77%


Strong volume shows that this market has strong conviction, which tells me the land market still has plenty of "gas in the tank". 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 phenomenon that has been going on since the second half of year 2000. Every time there is a stock market disaster, more investors get fed up with stocks and begin considering shifting cash into real estate. The latest high profile stock disaster: Merck, a mature pharmaceutical company that was deemed a widows and orphans stock, blew up in early October when it pulled one of it's drugs off the market. The result, the stock fell 30% same day. 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: Eventually, I expect volume to move into a trading range of 150 to 200 + sales per month. I thought that August (187) was the beginning of that process, but apparently not. Overall, volume is strong and is in bull market territory. This market is a full-blown seller's market. Buyers should be careful here, for the inexperienced, this is a dangerous market. This market does have "price risk". There is little doubt, from the sales I see close, and from comments I hear from other agents, that many of the new buyers have no idea of the level of risk they are taking. Many investors behave as if they believe that real estate prices can only go in one direction- up. Long time landowners should be "on board" using this strong market to take profits or unload long held positions. Next year, these volume comparisons, 2005 vs 2004, are not going to look nearly as good as 2004 vs. 2003 comparisons. 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 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, October 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.

November 2004 - AV News Briefs:

AV Breaking News:


Jack Kyser, senior economist for the Los Angeles Economic Development Corp., said on Oct 25th, that the economic fundamentals of the AV are "pretty strong". In addition, Kyser said, "The area is seeing more and more high-end jobs in science, business, and aerospace, while population growth, with its demand for homes, is fairly significant." Kyser went on to say, that LA County alone, is short about 280,000 homes, which is driving both the existing and new home markets. Kyser added, "A quality resale home priced less than $400,000 is going to sell." Kyser also addressed the "housing bubble" issue, saying, "Builders in this cycle are paying attention to the economy. Residential builders are being cautious; most new homes are being built only as fast as buyers' home loans are approved, so buyers who do not want to wait, are buying in the resale market. That's not a bubble, but supply trying to catch up with demand. The frenzy is out of the market. Buyers are getting back to basics and sellers are having to rethink their asking price."


AV Follow Up News:

The Los Angeles County Board of Supervisors, who are in opposition to Mayor Hahn's $11B LAX makeover, will legally challenge the plan if it is approved by the Los Angeles City Council. Presently it appears that the City Council will vote approval of the plan. A final vote by the City Council will be taken in December. County supervisors oppose the plan because they believe it will worsen traffic and air quality. They also believe that nearby communities will be hurt by the realignment of some of the runways. Some of the county supervisors, lead by Michael Antonovich, support an alternative plan, put forth by city councilman Bernard Parks (former LAPD chief) that would push future air traffic to outlying regional airports, such as Ontario and Palmdale. No doubt, before this is all over, the Federal Aviation Administration will also weigh in on this issue.


Palmdale's new hospital, to be located at Tierra Subida (10th West) and Ave Q-8, has moved another step closer to ground breaking. The City Council has approved the environmental impact report and changed the zoning to commercial with mixed uses to accommodate the hospital. The new facility will be called the Palmdale Medical Center. The owner & operator of the hospital, Universal Health Services of Pennsylvania, say that the plans for the hospital are being reviewed by the Office of Statewide Health Planning Development. If the plans are approved by mid 2005, the hospital could be open by the end of 2006. Palmdale Medical Center will be a 5 story structure with 250 beds.

Housing Market: 

National Housing Market- Housing data is subject to large sampling and other statistical errors. It can take up to 6 months to firmly establish a new trend in sales activity.

September housing starts were down -6% and fell in all four regions of the country. This figure was exaggerated down by bad weather in September. Year over year, housing starts are down only - 1.2%. With mortgage rates once again below 6%, builders are scrambling to get their product off the ground ASAP. This is evidenced by the building permit numbers below. (released 10-19-04)

September building permits, which are a leading indicator, were up + 1.8%. Homebuilders are optimistic and bullish, and are acting as such. (released 10-19-04)

September existing home sales, released October 25th, surprised by coming in at +3.1%, versus the expected -.3%. A fractional loss was expected, but instead we got a strong gain. Falling mortgage rates has been, and still is, the housing market's best friend. 30-year mortgage rates in Sept were 5.75%. In Sept of 2003, the number was 6.15%. Sales rose in 3 of 4 regions of the country, falling only in the south, -.9%. This region was undoubtedly hurt by the hurricanes in September, but should catch up in October. The national median sales price rose + 8.6% to $186,600. Inventory of unsold homes increased +.4% in Sept and now stands at 4.4 months. This means, at the Sept sales pace, it would take 4.4 months to sell all available homes.


September new home sales, released October 27th by the Commerce Dept, up + 3.5% which handily beat expectations. The forecast had been for new home sales, due to the hurricanes, to actually fall in Sept. Sept new home sales were the strongest since May, and the 3rd strongest monthly number on record. Historically attractive mortgage rates still have this market robust. The supply of new homes in Sept was 404,000, which is a 4.1-month supply. The median price of a new home, nationally, was $197,700. New home prices have risen 3% since Sept of 2003. Oddly, new home sales rose in every section of the country, except the west, where they fell fractionally, -.8%.

Summary- With the economy moderating in it's growth rate, job creation below trend for a recovery, 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, as they are now. 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%. Staying below 7% will keep the housing market alive, and at this point, it is doing a lot more than that as 30-year money is well below 6%.


AV Existing Home Market (resale) - Long time AV home builder, and family owned, Eliopulos Construction, says he has 7 different housing projects on going, in various stages of entitlement (on the drawing board). The largest is on 800 acres and will include 589 homes, 6 gated communities, an equestrian center, 8 miles of trails, and 400 acres of open space. Upon purchase, this area was called Joshua Hills, and is located in west Palmdale, north of the Anaverde project. The large homes Eliopulos has planned for the project will be on 1/2 to 1.5 acre lot sizes. Eliopulos considers this project a "once in a lifetime opportunity", also saying, "We are trying to appeal to the executive class, for which we think there is a viable market."

Since last year, Lancaster has gone from 10 different homebuilders to 17. From last year, Lancaster building permits are up + 128%, while Palmdale's are up + 40%. Also since last year, in the AV as a whole, building permits, are up 55% .In 2003, Lancaster and Palmdale totaled 600 existing home sales per month, with that figure rising to 740 per month by August of 2004.

Statewide, 200,000 new homes and apartments should be built in 2004, the most since 1989. The chief economist for the Cal Building Industry Assoc says, "204,000 new units is great, but 250,000 per year are needed just to keep up with population growth."

From Dataquick News Service, here are some median home prices from September. In Southern California- $409,000, + 1/2 % from August ($407,000) DataQuick reports that the existing home sales in September, for the entire Southern Cal area, fell off from the previous month, August (-3.8%) and also fell off from Sept 2003 (-8.7%). Of the Southern Cal housing market, a Dataquick official said, "Foreclosure rates are low, down payment sizes are stable, and shifts in the market mix are minor. There are no signs of impending drastic changes in the market."


On October 18, the Antelope Valley housing market was chronicled on the front page of Los Angeles Times Business section. The article discussed the housing boom in the AV, and chronicled one buyer and one seller. The seller, from east Palmdale, was elated, having sold his home for $300,000, three times what he paid for it 7 years ago. The buyer that was chronicled was also elated; having purchased a home in west Palmdale for $300,000. The reason the buyer was elated; the home would have cost him $600,000 in the market he commutes to- the San Fernando Valley. Said the home buyer, "With a big family, I have to have a big home, but all of the homes I viewed in other Los Angeles County communities were $600,000 or more. I got the big house I wanted in Palmdale for 1/2 that price." The article also discussed how many of the new homebuilders are building upscale homes, catering to trade up buyers, which they believe are numerous.

Comment: Over the coming months, the AV housing market is going to be challenged by rising mortgage rates. The resale market will have a 2nd challenge; the new home market, which is expanding rapidly in it's selection and quality. The lure of a new home has an emotional appeal that is hard to beat. The seller of a resale home will have to offer a solid value to convince the homebuyer to bypass the new home market. This is an internal conflict our market has always had, and it has always managed to find a way for all to do well. Eventually, mortgage rates will go to levels that will bump some buyers out, and challenge the housing market. And from that point, either prices will fall and/or different mortgage products will be utilized to get buyers "in". This is all part of the business and interest rate cycle. Over the next year, mortgage will probably rise and home values will probably drift lower- nothing to become overly concerned about as it is just part of the economic cycle. Statewide, the underlying demand for housing is still very strong, so on a macro basis, the AV is still has plenty of reasons to grow.

AV New Home Sales:   As of October 17th, year to date, 22 homebuilders, in 50 different tracts, have sold 1,928 new homes. 207 additional new homes have sold since late the Sept report. At this pace, this is an annual run rate of 2,426 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, New West Builders, and US Home Corp.


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; the AV is the only place left in Los Angeles County with dirt," said Gretchen Gutierrez, executive director of the AV chapter of the Building Industry Association.

Land Market:

Supply closed out October at 2,005 active land listings, the exact same level as last month. The rise in supply we have seen all year, appears to be leveling off, with the rate of the rise slowing dramatically.

Supply numbers in perspective:
Supply at end of October - 2,005
Supply change from last month- 0 % (no change)
Supply at the end of 2003- 1,607
Supply change, year to date- + 25%
Supply in October 04 vs. October 03- + 17%

The current higher levels of supply (higher vs. last year) in general favors buyers vs. sellers. A higher supply level means that sellers have more competition, and that buyers have more choices. This is not true though in all areas of the AV. Some areas, like the west sides of Palmdale and Lancaster, are in a full-blown seller's market, while other areas are still in a buyer's market, with land sales much slower. As I watched this bull market develop from the mid 2002 period, I felt 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. Presently, supply is in the expansion mode, but that appears to be ending. I will need a few more months of data to draw any firm conclusions re: the future trend of supply. 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 period, which lead us into the "crash" of the 1990's.

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 near 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 + 25%, 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 of a major trend change.

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 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 buyers 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: October (173) land sales, pulled back below the 200 level. September sales were at 211. This represents a volume decline of 18%, which is not significant nor trend changing. I would describe the land market as a sports car slowing down from 90 mph to 80 mph. While the car has indeed slowed down, it is still going at a high rate of speed. Land sales have been above the 200 level in 6 out of the last 8 months. However, in the last three months, land sales have only been above 200 once-in September. None the less, as you can see from the numbers below, 2004 has been a very strong year for AV land sales; perhaps the strongest ever. When should one buy AV land? Anytime one finds an attractive parcel that represents a good value. Regardless of interest rate cycles and economic cycles, the growth of the AV will continue. Even in the mid 1990's, at the bottom of the real estate recession, the population of the AV grew. Volume numbers at 100 or above, still provides a very active and liquid market. Currently, we are a long way from that level. To approach the 100 sales per month level, volume, from current levels, would have to fall 50%. When and if this happens, it will take many months to work its way down to that level. When and if this period of weakness does happen, it will provide investors with a major buying opportunity.

Demand numbers in perspective:

Land sales year to date- 1,987
Projected Land sales for this year- 2,384
Land sales last year (2003)- 1,240
Average land sales (in 2004) per month- 198
Average land sales (in 2003) per month- 103
Oct 2004 vs. Oct 2003- + 50%


Current Status: Eventually, I expect volume to move into a trading range of 150 to 200 + sales per month. We could be in the early stages of that process right now. More data is required to firmly draw that conclusion though. Overall, volume is strong and is in bull market territory. On a macro basis, this market is in a full-blown seller's market. This market does have "price risk". There is little doubt, from the sales I see close, and from comments I hear from other agents, that many of the new buyers have no idea of the level of risk they are taking. Many investors behave as if they believe that real estate prices can only go in one direction- up. The land market historically has lagged the housing market by 6 to 12 months. The housing market itself, has started to come back to reality, but itself, is still very active. The housing market has yet to show any major cracks, so I would expect the land market to remain active as well. Good buys can come in all types of environments, and when found, should be bought.

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 this bull market in AV land is now in it's 3rd year.

- Frank Donato, November 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.