Good Morning Happy Wednesday California
Antelope Valley News
Sept 2nd- a public hearing is held with the LA County Planning Commission, over a proposed motorsports
park which would be located on 322 acres in the area of 170th West & Ave C & Ave D. The owner and applicant,
Tom Malley, aka the Malley Family Partners, says that the environmental impact report and noise testing done make
the project viable for the area. As one would expect, environmental groups have come out of the woodwork to defend
the Lancaster Poppy Preserve, located 1 mile to the SE. This portion of the Antelope Valley is referred to as the Fairmont
area. Malley Family Partners say that the track would be operational on weekends only and will not have lights for night
events. Apparently, this project has been 7 + years in the planning. Part of the application would change the properties
current zoning of agriculture to commercial. Opponents, primarily environmentalists that don’t want anything built in
the area, will argue against the project using noise and air pollution as their main weapons. The developers say those
issues are minor and are supported as such by their required studies. One citizens group that lives near the area, the
Antelope Acres Town Council, voted in favor of the project. As one citizen put it, “If one cannot build this project in
the middle of nowhere, where can they build it?”
Sept 8th- The City of Lancaster is making it cheaper for home owners to install wind turbines. The application to
do such has been reduced from $7,929 to just $125. Vertical axis wind turbine systems, or VAWTS, for residential
homes are only 3-6 feet tall with many homeowners placing them on their rooftops. Installation guidelines are:
one per residence, on-site power consumption only, no part of the turbine can violate an easement for another
utility, backyard installation only, and no part of the turbine can be any closer to another utility line than the
actual height of the turbine itself.
Sept 14th- In preparing the environmental impact report for the high-speed rail line, from the SF area to San
Diego, the High Speed Rail Authority is asking Antelope Valley residents for advice and input. The high speed
rail line will need a 60 foot wide route that runs 800 miles long, for a train that will have top speeds of 220 mph.
In cities all along the projected path of the rail line, meetings will held for public ideas, concerns, etc. At train
stations along the way, of which Palmdale will probably be one, the right of way needed widens from 60 feet
to 110 feet. Due to the high speed of the train, streets crossing the RR line would either go over or under the rail
line. This will avoid the nasty accidents that MetroLink has had from time to time. The 800 mile route will
require 23 tunnels traveling roughly 24 miles underground. Depending upon the depth of each tunnel, the cost
of tunneling will run from $96M to $167M per mile. Although the exact alignment has yet to be decided, in
general, as the train leaves Bakersfield, going south, it would follow Hwy 58 into the Mojave area, then run
south along the Union Pacific RR tracks into Lancaster and into Palmdale. Funds to kick off this feasibility study
are coming from the passage of Prop 1A in Nov 2008 when voters gave their approval for $9.95B in bond financing.
Total cost is said to be $40B, with a third of that money coming from federal stimulus money. The rail authority
says that the environmental studies will be done by 2012, with construction beginning then or by 2013. The
goal is to complete the entire system by 2020. Rail authority estimates are that the system and its 24 stations
could create about 450k permanent jobs. Building the system will require 160k construction workers.
On Oct 2nd, Governor Schwarzenegger announced that Cal has applied for $4.5B in federal stimulus money
to begin work on this high speed rail project. Schwarzenegger has pledged to match every federal dollar that
Cal receives from the federal Govt. High speed rail systems proposed for Chicago and Washington are expected
to be Cal’s primary competition. The Federal Rail Administration will make the final call. With Obama a native
of Chicago, I would not bet against Chicago getting the money.
Sept 16th- The Palmdale Planning Commission has recommended expanding the number of areas where secondary
dwellings would be allowed to be built. A secondary dwelling may be attached or detached to an existing legal
structure. These are often called “mother in law” units or “Casitas”. The addition of secondary dwellings are
being encouraged by the state legislature as a means to provide more housing. Attached units would be limited to
30% the size of the primary unit, while detached units would be limited to 1,200 sq ft. The owner of both units
must reside in one of the units and only one secondary dwelling would be allowed per lot. All proposed secondary
units must be approved by the city’s director of planning.
Sept 21st- Palmdale’s new and under construction Regional Medical Center is on schedule to be completed
by the end of the year and open by May 1, 2010. The 379k sq ft hospital will open with 127 beds with
another 36 beds to follow within a year. When built out in total, the facility will have 239 beds. Universal
Health Services is spending $200M on the facility which will employ 700 to 800 people. Adjacent to the
new hospital is a new 60,000 sq ft medical office building. Over the last 14 years, California has lost 3,895
hospital beds and 40% of the state’s hospitals have halted construction projects or major equipment purchases.
The hospital will open with services for medical, surgical, pediatrics, obstetrics, neonatal, and intensive care.
All beds are private rooms. The economic impact on the Antelope Valley is expected to be $280M per year.
Sept 22nd- construction is ongoing on the $7M contract to turn Amargosa Creek from a natural drainage
channel into a concrete one. Upon the completion of the concrete channel, Lancaster’s new shopping center,
on 110 acres, will take shape on top of it. The concrete channel begins at Ave L, near 10th St West, then goes
NW to Ave K-8, a distance of over ½ mile. When the channel is done, the shopping center project will be shovel
ready, with its construction depending upon the economy. In addition, Kaiser Permanente will build a 44
acre medical center. The Lancaster Auto Mall, located across 10th St West from this area, will be expanded
along Ave K-8, just north of the shopping center.
Sept 22nd- $4.34M of the President’s stimulus program has found its way to the City of Palmdale for
major road resurfacing. Thirteen different streets and areas will be resurfaced that will extend the life
of the street another 15-20 years. The city has awarded the work to Granite Construction Company.
The total repaving will cover 70 linear miles which is 13.5%. The streets will be resurfaced with an
asphalt hot rubber mix known as AHRM. Lanes of traffic will be closed intermittently to allow the
work to be done. No word yet if the stimulus monies will also achieve one of the President’s other goals:
create some jobs with the new work. Lancaster is getting $4.25M in federal stimulus money, also for
various road projects.
Sept 23rd- with their 230 megawatt solar project still under review by the LA County planning department,
NextLight Renewable Power LLC is confident they will be able to begin construction on their project
by the fall of 2010. The project, being called AV Solar One, will be on 2,100 acres in the area of 170th West
and Ave D. NextLight has aggressive time lines, with their Environmental Impact Report being approved
by April 2010 and their project approved by July 2010. If so, the first power would be delivered to the state’s
grid by summer of 2011. Full commercial operations would begin by 2013. For a power plant, the project
will have a fairly low profile; 20 employees with the tallest structure only 13 ft high. The photovoltaic technology
that the facility will use means that it will be a low water usage plant, only using 12 acre feet a year.
Sept 24th- The City of Lancaster has run into a “speed bump” in its quest to annex some east side acreage
to zone it a “green corridor” for future development of alternative energy sources, i.e., solar power and
ethanol production. Natural Resources Defense Council, a Santa Monica based environmental group, has
filed a law suit vs. the City claiming that the City bypassed the state’s environmental laws when it moved
to annex the area in question last June. The area annexed is bordered by Ave E on the north, 20th West on the
east, part of Ave H and part of Ave G on the south, and 25th St West on the west. Total acreage to be annexed
is 7,190. Of that, 1,358 acres would be rezoned from rural-residential to heavy industrial. Waste Management
is located in the area in question and is also seeking to expand their site by 75%. In response to the law suit,
the Lancaster City attorney is recommending that the City do a full Environmental Impact Report. The EIR
is expected to push back the annexation about one year. Waste Management is planning to sell their green
waste to a bio-ethanol refinery being planned at 10th St East & Ave F. Irvine based, BlueFire Ethanol Co,
would turn wood and other green waste into fuel grade ethanol. BlueFire’s plans for the facility were
approved by County Board of Supervisors in November 2008. Also, Daystar Farms of Delaware has
agreed to work with the City of Lancaster to help develop the annexed area into a business park with an
emphasis on alternative energy development.
Sept 25th- financially backed by organized labor, the “Friends of Quartz Hill” have filed a law suit against
Wal Mart to try and block the construction of their new store at the NWC of 60th West and Ave L. On
July 22nd, the Lancaster City Council voted 3-2 in favor of the project. Wal Mart and city officials expected
the law suit, as it is standard operating procedure to sue Wal Mart whenever and wherever they want to
build a new store. The law suit takes the usual path, using environmental concerns as a reason to stop the
project. Specifically, the law suit claims: that the City issued a defective notice when telling the public
about the public hearing, that the City violated its own General Plan in changing residential acreage to
commercial (just for Wal Mart), that the City’s EIR failed to disclose, analyze, and mitigate the effect of
increased “greenhouse gases” that the project would produce, and that the EIR was biased in favor of the
project. As a remedy, Friends of Quartz Hill want a restraining order and permanent injunction rescinding
the City’s approval of the project and prohibiting the City and developer from implementing the project OR
an order by the court to set aside the City’s approvals with the City taking no further action unless it can
fully comply with all guidelines of the Cal Environmental Quality Act, and the planning and zoning laws
of Lancaster. And of course, Friends of QH want to be reimbursed for the cost of the law suit, by the City,
i.e., the taxpayers of Lancaster. Once the project clears this hurdle, the new Super Wal Mart will be 217k +
sq feet in size and will include a drug store, a bank, two fast food outlets, and 3 retail sites.
Oct 2nd- Taking over the space vacated by Wickes Furniture at the NEC of 10th St West & Rancho Vista Blvd,
Ashley Furniture opened its doors to the public. Ashley’s is a new retailer in the AV and has invested $300k
in remodeling costs into the 42,000 sq ft site. The store will employ 35. The store’s manager says that the
AV’s demographics are a good fit for their product line. Ashley Furniture is headquartered in Arcadia, Wisconsin.
Each store in independently owned / operated and licensed to sell Ashley products. An Ashley executive
described their line as “quality furniture that everyone can afford.”
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Antelope Valley Labor Market: for July, the most recent period for which this data is available, Lancaster had
an unemployment rate of 17.4%, while Palmdale hit 15.4%. Between the two cities, nearly 20k people are
out of work. AV jobless rate is only surpassed (in LA County) by south central LA at 23%. A major factor
in AV joblessness is construction, as new construction has been cut back severely due to the high foreclosure
rates. Through the first 8 months of this year, versus last year, building permits pulled are down 54%. Retail
has also shrunk as Linen N Things, Circuit City, Gottschalks, and Mervyns have gone out of business. Some
of the retail jobs have been replaced though, as Forever 21 has taken over the Mervyn’s location and Smart N Final
the Linen N Things site. Analysts say, that since 2006, the AV has lost 1,800 construction jobs and retail has
lost 1,400 + jobs. David Smith, an economics professor at Pepperdine University sees the beginning of the
recovery as being jobless, with the jobless rate climbing over 12% by the middle of 2010.
FHA Mortgages: Another Mess Emerging
During the credit crunch and housing crisis, FHA have become very popular. Buyers like them because they
can buy a home with only 2-3% down, and lenders like them because the US Govt guarantees the loan. During
the subprime boom, 2% of all loans were insured by FHA. Today that figure is 20%. In August the Obama
administration announced a program to help FHA homeowners that were in financial trouble, delinquent or in
foreclosure. The program was funded to assist 45,000 borrowers of FHA insured loans. In September the
number of FHA loans in trouble was released, and it is not good. According to the Mortgage Bankers Asso,
17% of FHA borrowers have missed at least one payment or are in foreclosure. That 17% comes out 850,000
FHA borrowers. The MBA said that the percentage of default for all other loans is down around 13%. On Sept
18th the FHA announced that their financial reserves had fallen below their mandatory levels for the first time
in its 75 year history (1934). To recoup their financial reserves, FHA could be forced to raise its fees or it might
have to be “bailed out” by the taxpayers. The FHA mortgage rescue program works a bit different than the
one for conventional loans. On conventional loans, the focus is usually on reducing the interest rate. In the
FHA program, 30% of the principle amount of the loan is set aside interest free. This reduces the home owners
monthly payment substantially. When the house is sold though, the borrower is still on the hook for the entire
amount borrowed. Example: mortgage of $100k, borrower pays interest on $70k only, but when the house is sold
the entire $100k (or whatever is the loan balance is at that time) must be paid off. On qualifying catch: if
the borrowers spend more than 55% of their total pretax income on any recurring monthly debts, i.e., home
payments, car payments, and credit card payments, they are not eligible. Moody’s says, that of the 51M
Americans with a mortgage, 16M have debt that high.
California Existing Home News
In August versus July, Cal existing home sales fell 12%, as reported by San Diego based DataQuick.
The median home price also fell, down to $249,000 from $250,000. Existing homes sales, year over
year though, are up 5%. In August, foreclosure sales made up 40% of all sales which is substantial
improvement vs. last January when that figure stood at 59%. Sales fell across the state and it is believed
that one of the main reasons is fewer low-cost foreclosures.
In the southern California six county area, existing home sales in August fell 11% with the median price
of a home at $275,000.
DataQuick says that there is considerable uncertainty about home prices, interest rates, the availability of
credit, and the number of foreclosures still in the pipeline that may hit the market later. For months now,
it has been industry chat that a 2nd and final wave of foreclosures are coming. At the rate that the banks are
releasing properties onto the market, that second wave may be a trickle.
California’s 90 day moratorium on foreclosures ended Sept 15th. Expect to see a rise in foreclosures in
the poorer, entry level areas. Many of those buyers have lost their jobs.
According to the Coldwell Banker Price Comparison Index, Lancaster is the most affordable market in
California for move up home buyers. A move up home is described as 2,200 sq feet, 4 BR, and 2.5 baths.
In Lancaster the average price of a move up home is $165,205. The Index covers 310 markets in the US and
around the world where Coldwell Banker has a presence. In the US, California dominated the top 10 most
expensive areas, with La Jolla # 1 at $2.125M for the same 2,200 sq foot home. Beverly Hills came in at
$1.98M, Santa Monica $1.4M, SF $1.36M, Newport Beach $1.31M, Palos Verde $1.3M, and San Mateo $1M.
Internationally, Singapore was the most expensive at $1.9M, with Salinas, Ecuador the cheapest at $69,375.
Antelope Valley Existing Home Sales
According to MLS data for the month of August, existing home sales rose +7.7% vs. July the prior month.
For the first 8 months of 2009, versus the same period in 2008, home sales are up +103%. The inventory
of homes is at about ½ the historical norm at 1,100. The norm is between 2,000 and 2,500. The average
sales price in August was $133,166. This is up slightly from July, but down 30% versus one year ago.
Realtors say that homes priced over $150,000 are beginning to sell again. Local realtors say that foot
traffic in the $200,000 to $300,000 range is also starting to improve. The existing home market above
$400,000 though, is very slow, almost no foot traffic at all. Add it all up, and 75% to 80% of all sales
are on foreclosed properties. The low end of the housing market is flooded with young couples seeking
their first home and investors seeking rentals. The unanswered question that has been overhanging the
housing market all year, is the often rumored “second wave” of foreclosures. With supply still very thin,
multiple offers on properties are still common. In the high desert area, 86% of its residents can afford
to buy an entry level home, versus the entire state at 67%. Statewide, supply has also fallen, now down
to 4.1 months versus 7.6 months at this time one year ago. The real problem with shrinking inventory is
at the lower end, the entry level portion of the market. In a survey done by Cal Asso of Realtors (CAR),
40% of the first time buyers say they would NOT have purchased their home if the tax credit was not
offered.
Comment: Banks continue to hold back housing supply, which is manipulating prices by creating an
auction atmosphere. Thus the 10-15 offers on entry level homes. New appraisal regulations, put out by the
Obama administration are also killing off deals. The time to toughen appraisal regulations was when home prices
and lender risk were high. That would have been back in 2006. But now that home values have fallen
50%, the risk of a bad appraisal causing a foreclosure, is so low, it’s almost non-existent. As the market is
now, the new appraisal regs are not helping and are only hurting those that can really afford to buy a home.
If I didn’t know better, I would think that the banks and the administration are trying to control the rate
of the housing recovery and also control it’s price appreciation. How else can you explain the banks holding
back supply when they are getting 10-15 offers per home, and at the same time, the average home price
is only going up 1.5% per month. The banks, for whatever reason, are controlling, and holding back, the
rate of the housing recovery.
Antelope Valley New Home Sales
The data for new home sales listed below, for the years 2002 through 2007, were provided by the Hanley
Housing Report. Going forward, I will begin using a new source for new home sales, The Siracusa Company.
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- 2,503 (Hanley Housing Report)
2005 - total of all new homes sold- 4,579 (Hanley Housing Report)
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 - projected to sell all year - 756 (Cal Economic Forecast)
2010 - projected to sell all year - 1,535 (Cal Economic Forecast)
2011- projected to sell all year - 2,299 (Cal Economic Forecast)
Overall, the AV new home market is predictably struggling, with permits down 53.7% in 2009
versus 2008.
While many builder have just shut down and stopped building in the AV, one national builder
is still doing quite well in the AV: KB Homes. There are good reasons why KB has thrived
while others have withered. First, KB was one of the first builders, on a macro basis, that a
downturn in housing was imminent in 2005-2006. Blocks of land that KB had in escrow at
premium prices, were canceled. KB knew, that with a housing downturn, comes much lower
land prices. I know of one escrow on 40 acres on the east side of Lancaster in which KB
walked from their $200k deposit. Next, they waited as builder after builder lost their finished
lots back to banks as sales slowed and foreclosures rose. KB then began buying up the finished
lots from the banks that foreclosed upon them, but at a fraction of development cost. At
$40,000 per acre, a R 7,000 lot (7,000 sq ft), when finished, has a cost basis of upwards of $75,000
per lot. By far, the largest cost in developing lots are the endless fees paid to the city on a
per lot basis. After acquiring dirt cheap lots, KB’s next decision was also correct: they decided
to build to the entry level market for first time buyers. Presently, KB is building 1,400 to 2,500
sq ft homes on the east side of Lancaster which has a base price of $135,000 on the smaller
models. Profit margins are thinner on entry level homes, but with foreclosures dominating
the resale market, the first time buyer market is where the action is. I should mention that all
homebuilders are still losing money, but a few, like KB Homes are reducing their loses and
improving their sales.
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AV Aerospace & Defense
Palmdale’s Plant 42 workforce, during the first 6 months of 2009, rose to 7,234 versus 7,039 at
the end of last year (2008). The aggregate payroll now at Plant 42 is $622.8M per year. Most of
the increase in employment can be credited to Northrop Grumman who added almost 200 workers
to the F-35 Joint Strike Fighter program. NG is building the fuselage for the aircraft at Palmdale.
Other programs ongoing at Plant 42 include: B-2 modifications, production of the Global Hawk,
and the new unmanned combat aircraft demonstrator for the Navy, the X-47 (Boeing). The F-117
NightHawk and F-22 Raptor programs are being phased out. The F-117 is being retired and the
F-22 program is being capped off at 187 planes per the Presidents defense spending priorities. The
entire Space Shuttle program is also winding down as the last scheduled shuttle launch is set for
2010. The majority of the Boeing work force in the AV is involved with flight testing at Edwards
Air Force Base (west of Rosamond) on the C-17, C-130, the B-1, B-2, and the F-22 Raptor. Boeing
has 28% of its workforce involved in their Airborne Laser program which is also out at Edwards Air
Force Base. Although the Laser Airborne program has been very successful thus far in all of its tests,
it too may suffer cutbacks. The Airborne Laser has demonstrated that it can shoot down missiles
early in their boost phase with its laser. An Air Force official referred to it as “hitting a bullet with a
bullet.” Plant 42 is known as a GOCO facility; Government owned, contractor operated, with the
US Air Force providing all of the security.
California: On Sept 18th the Employment Dev Dept announced that Cal’s unemployment rate rose to 12.2% in
August from Julys 11.9%. In Cal, 2.2M people are unemployed. Weakness was across the board with trade,
transportation, utilities, manufacturing, financial services, business services, and leisure all losing jobs in August.
On the good side, jobs losses per month are slowing. August lost just 12k versus the 35k in July or Feb’s loss of
110k jobs. In August, 42 states lost jobs. The UCLA Anderson Report projects that the recovery is beginning
now, but that California will lag the rest of the country over the next year.
Comment: the bread basket of California, the San Joaquin Valley, has had 50% of their water allocation cut off
so that northern California can protect the Delta Smelt, a 3-5 inch fish. Protecting the smelt is a Cal Supreme Court
decision. Cutting off the water is a bureaucratic decision. Farmers are laying off workers (40k) as the size of their
crops shrink. Before long, we should also see higher prices for food items grown in the central valley. Isn’t it great
to live in a state where a 5 inch fish is more important than people? On Sept 30th, the Obama administration told
Gov Schwarzenegger that he should call lawmakers into special session to deal with the state’s water crisis.
Representative Devin Nunez said that his family has farmed in the San Joaquin Valley for 3 generations, and
previous droughts have never led to the kind of water shortage farmers are now having. Some Cal lawmakers
were hoping for a policy of “biological balance” from the Federal Govt that would balance water use and protecting
an endangered species. Two such votes in the US Senate have been voted down……………………..
Two Cal University professors conducted a study on the effect of Cal’s regulations on business. Here is a synopsis
of their study.
- total cost regulation on the state- $493B, and 3.8M jobs. This breaks down to $134,122 per business, $13,801
per household, and $4,685 per resident
- 98% of all businesses in Cal are classified as small business & provide 52% of all jobs
- the $493B cost of regulation is almost 5 times the state’s budget and 33% of the state’s GDP
- the 3.8M jobs lost equals 10% of Cal’s population
- the $493B in lost money breaks down as follows: $266.5B in directs costs to comply with regulations,
$210.5B in lost labor costs, $16B in business taxes the state would have gotten w/o the regulations.
No one is suggesting zero regulations, however there does appear to be a lack of balance between regulating
and the need to encourage and nurture economic growth.
Why does California gas cost more? Here is your answer from the California Chamber of Commerce.
- fuel refining costs are 5 to 15 cents higher due to special gasoline blends required by the Cal Air Resources Board
- few of Cal’s refiners are equipped to make this special blend, so availability is often limited and price is
affected when these refineries break down or close for regular maintenance
- State gas taxes, in Cal they are 35.3 cents per gallon, that is 43% above the national average with only
New York charging more
- Cal is a “fuel island” with no pipelines linking us to domestic oil supplies. Thus all crude oil must come
here by tanker. Cal also has limited capacity for storage, having lost 6M barrels of storage capacity in
the last 15 years.
- California has not opened a new gasoline refinery since 1969. And since 1980, 20 refineries have closed
down. Existing refineries have only been able to improve capacity by ½% between 1995 and 2006. During
that same period, fuel sales increased 18%; a classic case of rising demand in a market that has a fixed
output capacity.
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 September at 1,768 which was 14 listings higher than last month for a
percentage rise of .7%. On supply, we appear to be in a sideways pattern, with supply bouncing
around in the 1700’s for the last five months. While I continue to expect supply to work its way
lower, it is fairly apparent that it has its own schedule in doing so. The primary reason that I
believe supply can lower is that we still have too many sellers that have yet to capitulate or cave
in and cut their price. Many of these sellers, when they give up, will not cut their price, but will
take their property off the market. That will be the driving force behind the next leg down on
supply. Most listed prices are still too high, way too high. The sellers want retail, but the buyers
want wholesale, with the result being fewer sales. In general, parcels that are closing escrow now
are closing 50%-70% below the price highs of 2006. Although it seems longer in many ways, this
is only year 3 of the Bear market as we are solidly entrenched in the Recognition phase of the cycle.
As the new year approaches, I expect many land owners are going to sit down and doing some
serious soul searching with themselves over their land portfolio and will have to answer the question,
“just how long do I want to own this land?” Eventually, the answer to that question should lead
us into the capitulation phase and lower listed prices.
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Supply numbers in perspective:
Supply change vs. last month: +.7%
Supply change, year to date: - 15.80%
Supply in Sept 09 vs. Sept 08: - 23%
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Supply at end Sept 2009 - 1,768
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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- Sept demand (39) was up quite nicely, up 13 sales from last month’s 26, an increase
of 33%. This was the highest monthly sales figure since last March, which turned in 40 sales.
At nearly 40, for this month, we are quite a bit above my forecasted trading range of 20 to 30 sales
per month. For a Bear market, 39 sales in a month is a fairly strong showing. The question that
remains to be answered is, will there be any follow through, i.e., another month of 35 to 40 sales?
Most investors do not buy their land when they should- during periods of market weakness when
prices are lower. To get back into Bull market mode, we need a full recovery in the housing market,
and as of this month, we are nowhere near the broad based housing recovery needed to generate
new interest in land. One of the first signs of a housing recovery will be the average sales price
rising, and rising dramatically (at this stage). At the present average sales price of an existing home
at or near $133k, we are nowhere near that point yet. Almost nothing is selling above $200k. If
you live in California and outside the AV, that number is probably hard to believe, but it’s true.
I would not be surprised, if by the end of the President’s first term, the housing market is still
struggling. That is 3 years away, and with all of the homes rumored to be in the foreclosure
pipeline, the interference of govt at all levels trying to “fix housing”, and the banks manipulating
supply and values, I view that scenario as very possible. The realist and pragmatist in me sees many
more months of problems in the housing market ahead of us. Remember, there is no chance for a
recovery in land as long as one can buy a house at 30% to 40% below the cost of construction, and
that is exactly what is happening now.
