First Quarter 2006 Antelope Valley News: January February March

January 2006

Defense & Aerospace News

After 20 years of testing and development, the Air Force has announced that the F-22A Raptor is now an "arrow in their quiver", meaning the aircraft has been added to the Air Force's arsenal. The Raptor incorporates stealth technology, fuel-saving super sonic flight without afterburners, advanced avionics, and superior maneuverability to make it the top air-to-air combat fighter in the world. The squadron of 18 is deployed at Langley Air Force Base in Virginia. The F-22 test force, some 5 planes and 607 personnel, are still stationed at Edwards Air Force Base, and are expected to remain there for quite some time. The Raptor can actually attack and destroy other air targets from a distance in which opposing planes cannot even see the Raptor, or even know it is in the area.

Northrop Grumman, at Plant 42 in Palmdale, has announced that their new and larger version of the Global Hawk is completed and under going flight testing. The new version is twice the size of the original, with a thicker skin and more payload and durability. Called the RQ-4B, the new Global Hawk can carry a 50% greater payload, fly at an altitude of 60,000 feet, and stay up in the air 36 consecutive hours. The Global Hawk is an unmanned "recon" aircraft that also can attack targets. The Global Hawk flies pre-programmed missions, but can be redirected as needed. Barring being shot down, the Global Hawk will have a lifetime of 20 years and serve both the Air Force and Navy. Northrop Grumman has 7 planes under various forms of assembly with plans to deliver the planes to Edwards Air Force Base within 5 months. The Global Hawk program employs 110 at Plant 42 in Palmdale. From start to finish, the plane takes 265 days to complete. Because the Global Hawk is under a constant state of development and improvement, the assembly system is set up to make changes "on the fly" during production.

Dec 8th- UCLA released their annual Anderson School Forecast for next year. The report attempts to balance the trends in housing, employment, manufacturing, international trade, and population growth to forecast Cal's future. The overall tone of the report was "no recession anytime soon, but troubles ahead." Economist Ryan Ratliff entitled the section on Cal, "The California Report: half full or half empty." The report considers housing the wild card, meaning as housing goes, so goes California. If housing continues to weaken nationally, in 2006, it could knock off 2 points from the nation's GDP growth rate. The report went on to say, "That the logic for a coming housing decline is powerful, and we strongly believe it is going to occur." Another reason for this forecast, says the report, is that population growth in Cal has been slowing over the past few years, and looks like it will slow further in the years ahead.

Dec 9th- Asleep at the switch.......in late Oct and early November, Cal Gov Schwarzenegger got out maneuvered by New Mexico Gov Bill Richardson, as Richardson cut a deal on the sly with Virgin Airlines owner, Richard Branson, to make New Mexico the home of future commercial space flight for Branson's new company. This is an embarrassing loss by Cal to New Mexico, as the FAA has already built a Spaceport in Mojave, Ca, the home of the first commercial space flight by SpaceShipOne. Branson was so impressed with SpaceShipOne's performance, that he ordered five craft just like it to start, Virgin Galactic, his own commercial space flight company. While commercial space travel may sound like a pipe-dream, consider this: Virgin Galactic has already received more than 7,000 requests for initial reservations and about 1,500 down payments. Early flights will be in the $200,000 per seat range, but are expected to come down. Since SpaceShipOne was developed, built, and flown out of Mojave, the loss is even more embarrassing. As said by our local newspaper, Cal has a long history of "fumbling the ball" when it comes to gaining or retaining business ventures. Cal, which has 30M people and the 7th largest economy in the world, has only a handful of people in it's economic development unit. As of mid December, New Mexico lawmakers had yet to see any formal plans on the cost of the new Spaceport (in New Mexico), or how it will be funded.

Dec 16th- Medical office condos will be developed in west Lancaster by Venture Corporation of Mill Valley, Ca. The property, 9.3 acres, is located north of Ave J, between 16th and 17th St West. The complex will be two 2-story buildings ranging in size from 7,000 to 10,000 sq feet. Each building will be subdivided into units of 1,200 5,000 sq feet for resale. Presently, almost all doctors lease their office space; this will be the first medical office condo in the AV, giving doctors a chance to own their own office, vs. leasing. The site is currently raw, as utilities must be brought in as well as street widening, curbs, and gutters. Venture Corp will also build 35 industrial condos in the west Palmdale area, on Commerce Dr, between 5th St West and Trade Center Dr. in the Palmdale Trade and Commerce Center. The condos will geared toward office and high-end industrial, ranging in size from 1,139 sq feet to 2,656 sq feet in five separate buildings. Venture expects a delivery date of fall 2006 for the west Palmdale industrial condos.

Dec 17th- Major grading and infrastructure work is ongoing on west Palmdale's next master planned community- Ritter Ranch. SunCal Companies of Irvine is handling the entitlements, but will then sell off the component parts to various home builders. SunCal acquired the Ritter Ranch project in Sept 2004 at a bankruptcy hearing, paying $57.2M. The project entails 18 sq miles and over 11,000 acres. Residential and commercial development will take up 3,625 acres, with over 7,000 acres left preserved to give the development a feeling of openness. Specifically, Ritter Ranch will include: 80 miles of trails, 18 hole golf course (designed by Greg Norman) with water hazards, community amphitheatre, library, fire station, public schools, a commercial center, parks, and a swim center and a lake. Elevations of the projects will range from 2,500 to 3,500 feet above sea level, with many homes having spectacular views to the north. The prevailing theme of Ritter Ranch will be reflective of the old west. The first model homes are expected to be open by Q 1 of 2007. From that point, it is expected to take 15 years for the various home builders to complete RR.

Dec 19th- The Antelope Valley College trustees approve and sign a contract with Western Pacific Housing that will bring a second college campus to east Palmdale, at 37th St East and Ave V. The college will pay $5M to Western Pacific Housing for grading and infrastructure improvements to the area. The campus will be 69 acres; however construction of the campus is conditional to approval of 800 homes on 50 + acres, south of Barrel Springs Rd. The homes will be built by DR Horton, a major home builder in the AV. DR Horton is hopeful that final permits for the tract could be issued by the spring.

Dec 21st- Citing "economic reasons", Scenic Airlines has announced that they are pulling out of the Palmdale market and will no longer offer flights to and from Las Vegas. Palmdale officials were quick to say, that if Scenic had offered other routes from Palmdale, the airline could have succeeded. Scenic will end it's Palmdale to Las Vegas air service on March 13th of next year. Scenic's decision is market driven, and while it is possible Scenic could change their mind over the coming months, that decision will be based on passenger counts. Paul Haney, spokesman for the Los Angeles World Airports, said, "We are disappointed. LAWA hopes Scenic will change their plans before their service ends. We believe the AV is a growing and attractive market airline service. Palmdale Regional will play a crucial role in the regional solution to accommodate the growing demand for air service in southern California." Scenic Airlines was the first airlines to fly out of Palmdale since April of 1988 when United Express ended five years of shuttling passengers from Palmdale to connecting flights at LAX.

Dec 31st- The numbers are in, and Lancaster was the leader in the AV for housing starts in 2005. After 11 months in 2005, the City of Lancaster leads the AV in the number of housing starts, in overall dollar value, and in percentage increase from 2004. Lancaster housing starts during the first 11 months of 2005 are up 62.7% vs. the same time period in 2004. During the same period, Palmdale housing starts are up 29.5%. Total dollar value of Lancaster housing starts during those 11 months was $477,098,000, which approaches 1/2 a billion dollars. Total dollar value in Palmdale was $360,782,000. Statewide, during the first 11 months of 2005, housing starts were down slightly, just 90 starts out of the 200,000 or so the state will break ground on. These numbers were compiled by the Burbank based Construction Industry Research Board.

Jan 3-06- Palmdale City planners will consider approval of a proposal that will bring an 81 unit hotel to the SE corner of 5th St West & Ave Q. Located on a 2 acre site in the Palmdale Trade & Commerce Center, the hotel will be a three story building and total 46,095 sq feet. The Palmdale Planning Commission will consider the project at their January 19th meeting.
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AV Home Market News

Last month I told you about pending water and sewer connection fee increases in the Rosamond area. After two months of public hearings, the five member board of the Rosamond Community Services District voted 3-2 to raise developer fees on water and sewer connection some + 268% on Dec 20th. Those who supported the fee increase argued that it was necessary to prepare Rosamond for an upcoming population boom. Apparently, only two of the board members thought the severity of the increase could damage this "upcoming population boom". All fee increases are passed along to the home buyer, raising the price of the home. The fee increases are in two phases. On Feb 1st, water connection fees will $3,400 and sewer connection fees $2,000 per single family home. Then on July 1st, the fees go to $5,000 (water) and $2,400 (sewer). Home builders, while opposed to the magnitude and rapidity of the fee hikes, are on record stating that they understand that fees do need to be increased.

DataQuick's latest data on the California and Antelope Valley home markets was released December 24th. Statewide, existing home sales were down - 3.8% in Nov 2005 vs. Nov of 2004. In November, the price of a median home in Cal was $458,000 which was up + 15.1% vs. Nov 2004. DataQuick says that signs of market distress are still very low; down payment are stable, speculative buying is moderate, and default rates are low. Earlier increases in non-owner occupied homes (investors buying homes to flip at a higher price) has leveled off.

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

Region median price 11/05 % gain since price per sq foot
Nov 2004

Mid Lancaster $275,000 + 20.1% $203
East Lancaster $300,000 + 27.7% $205
West Lancaster $372,000 +35.3% $201
Littlerock $303,000 + 40.7% $245
Mid Palmdale $313,000 + 23.3% $224
West Palmdale $425,000 + 17.1% $212
East Palmdale $345,000 + 25.9% $214

Comment: Please note that all major segments of the AV housing market are now over $200 per sq foot. I remember in 2001, none of the above markets were anywhere near $200 psf. I even recall some home builders passing over acreage in east Palmdale because the homes in that area were too cheap, well below $100 psf! I relay this story to make the point of just how far our market has come. While the armchair experts keep predicting a bursting of the "housing bubble", the slow down that the AV housing market is now undergoing does not indicate that a disastrous plunge is pending. Rising inventory and cooling prices go hand in hand. Major market dislocations are not present; distress selling is rare. With the FED likely to wind down this cycle of rate hikes sometime in the first half of 2006, stability in the housing market seems the likely scenario. When AV home prices are compared to other So. Cal markets, the AV is a clear winner in the affordability category. Although land prices have also skyrocketed along with housing prices, AV land is still some the most affordable land in the state. According to the Cal Assoc of Realtors, the AV, with a housing affordability index reading of 26, is the most affordable home market in Cal. The index measures how many residents could afford to buy a median priced home in their respective region. Sacramento is at 20%, with the wine country, above San Francisco, the most expensive market, at 7%. Statewide, the index is 15%; nationwide, the index is 49%. In the AV, a prime custom home will range in price from $680,000 to $1.8M, however, the average sale in the AV is still around $350,000. For these reasons, and more, the new home market should be fairly strong for quite some time.
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AV New Home Sales Data (source: The New Housing Monitor, a Hanley Report)

As of December 25, 2005
-New Homes sold year to date - 4,519
-New homes sold since last month- 218
-New homes selling per day - 12.5
-New homes projected to sell for all of 2005- 4,594

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

Number of new home builders in the AV- 36
Open subdivisions with sales in 2005- 83

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)
Fieldstone Communities
First Pacifica
Forecast Homes
Frontier Homes
Gibraltar Homes
Grenhill Development
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
Matthews Homes
MBK Homes
New West Builders
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
Standard Pacific
Stratham Group
Sun Cal Communities (Ritter Ranch)
Tandis Homes
Trimark
US Home Corp.
Warmington Homes
Western Pacific
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Land Market

Supply closed out December at 2,264, up only 4 listings vs. November. Supply has now risen 8 months in a row, but now appears to be leveling out. Although supply is at it's highest level since the early 1990's, the overall structure of the market looks fairly good. With supply flattening and sales rising (see below), we could be setting up for a strong 2006. Supply (inventory) expressed in time, also fell. Based on December's sales pace, the time it takes to sell all land listings, fell to 7.9 months in December, vs. November's 9 months. This is still well above May's 5.6 months, but, more importantly, it is a reversal of six consecutive months in which this figure rose. All said, and if history repeats itself (from last year), this data could be pointing to a very decent 2006 in the land market. Last month I postulated on why December would be stronger than October and November. Since December has two major holidays, one might think the opposite, that December would lose "trading days" due to the holidays, and produce fewer land sales. I think there are two main reasons for this: one, in a strong market, investors are using December to position themselves for the coming year, and two, these investors are also using some of their time off from the holidays to go view and buy land.

Supply numbers in perspective:
Supply at end of Dec- 2,264
Supply change from last month: no/change
Supply at the end of 2004: 1,902
Supply change, year to date: + 19%
Supply in Dec 05 vs. Dec 04: + 19%
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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 buyer's are backing off, and/or, that numerous new sellers are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down. The value in following supply, is not in the number itself, or what any one number might mean. The value comes from when it changes, and magnitude of that change.
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Demand in December (284), after 3 declining months, bounced back nicely, rising +14.5% vs. November's 248. The 284 land sales in December almost approaches the strong numbers we had in mid summer, the July (291) and August (305) period. December 2005, vs. December 2004, was also up, + 33%. Going into 2006, I find this behavior constructive. Both 4th quarters of the last two years saw declining sales, with sales improving in December. Improving land sales in December of 2004 lead us into a very good 2005; perhaps December of 2005 will do the same- lead us into a very strong 2006. That remains to be seen, but with the stock market still struggling, essentially flat for 2005, I can attest that there are still plenty of buyers out there that want some AV land. These buyers, and their brokers, are calling my office regularly, inquiring about signs and property availability. With strength returning in a shortened month (due to the holidays), it would appear the "buyers" are back and raring to go in 2006. The health of the housing market, and real estate market as a whole, will depend greatly on interest rates and FED policy in 2006. While that issue is still officially "up in the air", it does appear that the FED is close to winding up this cycle of rate increases, which should help to stabilize the housing market. As always, we will just have to wait and see how the FED deals with the 2006 economy as it tries to balance it's fight vs. inflation and economic growth.

Demand numbers in perspective:
Land sales year to date- 3,376
Dec 2005 vs. Dec 2004- + 33 %
Land sales projected for 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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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

The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 the beginning of this bull market in AV land. This means that the bull market in AV land is now 45 months old (3 years and 9 months).
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Summary of Land Market

We now have had a brief 3 month trend of rising supply and falling sales volume. The 64,000 question that needs to be answered is: Is December's renewed strength and the flattening of the rise in supply portending of good things to come in 2006, or will the trend of rising volume and weaker sales resume in 2006? When you are in the midst of a major bull market, the benefit of the doubt should always go to strongest trend, which in this case, is the bull market in AV real estate. That trend, at 45 months, is much longer and more powerful than a brief 3 month pull back in sales. While I believe that the AV housing market will be different in 2006, vs. 2005, I also believe that the AV housing market will be very good, with active sales, and perhaps even some moderate appreciation. But even if AV home prices are flat in the coming year, sales will not. In 2005, about 4,600 new homes were added to our market by the "new home" builders. There is a good chance in 2006 that number could be exceeded; major master planned projects are just gaining steam; Anaverde and Ritter Ranch, both in west Palmdale, will both be selling homes in 2006. Growth will be evident in many corner of the AV in 2006. With mortgage rates settling down somewhere in the area of 6%, I expect the existing home market to do well also. Someday, the home builders will build too many homes and mortgage rates will go too high. At that point in time, the supply of homes will exceed demand and prices will pull back to let new buyers into the home market. However, 2006 as it looks now does not appear to be one of those times. In my view, it actually seems probable that the housing market will indeed get the "soft landing" we have all hoped for. As always, each individual investor should consider their risk tolerance/holding period before putting new money into this market. The Antelope Valley has a great future. This was true in 1970, 1980, 1990, 2000, and it is still true today.

February 2006

Antelope Valley News

March 2006

Antelope Valley News

Feb 8th- After 27 months of construction, the City Of Palmdale opened two bridges on Ave S, between the AV Fwy and 22nd St East. The bridges were widened from 2 lanes to 4 lanes as was the above mentioned portion of Ave S. The bridges are used to cross railroad tracks. Only minor work remains to be done on Ave S, and includes a traffic median, bus shelters and benches, sidewalks, landscaping, decorative concrete, and bike paths.

Feb 9th- The Los Angeles County Economic Development Corp is saying that 2006 will be a good year for southern California, and LA County. The LACEDC says that the county's employment growth in 2006 should be about 1%, and that aerospace will be among the leading industries. Other sectors expected to do well are high technology, international trade, professional & business services, and tourism. "You have a lot of research and development being done in the AV as the military is looking at a lot of unmanned air vehicles. Lord knows what else is going on in the AV as the military's demands are changing. We are watching the defense budget very closely. One challenge for California, is that once a product is past the research and development stage, when it is ready to produce, it is sent outside of the state where it can be built cheaper," said Jack Kyser, chief economist for LACEDC. Kyser said that California needs to get their lobbying team organized, or they will lose the contract on the next generation space shuttle, that already has competing bids from Florida and Texas. Kyser also addressed real estate in LA County, saying, "We expect a slow down in the rate of appreciation, but no bursting of any bubble. Our view is that there is no housing bubble per se. We have a good economy, a growing population, and we haven't been able to build enough housing, especially affordable housing. Housing will have higher demand inland, where first time home buyers are being pushed by high prices. The run-up in land prices has caused a shortage of office and industrial space, which should help the Antelope Valley. Los Angeles County does have an escape valve; it's called the Antelope Valley, which not only has a lot of land, but also a positive attitude towards growth & business."

Feb 10th- Palmdale residents, Frank Belt and Larry Turner, say that their new driving range and golf academy will be open by March 21st. Called Birdies Driving Range & Teaching Academy, the facility is located on 10th St West, just north of Ave N. Located on 10 acres, the facility includes a 6,500 square foot building, which includes a pro-shop and restaurant, 56, 2,000 watt lights for night play, and a putting green. Eight acres of synthetic turf is being laid, along with 700 linear yards of netting to catch flying golf balls. The kitchen, say the owners, is stocked with state of the art appliances and an old (imported from Texas) pit bar-b-que. The site also has a video room and Doppler radar to dissect one's golf swing. "Birdies" will have a golf-pro on site to offer state of the art golf instruction, to individuals, or groups. Golf clubs can be custom built for each golfer. Computer video software can be used to compare a customer's golf swing with that of Tiger Woods. The video can then be used to teach a golf lesson to improve one's swing, or it can be used to design a custom set of golf clubs.

Feb 17th- A near tragedy is averted as 3 planes at LAX are told to use the same runway, at nearly the same time.
The incident occurred at 11:30 pm, when an air traffic controller told a Skywest plane to taxi onto the same runway on which he had cleared a SW Airlines jet to land. The controller had also told an Air Canada jet, which was arriving from Toronto, that it could cross the other end of the same runway on it's way to the terminal. The Skywest pilot saw the SW jet and stopped short of the runway, allowing the SW jet to land without incident. The two planes missed each other by about 275 feet. The Air Canada plane, although in the area, was never in danger, being some 5,000 feet away. The Associated Press says that LAX, over the recent years, has one of the worst runway safety violation records in the nation. County and Los Angeles World Airport officials have pledged to spread out air traffic to outlying areas, like Palmdale, to improve safety and relieve air traffic congestion, but have yet to make any major changes in this regard. LAWA is spending $328M though, to move one of LAX's runways further south, to give planes on the ground more room to maneuver.

Feb 20th- The new addition to "restaurant row" at the AV Mall, Dave's Famous Bar-B-Que, opens. As its name suggests, Famous Dave's specializes in bar-b-que style foods, including ribs. Famous Dave's now joins 7 other sit-down restaurants that encircle the AV Mall: Red Lobster, Olive Garden, OutBack Steakhouse, El Torito Mexican food, Johnny Carino's Italian, Denny's, and Chili's family restaurant. A Japanese restaurant, which will be restaurant number 8, is still under construction next to, and west of, Famous Dave's. I have tried 3 times to get into Famous Dave's, to try it out. Every time I was told it would be a 2 hour wait for a table. I am still waiting.

Feb 23rd- Robert Kleinhenz, Chief Economist for the Cal Assoc. of Realtors speaks at the weekly breakfast meeting of realtors in the AV and forecasted a steady economy in 2006. "It's a Goldilocks economy," said Kleinhenz, "We have slow steady GDP growth; inflation is in check, decent job growth, and a low unemployment rate. All in all we are in pretty good shape. Not too fast, not too slow, just right." In new home sales, Kleinhenz called the high desert area the "star region of California". Housing affordability in the AV is now in the 25% range, meaning that 25% of those living here can afford to buy a home in the AV. A few years back, that number was 68%, but with home prices rising, the AV has given up some of that advantage. The housing affordability index in Cal as a whole, is 14%. Nation-wide it is 50%. On price appreciation on homes, the economist said that he expects steady single digit gains. Interest rates continue to be housing friendly, with fixed rates at 6% and adjustable rates at 5%. The FED could go up 1 or 2% more from here. In closing, RK said, "The housing market will be dominated by repeat buyers as the boomer generation is in their peak earning years. They are ready to trade up and or buy a second home for retirement.
The risk of foreclosures to the market is low, as most homeowners have fixed rate mortgages."

Feb 24th- The Antelope Valley Board of Trade holds their 34th annual AV Business Outlook Conference. The conference was held at the AV Fairgrounds, on Ave H, at the Fwy 14. Speakers ranged from economists to retired Congressman and was attended by 800 people. Here is a synopsis of their points of interest.

Nancy Sidha, vice president and senior economist for Los Angeles Economic Development Corp.
* the AV economy is generally stronger than the rest of California
* the AV is not vulnerable to the kind of housing bubble burst it saw in the mid 1990's because the population and economic base have grown and diversified
* long term rates (mortgage rates) will go up this year, so expect the inflation rate to fall
* consumer spending will slow in 2006, but business equipment sales will grow
* Defense spending appears to have topped out, it is still high and should continue to benefit the AV
* although the housing market has topped, LA County needs the new homes being built in the AV
* Cal leaders in Sacramento need to stop the shenanigans of making it hard to do business in Cal
* as the AV's population has grown, so has retail and industry
* In sum, times are great for Cal & the AV; enjoy it while you've got it

Defense & Aerospace News

In late February, the third unmanned Global Hawk, known as "Air Vehicle 3", returned from the mid-east for a pit stop. The Global Hawk, built in Palmdale by Northrop Grumman as a "demonstrator", was pushed into combat duty ahead of schedule after 9-11. The aircraft, which can fly at 60,000 feet for a period of 35 consecutive hours, collected battlefield intelligence over Afghanistan and Iraq for four years. Use in real battlefield conditions provided important real time feedback on how to improve future aircraft which were being designed and developed here at home. On the fly, the aircraft was adapted overseas to carry weapon systems. Missions can last 24 to 30 hours long. During the invasion and liberation of Iraq, the Global Hawk, during a terrible sand storm which rendered all ground radar surveillance useless, used weather penetrating radar to locate Iraq's Republican Guard, which then ground forces destroyed. Before coming home, the AV 3 was "in theatre" in SE Asia, then flew to Australia to conduct some test missions, and then flew 23 hours to Edwards Air Force Base. Needless to say, the aircraft has far exceeded initial expectations. Officials say that the AV 3 combat days are over and will probably find a home in a museum. The 2007 defense budget has funding for 6 new Global Hawks and partial advanced funding for 7 more in 2008. Due to these new orders, it is estimated that the work force at Northrop Grumman in Palmdale will go up slightly from its current level of 110. The Army, Navy, and Air Force all have orders in for the Global Hawk.

Lockheed Martin, which may build the next generation space shuttle, called the Crew Exploration Vehicle, is telling California officials that Florida is a better location for final assembly. If LM wins the contract, they would manufacture the major systems elsewhere around the country, and then ship them to Florida for final assembly. These other locations have not yet been announced. On this issue, California political and economic leaders have been "asleep at the switch." Northrop Grumman, also in the running for the CEV contract, has not said where it would do its final assembly if it were to win the contract. With Jeb Bush leading the way, Florida has offered a $45.5M incentive package to both contractors to lure their business. The current fleet of space shuttles is to be retired in 2010, with the first CEV flight to be no later than 2014.

Future prospects are looking good for Mojave Airport, as their business is booming, infrastructure improving, and as their prospects rise to become a hi-tech educational hub for the area. The Mojave Spaceport is anchored by 11 competing companies, all trying to take advantage of the infant movement of commercializing outer space. Despite announced competition, Mojave remains the nation's only inland spaceport and the only one in place to host commercial space tourism. Among the companies at Mojave are: Scaled Composites, the company that built SpaceShipOne, XCOR, a producer of rocket powered air racers; The Spaceship Company, contracted to build the first commercial space-tourism vehicle and Virgin Galactic, which is Englishman's Branson's entry into the space tourism industry. Mojave also has a growing business in freight operations. Once it's main runway extension is completed (to 12,500 feet), Mojave has a very good chance to become the ground distribution center for freight from Central America, Mexico, and Asia. Mojave is already a rail and road hub, with interstate access and a prime location to transport goods in and out of the San Joaquin Valley.

In 2005, employment at Plant 42 in Palmdale increased by 445 workers, most of which were hired by Northrop Grumman. Total employment at Plant 42 now stands at 7,254, which is up from the Dec 2002 low of 6,209. The peak employment year was at the end of the Reagan Administration, 1987, when nearly 12,000 were employed. Northrop Grumman employs approx 2,000, most of which work on B-2 Bomber upgrades and the fuselage for the Joint Strike Fighter, the F-35. NG also has workers on the Global Hawk, some target drones, and some sub work on the X37B, a next generation unmanned combat aircraft. Lockheed Martin has a work force of at Plant 42 of 4,000. Lockheed's body of work at Plant 42 includes modification of the F 117 NightHawk and U-2 spy plane and some production work for the F-22 Raptor and F-35 Joint Strike Fighter. Boeing's work force is 300 and is centered around maintenance of the Space Shuttle, which over time, is being phased out. The Space Shuttle is scheduled to be retired in 2010.

BAE Fight Systems, located in Mojave, has announced that the Air Force has given them 20 orders for an unmanned target drone, called the QF-4. The company has already delivered to the Air Force 180 target drones. The new order is part of an overall order for 230 under an agreement that extends out to 2013. The drones are old F-4 fighter jets that are modified to be remotely piloted, and used to test weapon systems.
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Robert Trautman, CEO of Universal Health Services
• the new Palmdale Regional Medical Center will become a new economic engine for the City
• construction on the new hospital in west Palmdale will begin soon, bringing $200M and 1,300 jobs into the community
• once completed and up and running, the hospital will create 1,000 jobs and produce tax revenue of $5.7M
• construction of the hospital has spurred plans for an additional 500,000 sq feet of additional medical office space

John Kasich, retired Ohio Congressman and now Fox News host
Discussed how, as a young man, his values shaped his future and how values should be part of business decisions and relayed an amusing story, that as a young college student, he won a contest for which the reward was a visit to the White House. Young Kasich was able to spend 20 minutes with President Nixon. Kasich said that he spent more time with the President at that meeting then in his entire career as an Ohio Congressman! With humor, Kasich said, "I peaked at age 18!”

US Congressman, Ken Calvert, Riverside, Ca. (Chairman of the House Space & Aeronautics Subcommittee)
• the nation is entering a second space age, driven by the nation's historic excellence in space enterprise
• the nation is in danger of losing pre-eminence in space, to countries like China and India which have emerging space programs; the Chinese graduate more engineers in one month than the US in one year
• regardless of short term challenges, i.e., war and natural disasters, the US can not and should not allow these events to jeopardize our long term investments in space
• in a global economy, losses in the space industry lead to an erosion in the country's competitive edge in science, engineering, and other high tech fields that are vital to our economy
• the NASA authorization bill of 2005, funds NASA for the next 2 years, which is pushing hard for the completion of the next generation space shuttle, the Crew Exploration Vehicle
• entrepreneurial efforts, such as those going on in Mojave, are also an important part of the picture
• Cal has 25% of the nations space business, and is well placed to continue to play an important role in the nation's space future
• Space business impacts California to the tune of $120B and 250,000 jobs.

Karla Bullock, human resources manager for Sygma Foods: Sygma Foods is in the process of building a 110,000 sq ft distribution center at 47th St West & Ave G, which is in the Fox Field Specific Plan area and said that working with Lancaster's Redevelopment Agency made job recruiting of the needed 3,200 workers a joy, saying, "We just love being here in the AV."

Agri Trivia - What area of Los Angeles County produces the most farm produce? The Antelope Valley produces 100% of the county's peaches, cherries, alfalfa, and dry onions. The AV also has the world’s largest crop of scientifically tested sweet carrots.

Michael Antonovich, Los Angeles County Supervisor (for the AV) Told the audience, that a legal settlement between the County and Los Angeles World Airports, which owns 17,000 acres in and around the Plant 42 area in east Palmdale, yielded an agreement from LAWA to invest meaningful development funds towards advancing Palmdale as a significant regional airport.

Greater Antelope Valley Economic Alliance released this data on AV commuters
• 49% of the working population in the AV commutes to work outside of the AV
• That is a total of 81,868 people who drive out of, and return to, the AV daily
• 35% of those commuters drive an hour or more, one way, to work. This means that 2 hours per day is deducted from leisure time or each working day.

March 4th- Palmdale Mayor Jim Ledford speaks for 50 members of the Retired Enlisted Association at a local restaurant. The Mayor made the following points:
The widening of Ave S, from the Fwy 14 to east Palmdale, is going to help open up the entire eastside for development. The Mayor cited the new water park at 40th St East and Ave S, and the new amphitheatre at 30th West & Ave P. Ledford also told the audience of the new Chili's restaurant & drive thru Starbucks that will be at the NW corner of 40th St East & Ave S. "We are going to remove any stigma about the east side," the mayor told the audience. The mayor said that the city is attempting to clean up the east side by focusing on section 8 violators and preventing excessive dumping of parolees by the state in the Palmdale area. The mayor made the point that state officials were using the Antelope Valley's affordable housing, against us, placing parolees where they can more afford to live. In closing, Ledford added, that the new Sheriff's station at Sierra Hwy and Ave Q, will help improve public safety in Palmdale. If for no other reason, bookings can be done locally, allowing arresting officers to get back on the street faster, vs. going to and from Lancaster before getting back on duty.
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National Housing Market- The following housing data is subject to large sampling and other statistical errors.
Substantial revisions in this data are common. It can take up to 6 months to firmly establish a new trend in sales activity. The following data in on the NATIONAL housing market, and may or may not be in "sync" with the AV housing market.

January housing starts (Commerce Dept), released February 16th, soared + 14.5%. In raw numbers, at a seasonally adjusted annual rate of 2.276M, it was the most housing starts since March of 1973. The percentage gain was the highest in 12 years. Analysts partially attribute the strong month to mild/dry weather around the country, providing more work days, vs. days shut down by inclement weather. Housing starts, versus Jan 2005, were up 4%. New construction was up in all sectors of the US; the NE was up 29.2%, the mid-west was up 23.7%, the south was up 8.7%, and the west was up 16.9%. While housing appears that it will make a major contribution to the US economy this year, analysts are quick to warn that "housing is not out of the woods yet", after all, the FED is still hiking rates. In mid February, a major snow storm hit the east coast, so analysts expect the Feb numbers on housing starts to moderate. Besides the strong January showing, housing starts for Dec were also revised upward by an additional 500,000 units.

January building permits, (considered a leading indicator and a signal of future activity) also released Feb 16th, was up as well, + 6.8% to a seasonally adjusted annual rate of 2.217M units. Versus Jan of last year, building permits are up + 3.8%.

January existing home sales (Nat’l Assoc of Realtors), released Feb 28th, falls - 2.8% to an annualized rate of 6.56M. It is the lowest rate in two years and the 5th monthly decline in a row. Since January of 2005, existing home sales are down 5.2%. With demand falling off, and inventory rising, it doesn't take a rocket scientist to know what will come next - falling prices. Supply is now at 5.3 months, and in January, rose 2.4%. Supply is now the largest since August of 1998. Only in the south (+ 2.6%) did sales rise. In the West they fell 3.5%, in the mid-west they fell 3.5%, and in the northeast they were down 10%. Year over year, the median home price is up 11.6% at $211,000. The biggest price increases have been in the mid-west, the lowest priced region of the country.

January new home sales (Commerce Dept.), released February 27th, fell -5% to a seasonally adjusted annual rate of 1.233M. The report was weaker than the expected 1.27M. January's release was a bit of a surprise, as the weather around the country was about as good as it can get, making it easier for home buyers to get out and about. Unsold inventory rose 2.5% to 528,000 new homes which represent a 5.2 month supply, the highest in "months" in 9 years. As mentioned earlier, the housing market cannot use bad weather as an excuse for this weak report, so it does appear that the softening in the market is for real. The median sales price was $238,100, which is + 6.7% higher than one year ago. New home sales fell in 3 out of the 4 regions, with the West going against the trend at + 11.3%. In the south, sales were down 10.3%, in the Midwest, down 10.8%, and in the NE, they were down 14.9%. Over the past 6 months, new home sales have averaged 1.27M.

Leading Home Price Index (ECRI) leads peaks and troughs in real home prices by an average of 10 months
Jan 2006- 125.3
Last month- 124.8
June 2005 (cycle peak) at 129.1
6 months ago- 125.4
1 year ago- 128.2
2 years ago- 126.1

The ECRI does not see the present pull back in home prices as entering a cyclical downturn; rather they see it as a normal pullback after a large move upward. The overall rising price trend in homes is still in tact. No change from last month.
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Housing Market News

Like much of the country, California is showing housing weakness as well. The number of homes sold in all of California, in January, fell to a four year low, and have declined four months in a row. The rate of yr over yr home appreciation topped in June of 2004 at 23.2%, and has declined gradually ever since. In all, 38,300 homes and condos sold in January, vs. December's 52,800, which is a decline of 27%. The January 06 figure is down 9.5% from January of 2005 when 42,300 houses and condos were sold statewide. The four year low previously mentioned was January of 2002 at 38,137. The psychology of the market has completely turned, vs. the hot 2002 - 2005 time period. Homes are taking longer to sell and buyers are no longer eager and in a rush to buy. Most homes are still selling though within 60 days, which is still good. Residential agents are reporting that there is a sizeable gap between what buyers are willing to pay and what sellers are willing to accept. While buyers are in the best position they have been in, since 2002, some feel it is still too early to be buying, that this pullback in volume and prices may have more to go on the downside. At the center of this debate re: the housing market is of course, future FED policy: when will they be done raising short term rates? The median price of a California home in January 06 was $452,000, down - 1.3% from December, but up + 13% vs. January of 2005.

Locally, in the Antelope Valley, our housing market is also feeling the downturn. Most residential agents though are confident the downturn is cyclical and will not last. Re/Max says their home sales are down 20% in January 06 vs. January 05, with their broker acknowledging that the slow down began in August 2005 as inventory climbed. Existing home supply has almost doubled over the past year, with 1,750 resale homes available in early Feb, vs. 950 homes the year prior. Days on the market, on average, has gone up from 21 days, a year ago, to 60 days presently. Sixty days to sell a home is historically very good, but in relation to where it was one year ago, it seems not so. Many areas of California are taking 3 and 4 months to sell a home. In closing the Re/Max broker said, "The market is coming down from the superheated sales of the past year. I hear discussions of a housing bubble, but demand for Cal housing is still incredibly strong. We are reaching a balanced market and after the previous hot years, we are not used to it."

Gretchen Gutierrez of the AV chapter of Building Industry Assoc says that November, December, and January were a bit slower than usual for new home sales. Going forward though, she expects steady new home sales. GG also says, "That AV will remain as a strong new home market because the AV is the only place where builders can keep building."

On Sunday, February 19th, Pacific Communities held their grand opening of their new subdivision, Pacific Lakepoint, so named because the home sites surround Palmdale Lake. This development is something of an experiment for the Antelope Valley housing market. First, the homes are located on large 1 acre lots, which to my knowledge, is the first time a major home builder has elected to build a group of homes on 1 acre lots. One acre lots have been developed before, but then sold off as lots, not developed. Second, this group of homes are the largest and highest priced homes ever offered by an Antelope Valley home builder, with the homes ranging in size up to 5,300 sq feet, with prices starting at around $850,000. If these can sell at 2 per month, in the current housing environment, that would be a very decent performance, that could yield future similar projects. To view Pacific Lakepoint homes, exit the Fwy 14 at Ave S. Go west on Ave S for 1/2 mile, then turn left (south) on Tierra Subida. Proceed on Tierra Subida to Barrel Springs Rd. At Barrel Springs Rd, turn left (east) and go over the Fwy 14. A 1/4 mile over the Fwy 14, you will see the signs and model homes.

Here is how median home prices in the Antelope Valley break down by region.
(Data Quick News; though 3 months old, this is the latest data released in our local paper)

Region median price 11/05 % gain since price per sq foot
Nov 2004

Mid Lancaster $275,000 + 20.1% $203
East Lancaster $300,000 + 27.7% $205
West Lancaster $372,000 +35.3% $201
Littlerock $303,000 + 40.7% $245
Mid Palmdale $313,000 + 23.3% $224
West Palmdale $425,000 + 17.1% $212
East Palmdale $345,000 + 25.9% $214

Building permits in 2006 are off to a solid start. The Construction Industry Research Board gave the following numbers for January in the Antelope Valley. Lancaster pulled 265 permits in January 06, which is up 94.9% vs. January of 2005. Palmdale, in some ways, a more mature market, pulled only 38 permits in January 06 vs. 86 one year earlier, which is a drop of - 55%. Both markets are grading future projects, with Lancaster, at this time, a bit ahead. Home builders are pursuing projects in both communities.
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AV New Home Sales Data (source: The New Housing Monitor, a Hanley Report)

As of February 5, 2006
-New Homes sold year to date - 440
-New homes sold since last month- n/a
-New homes selling per day - 12.22
-New homes projected to sell based on ytd sale pace- 4,460

2005 - total of all new homes sold- 4,579
2004 - total of all new homes sold- 2,503
2003 - total of all new homes sold- 1,820
2002- total of all new homes sold- 1,162
1990- total of all new homes sold- 4,900 +

Number of new home builders in the AV- 34
Open subdivisions with sales in 2006- 48

Home builders in the AV (alphabetical order)
American Premier
Beazer Homes
Capital Pacific Homes
D R Horton
Eliopoulos Enterprises
Empire Homes (Anaverde)Fieldstone Communities
First Pacifica
Forecast Homes
Frontier Homes
Gibraltar Homes
Grenhill Development
Harris Homes
Hearthside Homes
John Laing Homes
KB Homes
K. Hovnanian Co.
Larwin Co
Lennar Corp.
Matthews Homes
MBK Homes
New West Builders
Pacific Communities
Pacific Gateway Homes
Pinnacle Communities
Pulte Homes
Rancho Vista Development
Richmond American
Standard Pacific
Stratham Group
Sun Cal Communities (Ritter Ranch)
Tandis Homes
Trimark
US Home Corp.
Warmington Homes
Western Pacific
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Land Market

Supply closed out February at 2,365, rising + 4.1% (+ 98 listings) since the previous month of January. Supply has now risen 10 consecutive months, from 1,751 in April of last year, to this month's 2,463. That is a rise of 712 listings, or + 40.6%. Year over year, Feb 2005 vs. Feb 2006, and supply is up + 38%. Needless to say, we are in the midst of a clear trend of rising supply. The amount of time needed to sell all standing inventory, or active land listings, has gone from a low of 5.6 months in May of 2005, to it's present level of 9.5 months. While demand (see below) remains fairly healthy, supply is clearly rising faster than existing listings are selling, pushing up inventory or available supply of land listings.

Supply numbers in perspective:
Supply at end of Feb- 2,463
Supply change from last month: +4.1%
Supply change, year to date: + 8.7%
Supply in Feb 06 vs. Feb 05: + 38%
Supply at the end of 2005- 2,264
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
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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 buyer's are backing off, and/or, that numerous new seller's are coming into the market. In combining this data with the demand number below, we can assess the current status of the land market. When supply numbers approach historical highs and lows, they can also be useful in signaling major turning points. Example: at the peak of the 1988-90 market, supply made a low in May of 1989 at 587. In hindsight, May 1989 was at or near the point of peak speculation in our market, as demand over-whelmed supply, drawing it down. The value in following supply, is not in the number itself, or what any one number might mean. The value comes from when it changes, and the magnitude of change.
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Demand in February, at 259, showed an increase of 18 sales vs. January, or a gain of + 7.4%. This is a very decent performance, especially when one considers that Feb had only 28 days vs. January's 31. February 2006 also showed improvement vs. Feb 2005, improving 23 sales or + 9.7%. Factor in, that in Feb of 2005, the land market, and the real estate market as a whole, were still gaining momentum and strength, and this month's performance is fairly impressive. One year later, Feb 2006, the market is still putting up solid numbers, but those numbers are well off of the sales volume high's of mid-summer 2005. As we move into the March period, we are approaching what has been in the past, the strongest part of the year for the housing market - the spring and early summer period. If strength is regained in the housing market, due to seasonal factors, we may see renewed sales strength in land as well. While seasonal factors do not ensure renewed strength, over the past 20 years, they have been a fairly accurate predictor of the market's behavior.

Demand numbers in perspective:
Land sales year to date- 500
Feb 2006 vs. Feb 2005- + 9.7%
Land sales projected for all of 2006- 3,000
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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Average land sales (in 2006) per month- 250
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

The Beginning: Land sales volume began to increase dramatically in April of 2002. For this reason, I am calling April 2002 the beginning of this bull market in AV land. This means that the bull market in AV land is now 48 months old (4 years). With volume, historically, still on the high side, and prices stubbornly hanging on, I am not ready at this time to declare this bull market over.
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Summary of Land Market

History and the above market data tell me that the real estate market is in the early stages of a slow down. Supply has risen 10 months in a row, with volume being respectable, but off of it's mid-2005 highs as well. Depending upon which month you compare it too, present land sales volume is off 15%-20% from last summer. While the slow down scenario looks good for now, one cannot rule that the market could have a second leg up, or at least some renewed strength. What could cause this? If the FED were to declare an end to their interest rate hikes, that could be a catalyst to renewed volume. Interest rates are the number 1 risk factor to real estate. As mentioned above, seasonal factors could also come into play. Any new price highs that are made, in the face of falling volume, would indicate that those price highs will probably not hold, meaning lower prices will occur at some time. Sales volume is holding up much better than the supply numbers, with volume off 20% or so, but with supply up 38% over the past year. The technical rule is that volume always precedes price, meaning that meaningful volume changes occur first, then price moves come second. If supply continues to grow, or even stays stable, AND sales volume continues to fall off, lower land prices will be in the cards for most of the areas of the AV. Possible exceptions may be areas where active development is ongoing or plausible. Developer properties will hold up better to a weaker market than an investor parcel, a parcel with no infrastructure that would allow it to be developed. Until proven different, I would expect to see supply to continue to rise and land sales fall off- gradually. If the market continues to weaken from last years torrid pace, it may not do so in a straight line. Expect counter trend moves that could last a month or 2 before resuming weakness. In addressing the often used analogy in the media re: the real estate bubble or balloon, I would say the air is coming out gradually, and will not pop or crash as it did in the 1990's. As always, each individual investor should consider their risk tolerance/holding period before putting new money into this market. The Antelope Valley still has a great future, and will have for many decades to come. The AV is the only real place of substantial size that Los Angeles County has left for growth, and unlike many locales around southern California, growth here, is welcome.