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.

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 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.

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.

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%

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."

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.

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.

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%.

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."

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.

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%