Two of the observations are from these trips.

1. Builders Are Getting Desperate

The Hopebuilder, Lennar, had a booth on the tournament site. I stopped by out of curiosity (it doesn’t hurt that it was manned by an attractive woman) to pick up the brochure. She informed me that if you buy a Lennar home within the next two months and produce your ticket stub you will get a $5,000 discount on top of any other promotion. She gave me a coupon for the discount in case I lose my stub. Basically, one can produce any of the 200,000 or so tickets sold to get the discount. On the map of “Lennar Communities” being built in the Valley I counted 17 sites. There are many more national Hopebuilders and even more local developers. Just last year, I read that the ground was broken on a planned community (a small city in N. Palm Springs to house thousands), I believe by a local developer. The increased supply will continue, even as the demand plummets, for at least a year, or two.

A realtor friend in the area tells me that there are 7,000 listings in the Valley, up from just 2,500 not too long ago. For a population of 411,000, 2005 Census estimate, that is a large number of homes on the market. BTW, there is no dearth of land to build in the Valley. It is all a matter of local politics and the developers have a firm grip on it, as is the case in most outlying areas. During the next depression, within this decade, I expect between 50,000 and 100,000 unoccupied homes in Coachella valley! When homes in San Clemente start to go for less than $200K how many would want to move to Coachella valley? But, Jas, we have legislated out the depressions with our Federal Reserve controlling the economy so well. LOL.

2. Room Enough For More Than Million Homes

On the trips during the last three years, since I moved to my present residence, I pass thru a 40-mile stretch of a two-lane highway with barren land all around, mostly flat with gentle ups and downs and high-desert brush. As I go south on this stretch there is nothing for the first 25 miles. Along the last 15 miles, as one gets closer to the City of San Bernardino, there are three “cities.” In the past I had no reason to pay attention, but during the past year there were signs that attracted attention.

The middle of these three cities is the City of Victorville. It came to my attention from a friend, who knew investors buying land and homes there, as well as from an L.A. Times story of a woman who had bought 5 homes (with mortgages, of course) over a period of two years and was feeling richer by the month. Her husband asked her to stop at five, but she saw no reasons to stop and her goal was to get to ten homes. Making money had never been easier.

Last year, I started noticing big billboards for “New Homes” by the highway as I passed Victorville. Last week, I noticed two men dangling big signs, by an intersection, for New Homes in two developments. I also saw a man hammering a new Open House sign at the same intersection. Then, as I got to the very next intersection I saw two more men dangling the same two signs. When I looked at the houses that were already built, not far from the highway, I noticed how close there were to each other despite almost unlimited supply of land all around. The land is cheap, but the cost of infrastructure for the developer goes up as the homes are built farther apart. So, what I saw was patches of cheap crowded homes and lots of empty land. Just when I thought of what is the water supply source, I saw a sign for California Aqueduct. So, the water is not the limiting issue.

We can surmise that the City of Victorville has limited possibilities, because to the north of Victorville I saw a welcome sign with “City of Unlimited Possibilities.” What is definitely not limited there is the land to build dream homes. In the whole valley around the stretch of the highway and to the north there is room enough for lot more than a million homes. The weather is certainly not worse than in Lost Vegas, which is only 2.5 hours from the northern end of the highway intersection.

3. There Will Soon be Eggs On the Faces of “Location…” Dupes

There is nothing that turns otherwise intelligent people into dupes, when it comes to investments, than simple mantras. There is no mantra that gets repeated more often than the “Location, Location, Location,” and most often by self-serving realt-whores. The deception involved is that no price is high enough to pay for a home in certain areas. Unfortunately, in any area vast majority of people who live there need jobs to pay their way and most jobs are service jobs with modest wages. The 2005 Census Survey data are out and most “Location” areas in Californica are losing population. What the graphics show are that the coastal “Location” areas are losing population and the inland areas within Californica are gaining population. Also, there is a net emigration of population from Californica to other states (immigrants from other countries, notably Mexico, do keep the overall population rising).

One of the “Location” areas, City of San Clemente, late Pres. Nixon’s hangout, is going to have 4,000 more homes by 2008 in one development with homes costing a total of $6B, in “a wave of housing developments,” reports L.A. Times. As I was reading the article in the paper version, my 3-year old grandson was impressed with the beautiful pictures and wants me to take him there. Here is a table of historical median prices for San Clemente from the same article:

1990 $300,000
1995 $230,000 *** (a drop of 23%, but from the peak to trough it was more like 30%+)
2000 $401,000
2004 $785,000
2005 $855,000

In 2005, less than 400 homes were built in San Clemente, but the supply will skyrocket over the next 2-3 years. With almost all coastal areas in Californica losing population, and we can be certain that the reason is high home prices, it is a sure bet that prices will plummet when the “wave of housing developments” has run its course.

4. There Will Not be a Spring Bounce In Santa Clara County

I monitor the Single Family Existing Home Sales market in Santa Clara County on a regular basis to get an idea of the status of the Housing Bubble in Californica. My thesis is that the primary source for high home prices in Santa Clara County, home to Silly.con Valley, and few other areas, such as, Fanta Barbie, is the Fraud Money from Scam Options. At the beginning of the year there was a significant injection of the Fraud Money in SCC, thanks to some le’s (Google, Apple). As I had expected, there was an uptick in the median price of pending sales during February (which should show up in the March report when these escrows close), but there is no follow thru and the median pending sales price has come down significantly, 4-5%, over the last four weeks. Thus, after an uptick in the price in the March report there will be a decline in the April report. I expect that when the June report comes out, the YoY price change for SCC will be negative. God forbid, if the Scam Market goes down and the recession begins, the YoY price decline for SCC by August-September could be 10% or more. Those who prosper by the Fraud…

The old song, “Californiaaaaa, here I come,” will soon be replaced by “bye, bye, Californicaaaaa,” as high home prices drive people to cheaper pastures.