IS THERE BLOOD IN WATER?  by Bill Swift

THE APPRAISER AND THE "FEAR FACTOR"  by Victor Villalba

STRUCTURING YOUR 2 TO 4 UNIT DEAL  by Ted Grose

IS THERE BLOOD IN WATER?

By Bill Swift
Wiest Realty & Mortgage Co., Inc.

    Doom and gloom reports are everywhere.  Are buyers waiting for a feeding frenzy?  Although activity has slowed, investment property Armageddon did not arrive.  It looks like your 3rd quarter arms and legs were reasonably safe from attacks of killer buyers. (Figure 1)

    The following chart (Figure 2) depicts average prices per unit in Apple Valley, Hesperia, and Victorville.  These trends are based on the gross sales volume of properties sold divided by total number of units sold.  Note that prior newsletters were based on the average price per unit of each sale divided by the number of properties sold.  The data omits properties in commercial zones and 2 to 4 unit sales on lots of over 1.75 acres.

Figure 1	Figure 2

    After sustained increases in prices since 2005, the data is suggesting a moderate correction as shown below.  However, 3rd quarter ’06 prices are still above 1st ‘06 quarter levels.

Average Price Per Unit (Gross Sales/Total Units) Period Apple Valley Hesperia Victorville 1Q ‘05 $106,419 $114,476 $109,548 2Q ‘05 $111,219 $113,354 $104,947 3Q ‘05 $124,963 $125,152 $107,167 4Q ‘05 $136,574 $122,676 $100,200 1Q ‘06 $140,790 $126,979 $119,844 2Q ‘06 $146,207 $144,941 $107,580 3Q ‘06 $141,643 $142,414 $135,343

Average Price/BR (Gross Sales/Total # of BR's) Period Apple Valley Hesperia Victorville 1Q ‘05 $50,754 $51,149 $54,774 2Q ‘05 $57,086 $61,400 $56,971 3Q ‘05 $63,353 $61,642 $64,300 4Q ‘05 $69,471 $61,338 $60,120 1Q ‘06 $66,219 $66,978 $63,917 2Q ‘06 $74,704 $74,667 $76,843 3Q ‘06 $73,993 $70,000 $67,672

    The data samples for Victorville and Hesperia are small and are therefore subject to greater error.

Change in Price/Unit Period Apple Valley Hesperia Victorville 3Q ‘05 to 4Q ‘05 9.29% -1.98% -6.50% 4Q ‘05 to 1Q ‘06 3.09% 3.51% 19.60% 1Q ‘06 to 2Q ‘06 3.85% 14.15% -10.23% 2Q ‘06 to 3Q ‘06 -3.12% -1.74% 25.81%

Change in Price/Bedroom (BR) Period Apple Valley Hesperia Victorville 3Q ‘05 to 4Q ‘05 9.66% -0.49% -6.50% 4Q ‘05 to 1Q ‘06 -4.68% 9.20% 6.32% 1Q ‘06 to 2Q ‘06 12.81% 11.48% 20.22% 2Q ‘06 to 3Q ‘06 -0.95% -6.25% -11.93%

    Some softness was apparent in the 5+ unit market regarding gross income multipliers (That’s the sale price divided by the gross income of the property).  This chart is based on the average GIM of each project divided by the number of projects available.  It appears higher prevailing interest rates during the 2nd quarter of 2006 and most of the 3rd quarter of 2006 dampened demand while the number of available 5+ unit properties rose.

City	Avg GIM of sold projects for all of ‘06	Avg list price GIM at end of 2nd Qtr ‘06	Avg list price GIM at end of 3rd Qtr ‘06
Adelanto	11.89	10.82	10.90
Apple Valley	13.44	13.82	13.26
Hesperia	12.15	13.16	14.37
Victorville	13.29	13.02	13.84

    The data suggests the flat multipliers may have contributed to a rise is sales activity.  This chart (Figure 3) represents closings for 5+ unit projects in Adelanto, Apple Valley, Hesperia, and Victorville as a group.

Figure 3

    Sale and list prices based on average unit size show a close relationship, however, the upper end of the average unit size range appears to have softened.  The following chart (Figure 4) also applies to 5+ unit projects in Adelanto, Apple Valley, Hesperia, and Victorville as a group.

Figure 4