LOS ANGELES, May 6, 2004 (PRIMEZONE) -- World Associates, Inc. (OTCBB:WAIV) (Berlin Stock Exchange:GK5), is structured to respond swiftly to changes in the volatile California housing market. Through its wholly owned affiliate, Superior Real Estate Inc. (Superior), World puts up good quality, reasonably priced homes on lots in established residential communities and carries out the entitlement of raw land for community development. In the first quarter World implemented a low-risk, high-yield investment plan that allows individuals to participate in its Infill Housing Program at a level traditionally reserved for institutional investors.
The most recent data about the California housing market, summarized here for the benefit of shareholders and others who may have an interest in the company, reveals a serious shortage of housing at prices middle-class buyers can afford.
Market activity in the first quarter of 2004 held some surprises for area economists. According to DataQuick Information Systems, sales during the period were unusually high, and in March broke records across the state. DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler & Associates, monitors real estate activity nationwide.
Although first-quarter sales typically peak in March, projections from industry analysts at the start of 2004 did not anticipate just how high they would go. In Southern California, DataQuick reports, 32,650 homes sold in the month -- a 41.9% increase over February's very respectable total of 23,004 and 17.1% higher than the previous March. In Riverside and San Bernardino counties, March sales were higher than at any time since the company began keeping records in 1988. And the peak summer buying season is still ahead.
DataQuick President Marshall Prentice speculated that the unprecedented surge may signal a sense of urgency among buyers, fueled by the perception that interest rates may be edging up.
"We're in for a hectic summer season," he said. "There aren't enough homes for sale to meet demand."
Supply and Demand
For decades forecasters have warned that California's housing supply is shrinking. In recent months the supply of existing homes on the market has reached critical levels. Housing analysts consider ideal an inventory of six to eight months, arrived at by dividing the total number of homes on the market by the average number of sales per month. Los Angeles County's supply has slipped to about two months -- less in some areas. Long Beach reports a three-week supply in a price range considered affordable.
The state's population is projected to climb to 45.5 million by 2020. The Department of Housing & Community Development has estimated that 220,000 new homes need to be built annually in order to keep pace. Yet housing permits continue to show a downward trend in new construction, averaging only about 100,000 annually.
The depth of the shortage is in dispute. The Public Policy Institute of California (PPIC), a private, nonprofit research organization, recently announced that the housing shortfall is now at about 138,000 units, much less severe than is commonly believed. The adjustment is based on the changing demographics of population growth: a higher percentage of new residents are immigrants and children, both groups with lower than average housing needs.
"The shortage is perhaps better, and certainly not worse, than in 1990," PPIC analysts concluded.
But the California Building Industry Association (CBIA) puts the shortfall at about 500,000 units. Citing a study undertaken by Bain & Co. for the California Business Roundtable, CBIA officials laid the blame for the shortfall on the state's regulatory climate, "the most costly, complex and uncertain in the nation."
"The lack of housing supply for our workforce," CBIA President Sherman D Hamer Jr. warned, "is starting to severely undermine the stability of our economy and jobs."
Economists at the California Budget Project (CBP), a research institute focusing on the economic and social well-being of low- and middle-income Californians, echoed Hamer's fears. "Failure to address CA's affordable housing problems," they report in Locked Out 2004: California's Affordable Housing Crisis, "could further damage the health of the state's economy -- a prospect the state can ill afford."
Low supply pulls prices inexorably higher. The median price paid for a Southern California home at the end of the first quarter was $371,000, according to DataQuick -- a new record, representing a 23.3% jump from the $301,000 median price in first-quarter 2003. Previously the highest year-to-year increase, achieved in May 1989, was 22.2%. In Los Angeles County, the median price leapt to $375,000 in March -- a 29% hike in just one year.
DataQuick economist John Karevoll told the LA Times the rate of appreciation took analysts by surprise. The consensus had been that prices would hold or even ease back a bit.
As buyers rush to make deals before they are priced out of the market completely, some industry watchers are concerned that many are overextending themselves.
According to DataQuick, in March 58% of homebuyers took out adjustable-rate mortgages, which fluctuate with interest rates -- exactly twice the percentage that chose that option in March 2003. With mortgage interest rates at the end of the first quarter on the rise -- a trend that seems to be continuing into the second quarter --these buyers could find themselves unable to meet payments. On March 19, a weekly mortgage survey released by Freddie Mac reported the average rate for a 30-year fixed-rate mortgage, the industry benchmark, at 5.23, a nine-month low. A month later, it's climbed more than half a point to 5.89.
Doug Duncan, chief economist for the Mortgage Bankers Association, said unexpected signs of inflation could mean a policy change at the Federal Reserve to raise short-term interest rates sooner than expected. "This would likely spark a parallel hike in mortgage rates," he said. "If they were to move to 7.5% by the end of the year, that would cause disruptions in the home sales market, as fewer buyers would qualify." Earlier predictions had suggested the interest rate would not top 7% for three years, giving the market time to adjust.
Affordability
The dream of home ownership is slipping away from more and more Californians. The California Association of Realtors (CAR) announced in February that the statewide affordability index, which measures the percentage of households that can afford a median-priced home, has sunk to 14%. That's 6% lower than it was just a year ago.
The minimum income required to purchase a median-priced home, based on an economic yardstick that allocates 30% of income to housing costs, was $91,690. Nationally, the required income is $39,090.
In Riverside and San Bernardino counties, where salaries are rising more rapidly than in neighboring areas, CBP determined that 29.8% of homeowners pay more than 30% of their incomes for housing. And 11.8% pay more than 50%. In most of Southern California the percentages are much higher.
One reason for the widening gap is that incomes are not keeping up with housing costs. In the words of a beige paper released by the Federal Reserve Bank, 12th District - which covers California and 8 other western states -- "wage and salary increases remained restrained, while the costs of medical and worker's comp insurance premiums rose higher." Beige papers are based on anecdotal evidence.
Foreclosures.com, a California distressed property investment advisory firm, predicts the combination of falling affordability, rising interest rates and persistent unemployment will drive foreclosure activity up in 2004.
One of the more ominous patterns is the disappearance of young families from the market. According to CAR, first-time buyers - traditionally the foundation of the market - made up just 30.6% of home purchasers in California last year. And CBP points out that families headed by individuals in their 20s and 30s are much less likely to be homeowners than they were two decades ago.
In an ironic comment on affordability, the LA Times reports that an affordable housing official recently hired in Ventura County left his job when he discovered that he was unable to find housing he could afford on his $80,000 yearly salary.
World's Infill Housing Program
The urgency of California's need for reasonably priced housing demands creative solutions. Through its wholly-owned subsidiary, Superior Real Estate, World Associates is responding to that need through its innovative Infill Housing Program. Superior puts up factory-built homes on infill lots in market-tested areas where demand has proven to be strongest.
Factory-built homes, often indistinguishable from their site-built neighbors, are gaining in popularity among housing advocates because they cut time and costs. According to researcher R. Greg Reid, the industry has made "quantum leaps" in the past decade.
"The traditional lines drawn between traditionally-built and manufactured homes are now blurred," Dr. Reid says. "The manufactured housing industry is gaining a stronger foothold within the entire home construction industry itself, as well as within the consumer marketplace."
For more information about World Associates and Superior Real Estate: http://www.worldassoc.com/ or Investor Relations Investments 101, Ltd. Jeffrey A. Brommer, 336-882-8063 www.investments101.com Norvgn101@aol.com Further information on California's housing market can be found at: www.car.org www.cbia.org www.cbp.org www.ppic.org www.cmhi.com
Safe Harbor Notice:
This document contains "forward-looking statements" as provided in the Securities Act of 1933 and the Securities Exchange Act of 1934. World Associates believes that the expectations reflected in such statements are reasonable, but no assurances can be given that they will prove correct. World Associates remains exposed to risk factors that include economic conditions, availability of sufficient financing, availability of qualified personnel, regulatory requirements, competition, time-critical deadlines, title issues, liability claims, inability to get entitlements or financial commitments and others. Statements made herein do not constitute a guarantee of future corporate or stock performance.