February 4, 2005

Inside Veritas -
Article 1 - Exhibitors' Night: Event grows each year; expect 40+ displays
Article 2 -Housing Opportunity Index Highlights Price to Income Disparity
Article 3 - Existing Market Activity
Article 4 - Taxation and Finance:‘04 Tax Bills: Breaks for Individuals
Article 5 - "Top 10's" Regional Market Share
Association News Update From Laura
Economic Update - State Hits Jobs' Milestone
BS: Still about Nothing in particular
Housing Industry Update
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Exhibitors’ Night: Event grows each year; expect 40+ displays

At its inception 9 years ago, “Exhibitors’ Night” has been the most highly attended “member” event on the
association’s calendar, and it’s drawn an average of 245 since moving to it’s current site at Bonaparte’s. This
year’s February 16th evening should be no exception, as we’re currently set with 36 exhibitors, a number that
has been growing daily.
This event takes on special significance in 2005, as we’re nearing the likely imposition of the new “Energy
Code.” A number of exhibitors will be showing products and information that can help with compliance. And,
attendees will have the opportunity to find new products and services that have recently become available.
Exhibitors’ Night begins early (4:00 pm) and runs to 7:00. As always, it includes a special buffet (Brats;
burgers; pizza) along with complimentary beverages (beer, wine soft drinks) and, of course prize drawings.
So, plan to attend, and RSVP by next Thursday (Feb. 10th) at 810-603-2200.

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Housing Opportunity Index Highlights Price to Income Disparity

The last time NAHB published its quarterly Housing Opportunity Index (HOI), the Flint area was the 125th most
affordable area in the nation; 38th in the Midwest. That was summer of 2002, covering that year's 1st quarter.
Last month it renewed the HOI with the release of its 3rd quarter index for ‘04, and Flint had jumped to 26th
nationally; 19th regionally. Unfortunately, the area’s "improvement" provided little to cheer about as it was
based, almost solely on stagnant house prices.
In '02's first quarter, the median price of an existing home locally was $124,000 while the median household
income was $55,600. Due to the fact that there were so many high priced homes selling in the area, only 66.5%
of those sold during the quarter were considered "affordable" to the median income family.
From July to October this year, the median family income declined to $55,200. However, the median price of
existing homes sold had only risen to $129,000 (just 4% in 2 1/2 years). Furthermore, it's apparent that a
smaller percent of homes sold were in the higher price range, since 79.9% of sales were considered "affordable" to the median income family.
"Detroit's" ranking went from 122nd to 46th during the period, as its its median price was up just $1,000 over the 30 month period, while its median income fell from $69,900 to $66,800.
To put that in perspective, in the 160 plus metro areas the HOI covers, the median family’s income rose from $54,400 to $57,500 (5.7%), as home price levels jumped from $160,000 to $225,000 (40.6%).
While the share of homes considered “affordable” to the median income family in the Flint area rose 13.4% over the two & a half years, the national share declined 14.4%, as only 50.4% of the homes sold in the third quarter of ‘04 were considered right for a family with income of $57,500. And, the percentage would have fallen even more dramatically had it not been for a 1.25% reduction in mortgage rates by last fall.
So, while Michigan’s income has remained stagnant, it’s lack of demand has kept prices in line. Not so in the rest of the nation; particularly in our major metro areas. As you can see in both charts, prices have risen dramatically over the past five (and 2 1/2) years, in nearly all major metros, but income, with the exception of Philadelphia and Boston (ironically the Super Bowl cities), has declined**. As prices in Washington were up 62.5%; in New York up 68%; in Los Angeles up 124%; and in Chicago 35%; incomes were declining 7%; 13%; 3%; and 8% respectively.
So, it’s little wonder that the median income family in L.A. can afford 6% of all homes sold; or that average New Yorkers could afford 12.9%.
Now, the question begs, with the lack of high wage job creation, who will be able to buy existing homes in metro areas at their price levels? The question epitomizes the “bubble” theory that’s dogged housing for the past 3 years. But now, those price expectations are up 40% or more, while income’s, in many cases below it's level at the time the theory emerged.

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Existing Market Activity

Sales remained exceptional for existing homes in December. While the 6.69 million rate was below the three previous months, it was enough to raise the annual level to 6.675 million (beating ‘03 record by 9.4%).
What we found fascinating in the year end data is that homes sold at an unbelievable 6.767 million unit rate since the end of April, nearly 11% above that all time record.
The National Assoc. of Realtors also reported the median price for ‘04 was at $184,100, up 8.3%, which happened to be the strongest gain since 1980. Michigan and local sales were not reported by this morning.

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Taxation and Finance:‘04 Tax Bills: Breaks for Individuals
by Rachor; Purman & Tucker CPAs

 There have been important new tax laws that have passed Congress during this fall's pre-election period. Two major tax laws have been approved: the Working Families Tax Relief Act of 2004 and the American Jobs Creation Act of 2004 . Both new acts have important effects on your personal tax return. They also affect many individuals as small business owners and as investors in multinational corporations. This letter outlines the changes that impact your personal tax situation and recommends some initial steps that you might take to maximize your tax benefits.

Working Families Tax Relief Act - ’04

Child credit. Parents of children under 17 can continue to claim a $1,000 child tax credit for every child through 2010. Without the new law, the child credit would have dropped to $700 per child in 2005.

Marriage penalty relief. Married taxpayers filing jointly will continue to benefit from full marriage penalty relief. Through 2010, joint filers will pay tax at double that of single filers for the 15 percent rate. For 2005, this means having the high end of the 15 percent tax bracket pegged at $59,400, rather than $53,450. The change in the standard deduction for married couples filing jointly is equally as dramatic, $10,000 in ‘05 instead of $8,700.
The 10% tax bracket's upper limit for married taxpayers filing jointly stays at $14,000 ($14,600 inflation indexed) for 2005 rather than dropping to $12,000. For single taxpayers, it stays at $7,000 rather than dropping to $6,000.

American Jobs Creation Act of 2004

If you run a small business, many benefits in this new law will show up on personal tax returns. A broad-reaching manufacturers deduction (even reaching service-intensive businesses), S corporation reform helping family businesses, and an extended accelerated "Section 179 expensing" deduction are among the more important small business provisions. Farmers also share in additional tax breaks.

Coming In January: Several notable provisions in the Families’ Tax Relief Act of 2004 will have a direct impact on individual tax returns. In next month’s issue we’ll take a look at the changes in deductions for vehicle donations, SUV purchases incentives and, the provision that allows for “Sales Tax” deductions (as an alternative to deducting state and local income taxes).

"Top 10's" Regional Market Share

Last month’s commentary related to a prediction from the President of a national building company that the 10 largest builders would control 40% of the new housing market by 2010. The piece also quoted a Realty Times article stating the
ten largest companies saw their collective share of the market rise from 11% in 1997 to 23% in 2003. But, what about the local market? Well, following the release of Housing Consultants’ data for 2004, and comparing their annual reports since 2000, we find that Southeast Michigan is quite similar to the nation as a whole, with large companies increasing their market share by dramatic numbers.
We found that building activity (excluding rental units) in the 9 county region is up 3,583 units (17.2%) from ‘00 to ‘04 (to 24,359). But what’s most notable regarding the rise is what companies are gaining from the rise.
The ten largest builders in the region saw their collective share rise 2,835 units or 83.6% of the total increase, as their share jumped from 16.3% to 25.6%.
While the companies making up the 10 largest builders vary slightly each year, their percent of the market continues upward. And, we’ll bet that, when we see the complete report, we’ll find #11 to #15’s increase covered the remainder of the difference between 2000 and ‘04.

Beyond Seinfeld: It’s still about "Nothing" in particular

Super Bowl “Patriots” Michigan’s Team?
Well, at least it’s the closest we’re likely to come to having one in a while?
We couldn’t help notice the Patriots’ send-off from Logan Airport this past
Sunday, as two time Super Bowl MVP Tom Brady was talking to the crowd, with Mass.
Governor Mitt Romney standing next to him. One couldn’t help but note the success
of these former “Wolverines” in their adopted “Bay” state. But more notably, we
had to compare their respective successes with the former “West Coasters” in their
respective Michigan positions.
After all, how long do you think it will take California’s Jennifer Granholm to
lead Romney’s former state back to prosperity? Probably as long as it will take
Oregon’s Joey Harrington to lead the Lions to the Super Bowl.

Viagra for a Healthy Heart?

Those who buy “Playboy” merely for the “articles,” may soon be able to buy
“Viagra” for a “healthier heart.” A Wall Street Journal article noted the little
blue pill that made Bob Dole famous, when given to mice with enlarged hearts “not
only halted the growth of heart tissue, but improved heart function.”

Privatization evokes humorous dialogue

The Flint Journal’s letters to the editor have had some interesting entries in
recent times, particularly in regard to Graun Blanche’s Wal-Mart. However, we have
to not a couple written on the privatization of social security.
First came the following from Richard Peasel: “Just think, if I’d been allowed
to invest my social security in that “shaky & corrupt” Wall Street, “I could be
moving into Bill Gates’ neighborhood instead of spending my autumn years in this
Wal-Mart town called Grand Blanc.”
Peasel’s was followed by one from Randall Johnson noting that if he would have
been able to invest his social security dollars as a young man, it would have been
invested in “Anheuser Busch.”

"Seinfeld" Briefs:

The most popular speaker speaker at a Palo Alto middle school’s “career day,”
William Fried, told students that “stripping & exotic dancing” can pay more than
$250,000 per year, depending on their “bust size.” ... Now, with the Super Bowl
coming Sunday, no hockey, and College Basketball turned to a venue for a bunch of
kids not good enough to go to the NBA, we were wondering what could Americans focus
on over the next few months. Well, we’ve got Michael Jackson’s trial, with 1,100
reporters on hand to report word by word testimony for the next 6 months. A great
country or what?

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Association News and Events by Laura

  

New Members' Applications Received Lambert Building Co. LLC Ed Lambert Sponsor: Tim Glavin DaVinci Homes David Vitale Sponsor: Mike Dean October Capital Group Bret Keefe/Steve Munkres Sponsor: Scott Sutherland Centex Homes Melissa Cervin Sponsor: Don Breznau Carter Lumber Tony Stoike Sponsor: Ed Pinkelman Welcome New Members ! * Lots For Sale * Walnut Creek Meadows #47 $44,900 190 x 200 #48 $47,900 211 x 150 x 460 #51 $37,900 110 x 189 #54 $45,000 210 x 230 #55 $45,000 213 x 230 #58 $39,900 irregular #62 $36,900 100 x 164 New Phase Coming Spring 2005 16 Lots available For Further information call: HRC Building Company (810)-733-5959

Energy Code Compliance sessions have been held at the association office since the beginning of the month. With a capacity of 24 builders, yesterday’s was full shortly after it was scheduled, so we added two for Tuesday, February 8th. While one session’s filled, we still have openings for that day’s second session, beginning at 5:00 p.m. So, call the office ASAP to reserve your spot!!! Remember, we’ve filled two sessions already. These sessions are conducted by Tim Ballard of “Dow Building,” and have tempered the belief that the new code will be a complete disaster. However, that said, we’re still hopeful the Michigan Association of Home Builders will be successful in obtaining injunctive relief prior to the code’s effective date of February 28th! Parade Builders: Contracts were mailed out in January for the Spring Parade that will open Saturday, May 7th (day before Mothers’ Day), and the February 16th first deadline is fast approaching. After that date, the entry fee rises to $2,900. If you haven’t received your contract and plan to participate, please call the office ASAP. Furthermore, Housing Quarterly magazine advertising contracts were also sent (to previous advertisers) ... and, again, we urge advertisers (particularly those who want full color) to respond at their earliest convenience. Finally, we’re putting finishing touches on the 2005 Directory ... look for it in the mail prior to Exhibitors’ Night.

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Economic Update: State Hits Jobs’ Milestone?

On January 13th we posted the following on our web site: “We don't know how the traditional media missed this, but the Labor Department's preliminary employment report for November showed Michigan with 704,900 jobs in Government, while 702,000 were in manufacturing.” Think of it! In the state where manufacturing has been “king,” the taxpayers were funding more jobs than manufacturers.
To put these numbers in perspective, in November '98 there were 212,000 more jobs in manufacturing than Government; in ‘00 the difference was down to 181,000; but by a year ago, the difference was just 13,000.”
While, the final report cut the number of Government jobs’ slightly, it slashed “Manufacturing” jobs to 699,300, so the “milestone” held.
Now, before you start thinking that Government has had some tremendous hiring spurt, we need to point out that sector employment is only up 2.6%, or 18,000 jobs during the period. The bigger problem relates to manufacturing, where
197,000 jobs (21.9%) followed the yellow brick road off to OZ in the six year These findings remind us of our governor's comment a couple months back (during an announcement that a new plant would RETAIN 350 jobs), that Michigan has
"manufacturing in its blood." Well, we now have to wonder if, perhaps, government's crowding it out?
(Note: Preliminary numbers for December had Manufacturing back ahead, as Gov. jobs historically fall at year’s end)

Economic Growth - 2004
On Friday the Commerce Department released its first estimate of 4th Quarter Gross Domestic Product, which showed growth of 3.1%, below analysts’ forecasts (not to mention the 3rd quarter’s 4%). However, it also meant GDP rose 4.4% for the year, the highest since ‘99, suggesting growth is continuing to pick-up its rate at roughly 1% annually since the “recession” in 2001. About the only problem noted in the report related to the trade deficit, as exports fell 4% and imports rose 9%, shaving 1.73% off 4th quarter growth. Of course, the quarter’s growth will be revised twice, with the 1st scheduled for February 25.
On a housing related note, the report said residential investment rose 0.3% in the 4th, down from 1.6% in the third.

Manufacturing growth continued, but at a slower rate, in January according to the Institute for Supply Management’s monthly index. Still, the nation’s manufacturing sector grew for the 39th consecutive month. Furthermore, its
employment index was up for the 15th consecutive month, and was even growing at a faster pace than in previous reports. However, more important is that the employment index’ continued strength is finally showing up in the Labor Department’s Jobs’ data. December was the 6th consecutive month showing actual manufacturing jobs on the rise, following 47 consecutive months of decline!

Auto Sales experienced a rather soft kick-off to the new year as January sales were 5.3% below the 1st month of ‘04. While the industry was off as a whole, Japan’s “Big 3” continued to narrow their gap with GM, Ford & DCX (from 33.9% to 31.1%).

Surprise, Health Costs Spur Bankruptcy: — A study published in Health Affairs said that half of all U.S. bankruptcies are caused by medical bills and (get this) most people sent into debt by illness are “middle class workers with health insurance.

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Housing Activity Update:

Housing records at All Levels in ‘04

With all the preliminary data for last year’s housing activity reported by Monday morning, we can now declare
what was evident since early summer: Housing set records across the board (and, somewhat surprisingly, in
S.E. Michigan as well). In fact, Housing Consultants reported ‘04 as the “biggest year since it began publishing
(12 years ago).”
Consider the following: While existing homes sales surpassed ‘03’s record by 9.4%, new homes sold 8.9% faster than their all time record, also set in '03. And were smashing their record set last year by 7.3%, total housing starts set a
modern day (post ‘80 recession) record, by 5.6%.
Even locally we set a modern day record, though the data represent the 3rd time in the past 6 years we surpassed the 2,000 barrier for single family & condo permits. However, despite the record year in southeast Michigan, the state, as
a whole, was slightly below its late ‘90s level.
From a national perspective, we see how new housing starts and sales have continued upward, after their retreat from ‘99’s record (chart at left). With nearly 1.61 million starts in ‘04, single family activity’s climbed 23.4% in the 21st Century while recorded sales are up 34.3% over the same period.
If there’s any negative news nationally, it’s in the past two months’ sales rate, which (as is evident in the chart to the left) is well below the year’s average, and lower than any month except July (when mortgage rates spiked above 6%).

Michigan; Genesee County
There was little notable about statewide activity, despite problems evident with the economy. Census data has the numbers at 44,780 for single family permits, nearly identical to 2003’s. And we already noted Housing Consultants’ statement about the strongest regional numbers in their 12 years (however, on a special note, you may want to take a look at the large builders market share See Article 5).
So, let’s look directly at Genesee County where preliminary reports suggest the most permits since the early ‘70s. What we find interesting is that the 2 historical leaders in permit activity were well below expected levels. Grand Blanc Township, while still authorizing the most homes, was at 316, its lowest level since 2000. And Fenton Township was at 164, its lowest total since 1995.
Unfortunately, neither community is likely to be upset about their declining numbers (at least until a resulting budget deficit occurs).
Picking up the slack was Davison Township (its 207 single family and condo beat its previous high by 35), Genesee Township (where a developer decided his 46 apartment units were more marketable as condos), Flint (54 units with a new
phase of University Park opening to the public), and Mundy Township, keeping up its record pace of 2003 with 244 units.
In all, it appears there were 2,080 new homes built for owner occupation last year, slightly above the ‘99 and ‘03 levels, which were the previous modern day highs. And, despite the lower numbers in Fenton and Grand Blanc Townships, the
areas within their borders (including the cities of Fenton, Grand Blanc, and Linden) were responsible for a total of roughly 650 units, or 31.25% of the county’s total activity.

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