May 12, 2005

Inside Veritas -
Article 1 - Parade Kicks Off with Sunny Skies; Great Attendance
Article 2 - Taxation and Finance - Commuting Expense
Article 3 - Existing Market Activity
Article 4 - New Housing Activity
Article 5 - Mortgage Rate Activity
Association News Update From Laura
Economic Update - Growth Slows; Sales Soar
BS: Still about Nothing in particular
Housing Industry Update
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Parade Kicks Off with Sunny Skies; Great
Attendance

When the Parade of Homes opened last week, with the largest number of participants since 1999, we noted the
total value of the 46 homes was roughly $17 million. What we can’t help but recall is that, the total value of all
single family homes built in Genesee County in 1982 was approximately $14.3 million.
We make this point, not just because it’s a reminder of how dramatically the industry’s progressed from those
dismal days of the ‘80s, but also to show just how significant the impact of housing value is to the community.
After all, the local media collectively get excited when a new commercial project adds a couple million to the
county’s tax base (especially when those taxes are abated).
Anyway, the homes in this year’s event ranged in price from the mid $140,000s to just under $1 million; and in
size from just over 1,200 square feet to 5,400.
And, as we’ve found over the years, the Parade provides a image of the industry at a given period, showing
what’s in demand in the Flint area. Some of the highlights/trends notable in this event include:

· Seven new developments that opened in the past six months;
· Energy efficiency, including four homes with the “Energy Star” Partner/Builder rating;
· An upscale home designed as an “Empty Nester” complete with Movie Theater;
· A uniquely designed home on a challenging (37 foot) lake Fenton lot;
· The extensive use of granite for kitchen counter tops in homes of all ranges of price;
· Increased use of basements as living areas (high ceilings; walk-outs; daylight windows).

Another point relates to the categories for judging, now classified by price. This year, the least expensive category,
went to $219,900.
The Parade kicked off with a great weekend (both weather and attendance wise) and will continue through May 22. Hours remain; Noon to 6 on weekends; 5 to 8 p.m. on Thursdays & Fridays.

Parade Award Winners
Platinum - Gold - Silver In Order
(Home Number)

Prism - $145,000 to $215,000
Horizon Homes (# 5)
HRC Building (# 3)
SonRise Homes (# 11)

Aurora - $219,900 to $275,000
Mallard Ponds (# 12)
Riley Construction (# 9)
Hometown Bldg (# 34)

Paragon - $295,000 to $375,000
SonRise Homes (# 23)
Fischhaber Builders (# 27)
The Building Co. (# 22)

Pinnacle - $376,900 to $479,900
Lausman Homes (# 8)
Weir Bldg. Company (# 36)
Vantage Homes (# 42)

Summit - Over $500,000
Simoni Custom Builders (# 26)
Blesco Bldg & Development (# 28)

We congratulate all, and thank Republic Bank, who’s sponsored the awards and procured the Judges for more than a decade.
And, as a final Parade note, we want to remind any builder wishing to participate this fall to keep the deadlines in mind ... we had six builders that wanted in the spring event past the deadline but couldn’t accommodate. We anticipate sending the contracts out in late June!

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Taxation and Finance by Rachor, Purman & Tucker CPAs
Commuting Expense: Taxpayers with home Office

If you maintain your office in your home, you may be entitled to a special tax break on your commuting costs. For most people, the cost of daily travel between home and a regular work location is a nondeductible commuting expense. However, taxpayers who have an office at home can deduct the daily costs of travel between home and another work location in the same business, regardless of distance and regardless of whether the other location is regular or temporary.

Note that you get this break only if your home is your principal place of business. In other words, you must meet the tests for deducting expenses of an office at home. Please call a tax professional if you aren't familiar with those tests.

You must be able to substantiate the auto expenses that you claim through adequate records, such as a log or diary. You can either use the standard mileage rate or deduct your actual expenses.

If you are an employee and your employer reimburses your travel expenses, you needn't report the reimbursements as income if they are made under a so-called "accountable plan." An accountable plan is one that reimburses only deductible
business expenses, requires you to substantiate your expenses, and requires you to return amounts in excess of your substantiated expenses.

If the plan is not an accountable plan, the reimbursement must be reported as income, and your deductible expenses must be claimed as employee business expenses.

If your office at home isn't your principal place of business, the costs of travel between your home and the first and last business stops of the day are nondeductible commuting expenses. However, the costs of going between home and a
temporary work location are deductible, if you have a regular work location away from home. Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a
year.

If you have any questions as to whether or not you’re entitled to deduct your job-related travel expenses, please call your tax advisor.

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Existing Market Activity

While it seems like a broken record, existing home sales rose “to near record levels in March,” said the National Association of Realtors, selling at an annual rate of 6.89 million units. The March numbers provided the 3rd highest level,
and were nearly 5% above a year earlier. The “Realtors” also reported the “median price” was up to $195,000, or 11.4% above the median a year earlier.
Midwest existing home sales activity nearly mirrored the nation’s in scope, with sales up 3.3% and prices up 11.2%, to $159,000.
In another report, the Realtors said housing affordability rose again in the first quarter, but remained 8.3 points below last year’s first quarter. However, one must remember national data often don’t relate to local metropolitan data, where price rises have been met by falling incomes.

Regarding state & local:
The “glitch” we noted in April may not have been a “glitch” at all, since Flint area prices continue to show a major decline in the first quarter. As you can see below, while Michigan’s prices are up slightly in comparison to 2004’s first quarter, “Flint’s” are down roughly $40,000 (31%), on sales that are actually up 13.4%. And, “Flint” wasn’t alone, as 12 of 40 local Realtors’ associations reported a decline in price.
So, at the end of this month it will be interesting to see the Government’s House Price Index for Flint, Michigan, etc.

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New Housing Activity

“Sales of new single-family homes ‘shook off’ a weather-related downturn in January as the February sales pace rose 9.4% to a seasonally adjusted rate of 1.226 million units,” is how we opened this column last month. Well, that was “nothing” in comparison to the following month, with sales breaking all records, rising another 12.2% to a seasonally adjusted rate of 1.43 million units. The record rate took the first quarter average to 1.295 million, well above last year’s 12 month record of just under 1.19 million (see low-er right). Furthermore, the department revised its data upward for January & February.
However, since we put little credence in early monthly data because of weather, the March record isn’t (necessarily) impressive. What is impressive are the 1st quarter data (which normally irons out weather and code change distortions)
showing sales up 9.2% over 2004’s record pace.
The Commerce Department also revised its February housing starts’ rate up dramatically, to an all time high of 1.8 million single family units. So, it was hardly a surprise when March starts showed a sharp decline, (14.4%) which made good fodder for headline writers. However, the 1.44 million unit single family rate in March made for an exceptional 1st quarter, with single family starts up 3.8% in comparison to 2004.
However, with that said, there is a concern: In recent months we’ve focused on the rising per cent of sales in comparison to starts (as “sales” only relate to instances where the home and lot are included). We’ve noted how 63% of all starts registered as sales in the ‘90s, while the number’s steadily climbed to 74% in ‘04. Well, the rate’s up 4.2% for this year’s 1st quarter, suggesting an even larger market share for the builder/developer.

Local/Regional Activity
Again, anything we write here has to be tempered by the fact that a large number of February permits were pulled to avoid the proposed energy code. Which is why we’re concerned that the state is up just 3.3% (280 units), and the region
is down 5.7%.
However, Genesee County’s non-rental activity is up a solid 39% year to date, with Mundy, Davison and Burton leading the way. The problem? Genesee was up 60% through February.

Mortgage Rate Activity

A month ago we wrote: “While rates had been rising (due to the fear of inflation’s impact on the bond market)
associations of mortgage bankers and realtors have been suggesting the 6.65% range by year’s end. However, for a variety of reasons, we could be looking at a replay of ‘04 with rates returning to early year levels by late summer. “
And, we elaborated in Housing Quarterly. Well, at this juncture, there’s no reason to alter our position.

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

New Tax for “Fat;” High Tax City?

Several months ago, when Detroit was named one of the nation’s “fattest cities,” we noted that it’s mayor set the perfect image. However, more often, we’ve mocked Detroit for its high taxes (property and income). Well, now the two come together as Mayor (Kwame) Kilpatrick wants to add a 2% tax on orders at the city’s “fast food” restaurants.
In other words, a $2.99 “happy meal” would bring the city an additional 6 cents. Of course, municipalities are constitutionally limited (which Mr. Kilpatrick is probably unaware of) and aren’t entitled to a sales’ tax of any type (then again, the state needed a public vote on two cigarette taxes and never took one). But, despite all his highly publicized problems, and being recently included on “Time” magazines “worst mayors” list, we applaud Mr. Kilpatrick for being politically astute enough to pick a target that would, at least, insulate him from further favoritism accusations.


Paula: Payback for Nanny/Wife Swap?
Practicing politicians have been taught to refrain from picking a fight with anyone who buys “ink by the barrel.” The point is, fighting with the press is like “taking a knife to a gun fight.” Well, TV networks probably should take note and
refrain from picking on entities with equal (or stronger) capabilities.
So, while America shifted its focus from the Michael Jackson trial to the“American Idol” scandal (former contestant Corey Clark’s claim that he was aided by “Idol” Judge Paula Abdul, and the subsequent affair) we, at Veritas, had to focus on what brought it to light: ABC News’ “Primetime Live.” After all, we seem to recall the Disney Network’s fury with FOX over stealing such brilliant entertainment concepts as swapping wives and nannies for unruly kids. So, could this targeting the FOX network’s top show be a “payback?”
Perhaps! Or, in the age of Mary Kay Letourneau, it is possible the aging Ms. Abdul is looking at a new career as a secondary school teacher.

“Seinfeld” Brief:

Want to live like the rich and famous, while avoiding taxes? Flint’s “Uptown Development” group is building 8 “loft apartments” at an estimated cost of $6.2 million at First & Saginaw. You do the math! Is it any wonder they’re supposedly
already rented. And, they likely have renaissance zone tax benefits.

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Association News and Events by Laura

New Members' Applications Received Procrete Services Corp Jody Emert Sponsor: Kathy White Blessing Plumbing & Heating Lou Blessing/Linda Carlson Sponsor: Mike Conn Remax Grande John Myers Sponsor: Mike Conn Lang Construction Norm Lang Sponsor: Dave Crawford Welcome New Members !!

!!!Golf Outing!!! We’ll begin reserving foursomes for the August 8th event on June 1st ... We’re returning to Flushing Country Club; holding the price at $100, with all the prizes, contests, etc. that have made the event a sellout for the past eight years. Call the office on June 1st at 810-603-2200 to reserve.

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Economic Update: Growth Slows; Sales Soar


No wonder the financial markets are so skittish. There’s virtually no sense to be made of the economic reports that keep hitting our computer screens and airwaves. As this column was written we received word that oil price fell below $49 per barrel. Two days ago they approached $54 (thought OPECs target was $28). And, this morning, as Wal-Mart’s sales were down, the Commerce Department reported Retail sales rose at nearly triple the forecast rate. Manufacturing employment continues to fall, while the manufacturers’ employment index continues to show growth.
Even the housing data confuse the markets (and the business press). As starts fell dramatically, sales were hitting a new all time record. And, regarding mortgage rates, all the “expert” forecasts, so far, have been out of whack (see charts at left) as the bond market continues to snub the Federal Reserve’s inflation fears, as the stock markets remain fearful that the economy’s strength is being sapped.
Which brings us to the growth report for the first quarter. The Department of Commerce first estimate showed Gross Domestic Product slowing to a rate of 3.1%, the slowest since the first quarter of 2003, which spooked the markets on April 28th. But, in reality, it should have calmed the markets, since price levels were the primary concern (at least prior to
the growth report).
However, perhaps the most notable report came this morning, with “Retail Sales” jumping 1.4% in April, its strongest showing since September. Sales were led by autos, up 2.5% which, in most cases, would appear to provide good news for the state and local economy. However, state and local producers really didn’t do too well, as GM and Ford continued to lose market share to the Japanese. Retail sales had been forecast to rise roughly 0.4%.



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Housing Activity Update:

Record Jump in Metro Prices; Affordability

This morning brought the release of the Realtors’ quarter report on metropolitan house prices for the first quarter, and while there were few minor surprises, little in the report was unexpected. However, it is notable that 49% of the 136 metro areas covered experienced double digit median price increases, while the nationwide rise was 9.7%, bringing the 1st quarter metro median to $188,800. We’d also point out that Las Vegas’ price increases declined dramatically, to a “mild” 29.4% rise over the past year, well below its 4th quarter figure of 47.3%.
What’s most interesting about the first quarter’s prices can be noted in one word, “FLORIDA.” Obviously, the cold winter had many searching the “Sunshine State” for homes, driving up prices in Bradenton by 45.6%; 36% in W. Palm Beach; 36% in Sarasota; 29% in Orlando; Melbourne had 29%; Miami - 28.4%; etc. etc. etc. — In all, there were 12 Florida metros with prices rising over 25% in the past year.
Of course, price levels can be misleading (but probably not in Fla), so it will be most interesting to compare the increases in price with the actual Price Index by the Office of Federal Housing Enterprise Oversight that’s due out June 1st.
However, regarding Florida’s situation, we’ve been told by many of our “mutual” residents that the speculation has gone out of control over the past year, with lot prices, in some areas, actually bringing 1,000% (no typo) than they did a year earlier. The state could, in the relatively near future, experience an unusual bubble, where new home prices are actually less expensive than existing homes, as way to many of those existing home owners will have paid far more than the home can be reproduced for.
Watch this one!

# # #

A report out Monday told the percentage of Californians (we won’t write in its gubernatorial accent) that could afford a median priced home stood at 18% in March, a 3% decrease from 12 months earlier, according to the California Association of Realtors. Over that period, the median price of a “Golden State” home rose $68,000, to $495,400, requiring an income of $115,910 (more than double the state’s median household). And, the $115,900 income is only good if the buyer has $100,000 for the standard down payment.

# # #

The average one-way commute in the U.S. took 23.4 minutes in 2003, which was two minutes longer than in 1990, according to a Census Bureau release at the end of March. And, as would be expected, the findings brought a few new stories about the evils of “sprawl” and waste of resources. However, from a realistic perspective, we find that today’s
commute, particularly in Michigan and our region, fares quite well.
While Michigan’s average commute (22.7 minutes) is lower than the national average, it’s shorter than other highly populated states, with the exception of Ohio (where Monroe Co. residents commute to work). It’s ranking (26th) is well below Pennsylvania and Texas (#s 15 & 16), and its average is only 36 seconds longer than Ohio.
The state’s longest commutes are in the three Southeastern counties (Oakland; Genesee and Macomb) which are all well below the commute in comparable metro areas.
There are 29 counties with commutes that average more than a half hour and, it’s hardly a surprise NY City commutes average over 40 minutes.
Of the 233 highly populated counties surveyed, our 3 local counties ranked 88th, 91st and 92nd respectively. Kent County (Grand Rapids) had the highest ranking in Michigan at # 215, with an average of 18.9 minutes.
(Fortunately, normal commute time, not construction season, was surveyed)



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