May 14, 2004

Inside Veritas -
Article 1 - Parade Opens: Response defies weekend's stormy weather
Article 2 - Notes of Interest
Article 3 - Awesome Facility sets up “Empire” to Strike Back
Article 4 - Taxation and Finance - Audits — New IRS Audit Initiatives
Article 5 -
Association News Update From Laura
Economic Update - Jobs strong for 2nd month; Rates?
BS: Still about Nothing in particular
Housing Industry Update

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Parade Opens: Response defies weekend's stormy weather

   There was something truly fascinating in regards to this year’s “Parade of Homes” promotion. Web site traffic was “off the charts,” by the morning the event opened, literally obliterating monthly records in just the first 7 days of May. So, despite jitters due to the rain, thunder & lightning blow- ing through the county last Saturday and Sunday, the opening weekend of the ‘04 Spring Parade was destined for success. And, by six o’clock Sunday evening, few, if any, thought otherwise.
   Oh, there were some complaints. Like the “first time” participant who jokingly remarked that people were coming in before his realtor had the shoe covering “booties” ready. Or, another first timer who was exhausted by Saturday’s close, only to see traffic double on Sunday.
   We even received reports of first weekend sales (one by 1:30 p.m. Saturday), and builders running out of literature and HQ magazines prior to closing Sunday.
   Of course, the primary purpose of our “bi-annual parades” is to promote local home building, and expand the market reached by participants. And, with a drastically changing population, we have to adapt to market conditions.
   This year, we increased our freeway presence with 48 foot billboards in all directions from the intersection of I-75 and I-69. We also ran television commercials (both broadcast and cable) in the Detroit market. Furthermore, we added community newspapers to our usual purchases of Flint Journal and Detroit News/Free Press ads.
   By sticking to visual media, it was possible to draw interested parties to www.bamfhome.com/, and the results were evident immediately as billboards were posted in late April.
   However, it wasn’t until the first television commercial ran that the traffic really took off. By May 12th, nearly 71,000 pages had been viewed. To put that in perspective, the previous high for a full month was 36,392 during last year’s fall parade.
   The parade runs through May 23rd, as its 39 models are open 5 p.m. to 8 p.m. Thursday and Friday, noon to six on Saturday and Sunday.

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Notes of Interest

   Mortgage rates were just reported as we were finishing this issue, coming in at 6.34% for the average 30 year fixed loan this week (up nearly 1/4 point in the past week), and a full point since the middle of March.

# # #

   Congratulations are in store for Stuart Worthing, Clayton Township building inspector. He was the only building official to make the Journal’s list of “highest paid” officials in a municipality in Genesee County.

# # #

   Builder confidence rose strongly last month, according to the NAHB’s housing market index (HMI). It was up 5 points in the middle of the month which, was up to its level of late last year. The strongest segment of the index was anticipated sales for the next six months, scoring 76. Remember, any number above 50 means builders are more positive than negative on current and near future market conditions.

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   Awesome Facility sets up “Empire” to Strike Back

  In the classic “Star Wars,” when the “Empire” decided to intimidate the rebellion with an incredible show of force, they moved the ultimate weapon, “Death Star,” into position near the planet “Alderaan,” and blew it into oblivion. Tuesday evening, I couldn’t help but recall that incident from a long time ago, in a Galaxy far, far away, upon leaving an open house at the Flint Journal’s new production facility because, like “Death Star,” the power of the New Journal is nothing short of AWEsome.
   In the civilized sector of our Galaxy during the 21st Century, we fight our battles with words and thoughts rather than “light sabers and death rays.” And, unfortunately, in the past 18 months or so, the Journal’s editorial board has been on the opposite side of the battle line (for the first time in memory) from the Building Industry on a couple of critical issues. Or, as I noted (good naturedly, of course) a year ago, it’s been “seduced by the Dark Side!”
   So, as the Journal’s capacity to wage “modern war” has an impact on all of us, its new facility is comparable to the Empire’s “Death Star.” In fact, the show of force Tuesday evening had so strong an impact on this E.O., I was searching for the proverbial “white flag.”
   I saw presses that can print 72,000 papers an hour. Rolls of newsprint 11 miles long and 4 feet wide. 3,500 gallon vats of ink. Capacity to insert 22,000 folders per hour. All this in a 75,000 square foot, building. Value: $30 million!
Intimidating? Yes! But, in all seriousness, a phenomenal facility which I’d urge you to see ... and, suggest you take advantage of the “Open House” on May 23rd.
   Reminder: Despite the Empirical show, the righteous side of the “force” DID triumph over the “dark side,” at least in that Galaxy far, far away.

Barry

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Taxation and Finance ---- Audits — New IRS Audit Initiatives

   When you read statistics about the percentage of returns that are audited, you might feel justified in playing the odds that your business won't be among those selected by the IRS for scrutiny. But the numbers are very misleading, because the IRS is getting a lot smarter about how it chooses returns for audit and how its examiners conduct their audits.
   Over the past few years, the IRS has dramatically stepped up its efforts to study specific industries, and to educate its examiners about business practices, terminology, accounting methods, and common industry practices. It has also identified areas of inquiry that produce audit results.
   Examiners are told specifically to look out for certain red flags to get at what is really going on in a business or transaction. The result is examinations are now sharply focused on potential areas that will generate increased taxes, penalties, and interest. Fortunately, there is a positive side to all of this. The IRS has made public a number of its Industry Specialization Program papers and Market Segment Specialization Program manuals. These help us keep up on the areas that the IRS will be targeting in its audits. So far it has issued detailed audit guide information on a range of industries, from general ones, such as retailing, to more specific ones, such as construction contractors and special trades businesses. Much more information on specific industries is expected to be issued as the IRS continues to devote resources to the development of these programs.
   Another IRS initiative tries to improve compliance by meeting with representatives of various industries to work out understandings with them about specific tax problems. For example, the IRS and the food service industry have come to an understanding about properly determining and reporting employee tips. Employers that comply will face reduced IRS scrutiny on this issue. A review of your business practices with your professional tax advisor may help keep your returns from being selected for examination, or help you survive if your return is audited.

R, P & T

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

   “Privatize U - M:” Mackinaw Center misses the point!

   In its Spring 2004 “Michigan Privatization Report,” the Mackinaw Center for Public Policy (Michigan’s conservative ‘Think Tank’) calls for the privatization of the University of Michigan, noting how this one time powerhouse of academia and research is now becoming an also ran in its ability to attract the “best and the brightest.” Noting the school “has seen top faculty lured away by more generous offers from private universities, it suggests privatizing is “one way to reverse this trend.”
   Well, the idea of privatization for U-M makes sense, but the Mackinaw Center fails to justify the need. For example, it stresses that U - M’s academic rating has fallen below such institutions as Columbia and MIT during the past 15 years, and now ranks 25th in the “U.S. News & World Report” ratings.
   “Columbia?” “MIT?” This shows just how completely out of touch with real concerns, of real people, the Center’s staff have become.
   The ideal comparison to justify privatization is clearly in Southern Florida, not New York or Boston. For the U.S. News rankings ... it’s the Bowl Coalition rankings that count! And, the real model for privatization is the University of Miami!
   The “Hurricanes” literally put Michigan to shame. Three “Championship Game” appearances since U-M was in legitimate contention. Six “first round” draft picks while Michigan (barely) got one!
   Who really cares if Yale recruits future presidents; It’s future Heisman winners and Pro-Bowlers that count. And, the Mackinaw Center would be well advised to keep that in mind, particularly when making a legitimate point.

“Seinfeld” Briefs:
  
   Don’t know if it’s true, but we heard it on WRIF this morning: “Playboy” magazine will apparently be running a “Girls of Home Depot” pictorial in an upcoming issue. Yes, the chain that drew us to NASCAR when it’s car collided with the “Lowes” car, in ‘99 may soon give its prime adversary another potential contest, which threatens to open up a whole new world for building products’ marketing. In fact, we wouldn’t be surprised if Larry Flynt’s already put in a call to Lowes’ home headquarters ... which, of course, gets us thinking about Housing Quarterly’s Fall issue ... any volunteers?
   Here’s one for Educational Irony. As all of Grand Blanc should be aware, its school district’s P.R. machine does an incredible job, as is evident by the victory in its school millage election, and the perception of the system. But in Swartz Creek, without so strong a P.R. machine, a millage attempt was crushed last year.
   So, it came as somewhat of a surprise on Wednesday, when the Journal reported that Swartz Creek was the new “king of the hill” when it comes to the MEAP test. While Swartz Creek finished #1 or #2 in nearly all areas of testing among Flint area districts, the Grand Blanc district did nearly as well. However, its downfall was in Math, as it finished 8th in that discipline .. which, in retrospect, may explain why its millage passed ...

   Math also appeared to be an evident weakness in the Grand Blanc district’s pay to its superintendent, also reported by the Journal. $10,000 for the lease of a Buick LeSabre? For those kind of dollars, he could lease a Hummer, and have plenty left over for gas.

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Association News and Events by Laura

  

New Members' Applications Before and After Custom Painting, Randy Lamb Sponsor: David Hughes R.C. Plumbing, Scott Stanley Sponsor: Kathy White

2004 BAMF GOLF OUTING Our Annual Golf Extravaganza Monday, August 9, 2004 Flushing Valley Golf and Country Club         Four person scramble Shotgun start at 10:30 a.m. Sponsored contest on holes Burgers/Hot dogs for lunch Refreshments available throughout the outing (drink tickets provided) Dinner at approximately 4:30 p.m. Lots of Door Prizes The most talked about BAMF event!   Reservations & Hole Sponsorship Info Golf-Lunch-Dinner - $100.00 per person Hole Sponsorships - $125.00 & $175.00 Reservations will begin on Tuesday, June 1st. All payments are due by July 7, 2004. GET YOUR FOURSOME TOGETHER AND CALL LAURA OR TRACEY AT 810-603-2200 STARTING 6/1/04 OR EMAIL TRACEY@BAMFHOME.COM

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Economic Update: Jobs strong for 2nd month; Rates?

  As autos and manufacturing still have a major impact on Michigan, and with the nation’s factory sector struggling for the past four years, we’ve been closely following the Institute of Supply Management’s (ISM) manufacturing index. And, as we noted last month, a strong showing in the index’ employment sector, over several months, is expected to lead to an upturn in manufacturing jobs in the U.S. Department of Labor’s employment report.
   Well, after five consecutive months of growth in the ISM’s employment index, we experienced the first month in more than three years that the manufacturing sector didn’t lose jobs. And, when the ISM’s index was released at the beginning of this month, and showed the employment sector expanding at a faster rate, we noted on the web site that April was likely the first month we’d experience an upturn in manufacturing jobs since 2000. And, when “Labor” reported, the sector’s jobs rose by 21,000.
   However, the real story in jobs was solid growth of 288,000, on the heels of a 308,000 increase in March. And, as manufacturing and construction combined for an increase of 39,000 jobs, the service sector added 246,000.
   So, since the markets had been held back due to concerns about the jobless recovery, a reasonable person would expect the employment report, with the creation of 554,000 jobs in a two month period, to provide a positive stimulus? Not in this world ... The markets plummeted on “interest rate” fears (what an apparent tragedy if Federal Funds’ were loaned at 1.25% or, God forbid, 1.5%). Anyway, the euphoria that hit Wall Street with the March report was reversed with April’s, and ultimately a damper was put on an otherwise solid month of data, which even showed the Economic Growth at a solid 4.2% in the 1st quarter, and would have been higher had companies increased inventories at the rate most economists expected. And, low inventories suggest that growth will remain strong throughout the remainder of the year.
   Perhaps most notable in the Gross Domestic Product report was that business investment in equipment grew 11.4% during the period, making it the third consecutive quarter of a double digit increase. In recent years, while consumer activity was keeping the economy in positive numbers, business spending was lagging. So, this continued upturn in business investment is welcome.
   Still, personal consumption was strong, rising a robust 3.8%, despite declining spending on “big ticket” items. A particularly interesting item in the report was an unexpected decline in state and local government outlays, offsetting the expected rise in defense spending.
   In summation, the “good” news is that economists (in general) believe the economy will continue to grow at 4% or better for the rest of the year ... The “bad” news? They’re a group with a track record that’s questionable at best!

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Housing Activity Update:

   First quarter housing activity remained exceptional across the board. Starts and sales are running well ahead of last year’s record pace at the national level, and both Housing Consultants and the Census bureau show the Flint area, and the region as a whole, building homes well ahead of ‘03’s pace.
   While owner occupied housing permits (single family and condo) are up 23.8% across the region, they’re up a whopping 33.2% in Genesee County, according to Housing Consultants. And, when we look at U.S. single family starts, we find that we shouldn’t lock up the record book anytime soon.
   After the March housing report was released, we found that first quarter activity is running 14.4% ahead of last year’s first three month. Builders began work on 429 thousand single family homes during the winter months. To put the data in perspective, starts this century averaged 362,300 during the 1st quarter, putting 2004 at roughly 18% above average. And, the 1st quarter rate is up to 1.545 million, 3% ahead of ‘03’s year end record.

New Home Sales
   New homes sold at an annual rate of 1.23 million in March, up 8.9% as compared to February. But the critical comparison is with last year’s rates, and on that front, the data are phenomenal.
   For the first three months of 2004, new homes are selling at an annual pace of 1.154 million units, which is nearly 6% above the year end record total in ‘03 of 1.089 million. However, in comparison to last year’s first quarter, the sales pace is running a whopping 17.2% ahead of 2003’s 984,000.
   What’s also notable about the first quarter data is the number of homes remaining on the market. The supply slipped to 378 thousand, or a 3.7 months’ supply, one of the lowest levels on record.
   March represented the thirteenth consecutive month that sales passed the million unit level. In fact, since sales broke the barrier in August ‘02, there has been just one month the rate fell below that level.

Existing Home Sales
   Existing homes sold at their 2nd strongest pace on record in March according to data from the National Association of Realtors (NAR). The rate of 6.48 million units was only exceeded last September.
   For the first quarter, sales are running at a 6.22 million clip, well above last year’s record of 6.1 million units sold. Furthermore, the median price recovered somewhat from its fourth quarter decline. But it appears that the first quarter median will come in at roughly $171,200, which is slightly below the 4th quarter, and well below the 3rd quarter of last year.

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