June 3 , 2005

Inside Veritas -
Article 1 - House Price Index Shows More Disparities:
Medians v. HPI
Article 2 - Housing/Business Briefs
Article 3 - Existing Market Activity
Article 4 - Mortgage Rate Activity
Article 5 - Auto Sales Report - May
Association News Update From Laura
Economic Update - ISM index falls! Who cares?
BS: Still about Nothing in particular
Housing Industry Update
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House Price Index Shows More Disparities:
Medians v. HPI

In recent months we’ve been reporting low “average prices” for Flint area housing for the beginning of the
year. Then, along came the NAHB’s “Housing Opportunity Index,” showing median prices in the area had plunged
from $129,000 in early 2004, to $108,000 in the first quarter of ‘05.
But, what average/median prices don’t look at is, what happened to an individual home in a particular market.
Well, according to the OFHEO’s “House Price Index,” a home purchased for $129,000 in Genesee County in last
year’s first quarter was likely worth $135,500 this past winter.
While the local median price (according to NAHB’s source, 1st American) likely fell 16.3% over the past year,
the area’s average home’s value rose by 5.05%. However, while the rise is far better than price levels suggest,
home values in the area, as well as the state, continue to do relatively poorly in comparison with the nation as a
whole, according to the government’s 1st quarter report released this morning.
The HPI’s data suggest the average U.S home in metropolitan areas gained 12.5% in value over the past year,
significantly more than the median Metro price gain of 9.7%, reported by the "Realtors" in May.
As we often explain, the HPI’s derived from the compilation of sales and mortgage data from transactions involving Fannie Mae or Freddie Mac. The data are used to compare all the activity that transpires on the same property, going back as far as ‘80. So, the index shows the growth of same properties, rather than a look at the market as a whole. By comparing “same properties,” it eliminates many market distortions plaguing a median (or average) price index.
Again, the HPI shows several states, mostly on the coasts, with appreciation over 11% for the last 12 months.
The yearly appreciation rates run from 31.2% (NV) to 3.8% (TX). 5 states, plus Washington D.C., had rates above 20%, including California, Hawaii, Florida and Maryland, with Arizona (19.4%) and Virginia (18.6%) close behind.
Michigan continued near the bottom, with an annual rate of 4.9%, primarily due to Wayne County (3.7%) and the rest of Metro-Detroit (4.15%). Lansing led the state at 6.7%.
What’s also notable are the number of areas (19) with over 25% rises over the past 12 months. It’s hardly a surprise that thirteen were in California, four in Florida, and the remaining two were Las Vegas & Reno (NV). Lowest? Youngstown (OH), at 0.85%.

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Housing/Business Briefs:

‘Bubble Babble?’ & Michigan Employment

Well, it seems like each month, after the “Realtors” report home sales, we’re hit with a new round of
“Bubble” forecasts for the housing market. And, every new round of “bubble babble” gets more attention than
the round before.
So, when a 15.1% rise in median price was reported last month, it’s hardly surprising that bubble
talk intensified, particularly after Alan Greenspan had felt it necessary to speak to the issue in an attempt to
calm fears.
Greenspan’s position basically mirrored the housing industry’s: Though there may be potential in some
markets, it’s highly unlikely to have a national “bubble.” But, it is obvious that Greenspan is somewhat
concerned, at least in regard to speculation in the market. And, speculation appears far more prevalent than
many suspected.
In a front page Wall Street Journal column, David Wessel (its D.C. Deputy Bureau Chief) noted an NAR survey
claiming “23% of all homes purchased in ‘04 were for investment, and a further 13% were vacation homes.”
Now, if these data reflected Florida, they wouldn't come as a shock. But this is about the national market, and we’ve
often maintained that the need for housing (shelter) is what separates it from other commodities. Yet, if 36% of all homes purchased were for another purpose, they lose the same utility (let alone the tax treatment) of “shelter,” and can easily become subject to the depreciation of other commodities, which takes us to another concern: worry about the impact of “bubble babble,” when (not if) price declines hit some of those high visibility markets which have been experiencing, previously unheard of, 76% to 112% price increases in the past five years.
After all, the most likely venues for a “bubble” to emerge are California, New York City, and Washington (D.C.), along with several cities in Florida. So, what does Mr. Wassel about when his neighbor sells a D.C. home for $50,000 less than expected? Or, what does Charlie Gibson great us with on “Good Morning America” when a co-op in his building sells for a half million below the asking price? Best guess: We’ll all hear about it. And, America’s reaction will tell if “bubble babble” will ultimately create an actual “bubble.”
—————
As we’re about to get the May employment numbers for the nation, we finally got the state and local numbers for April, bringing the proverbial“good news/bad news” scenario for Michigan. The “GOOD” news: Preliminary reports suggest the state added 45,000 private jobs during the month. The“BAD” news: Private employment remains 1.1% below last year’s level, and 8% below its level in April 2000.
When it comes to total (nonfarm) jobs, the data are similar. On a seasonally adjusted basis, we added 10,000 jobs in April, which put us 30,600 (0.7%) below April ‘04 (6.6% below April ‘00).
Finally, on a phenomena we’ve been following since November, we find that Government continues to outpace manufacturing (in our “manufacturing” state). If you recall, Government passed manufacturing in the number of
employees on a seasonally adjusted basis for the first time in November 2004. Well, the April data show Governments with 687,000 jobs in the state, and manufacturing with 678,200, meaning for the fourth time in six months “Government,” not manufacturing, was the state’s top employer. And, it appears more than likely, that the numbers will hold for the year,
setting a new era in the state.
Of course, since property taxes now pay for a majority of those employees, what would be the impact of a downturn in housing construction?

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Existing Market Activity

What a surprise! The Realtors reported a new record for existing home sales during the month of April. And, that new record of 7.18 million beat the previous record (June 2004) by 2.3%.
However, the “news” that got the media hyped was median prices rising to $206,000, (up 15.1%) from a year earlier, suggesting speculation in the market is driving up prices astronomically, and reigniting the “bubble” fear. But, a more interesting story may be found in regional prices because, while“speculation” is considered at its height in Florida, southern prices were up a mere (in comparison) 8%. Midwest prices were up 12.9%, while Northeast prices rose 15.2%. Again, price gains were led by the west, as people leaving California continue to drive up activity in surrounding states (particularly in Nevada and Arizona). The region’s median price? Up 21% to $305,000.
On another note, the median condo price was $223,600, up 18.4% in the past year. Single family prices were at $203,800, up 15.1%.

State/Local
While the Michigan realtors’ data wasn’t available for April, we do have one local note. The NAHB Housing Opportunity In-dex for the first quarter had the“Flint” median price at $108,000, roughly 16% below recent levels in the $129,000, and indicative of the reported surge in Flint city property since January.

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Mortgage Rate Activity

As you can see, our chart doesn’t look much different than last month’s, and neither will our verbiage. As we’ve been stating since March, bond buyers don’t believe the economy’s strong enough for serious inflation, so we remain
skeptical of the forecasts for higher mortgage rates. We were hardly surprised when fixed rates fell to 5.65% last week, or that bond yeilds continued downward. So, at this juncture, we still feel we’re looking at a replay of ‘03 and ‘04.

Auto Sales Report - May

(Note: Due to our early publication date for June, all the sales data have not been reported as of this morning. We’ll publish May sales on the web Thursday)
However, early re-ports don’t look good (at least for the Big 3)! Shortly after noon, Chrysler said its sales were down 2.5% from May ‘04; Ford was down 11% from the same period as truck sales plummeted!

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

“CEOs Praise China’s Pro-Business Climate”

“The socialist system will eventually replace the capitalist system; this is an objective law independent of man's will.” So said Chairman Mao, (tse-tung) in one of his many quotations that served as inspiration for many a 20th Century American
socialist. However, it now appears “21st Century Maoism” has become an inspiration for an unlikely source: U.S. CEOs.
While seldom surprised by what we find in the media, we were, nonetheless, amused by a “Fortune” magazine story explaining how much corporate CEOs “like working with” today’s Chinese communists. Most notable was GM’s Rick Wagoner, who was “bowled over” by Chinese Leaders’ “open minds and levels of pragmatism.”
“Fortune” credits the “Capi-talist/Communist “lovefest” to one-party rule giving China’s policies “more continuity and less silliness.”
But, then again, Genesee County has “one party rule,” and GM doesn’t appear all that enamored. Perhaps a Maoist inspired county charter would do the trick!

Al Haig; Mark Felt; Linda Lovelace?

Who were dubbed “Deep Throat?” It probably would have been a “Carnac” question if Johnny Carson still hosted the “Tonight” show, but now we all know the biggest mystery of the ‘70s.
While the news has been focused on the confession that W. Mark Felt, former number two man at the FBI, was Woodward and Bernstein’s “Deep Throat” of the“Watergate” investigation, we have to note that the final chapter in this historic period was brought to us, not by the “Washington Post,” but by “Vanity Fair,” which is about to publish an interview with Mr. Felt’s lawyer. And, of course, must recognize the memory of the woman who’s performance in a 1972 movie provided the name for the “mystery character.” Thanks to Linda (Lovelace) Boreman (left), who died in 2002, Woodward and Bernstein found the perfect name for their informant. And she, like Mr. Felt, has been immortalized by the Nixon White House.

“Seinfeld” Brief:

Now, we don’t begrudge anyone getting their “15 Minutes,” but this is ridiculous. The Pharris family appeared on “Good Morning America” today, in response to charges being filed against the parents for hiring a “stripper” for their son’s 16th Birthday party. They were reported to police by Walgreen employees, who developed their photos of the event.

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Association News and Events by Laura

!!!2005 Golf Outing!!! Monday, August 8, 2005 at Flushing Valley Golf & Country Club Four Person Scramble Shotgun start as 10:30 am Sponsored Contests on holes Burgers/Hot dogs, etc. at lunch Refreshments available throughout the Outing (drink tickets will be provided) Dinner at approximately 4:30 pm $100.00 per person includes Golf, Lunch & Dinner LOTS OF DOOR PRIZES Hole Sponsorships available for $125.00 or $175.00 Calll the Association Office for reservations.The Outing normally sells out quickly, so call today!! 810-603-2200

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Economic Update: ISM index falls! Who cares?

It’s another amazing morning on Wall Street. The Institute for Supply Management’s Index (reported 10:00 a.m.) said manufacturing’s growth slowed in May, and sector employment was contracting for the first time in 19 months. So, stocks and bonds both took off on the report, with the DOW up 100 points by noon, and bond yields falling dramatically. Why the positive response? It’s due to the belief that the Federal Reserve may stop its raising of rates.
What we found is that the ISM report came in at 51.4, meaning the manufacturing sector grew for the 24th consecutive month. However, as its growth rate continues to decline, it could fall below 50. And (get this) the Greenspan Fed has “never” raised rates with the ISM at or below “50.”
But, what we may find more notable is the ISM’s employment index coming in at 48.8, showing possible “contraction” after 18 months of “expansion.” Does that mean we should be worried about manufacturing jobs? Well, the ISM
says that “over time,” a solid index is “consistent” with an increase in“BLS data on manufacturing employment.”
Well, it’s last month of contraction was October ‘03, when manufacturing employment stood at 14.33 million. After the 18 month “expansion,” sector jobs stood at 14.31 million (you do the math)!
What do we take from today’s activity? Well, if nothing else, 10 year treasury yields were down to 3.9% at noon, suggesting that mortgage chart to the far left will be continuing in the same direction, for at least the next couple of weeks!

Gross Domestic Product
As we suggested, the economy grew a bit faster in the first quarter than first estimated. The Commerce Department revised growth upward from 3.1 to 3.5%. However, what we can find amazing is that growth has remained so consistent for six quarters in, what now is considered, a sustainable range.



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New Housing Activity

April new construction data (released last month) showed the industry remains on a roll, at least from a national perspective. With new records for new single family (as well as existing - page 3) home sales, and 11% surge in housing
starts, the in-dustry’s (over all) health seems particularly strong.
While total housing starts ran past the 2 million unit rate, the 1.635 million single family starts brought the April numbers back ahead of ‘04’s level (as you can see in the graph, March’s data fell below the previous year’s level for the
1st time since No-vember) which, one could say, keeps the industry on course for another record breaker, despite forecasts otherwise.
The pace of new homes sold was even stronger as the 1.32 million rate set a new all time record for the second consecutive month, based primarily on a surge in the Northeast.

State; Region; County
In Michigan, and particularly our region, there are signs of weakness. For example, the Census Bureau’s estimate of Michigan single family permits is 5.7% below it’s revised data for the first four months of ‘04. And Housing Consultants’ report through April shows the southeast region down 12.9% (non rentals), as only Genesee County runs ahead of 2004.
Through April, we pulled 666 single family and condo permits in the county, versus 575 during the same period last year. However, what’s more notable is that more than half the units (339) were authorized prior to February 28th, suggesting local builders weren’t taking chances on being stuck with the energy code that was scheduled to go into effect on that date.
Originally, we assumed that local builders were more concerned with the possible code change than most of the region, since our Genesee’s numbers were up 60% through February and the region was up 13.8%. But, it’s the March & April
data that make things interesting.
Since the beginning of March the number of non rental authorizations stood at 3,330, down 28.6% from last March & April, in the nine county region. Yet the Genesee County numbers were down only 9.9%.
When we looked at the totally lackluster performance for the first four months, we wondered if, perhaps, there was a surge in activity just prior to January, as the energy code had been set to go into effect at the beginning of the year.
But data from December ‘04 were well behind the previous two Decembers.
So, what we find is a serious decline in regional activity that goes back to fall of last year and, an apparent “energy code’ spurred” surge in the year’s early months, that artificially kept the pace of new construction with 2004 until March.
However, what is somewhat puzzling is the apparent strength of Genesee Co. in comparison to surrounding counties. While Housing Consultants’ shows the Flint area up 15.8% through April, Oakland County’s down 20%;
Washtenaw’s off 34.6%; and Livingston’s down 30%. Excluding Genesee County, the region is off 1,049 units (15.3%). So, as southeast Michigan’s economic woes finally appear to be impacting new construction activity, the sector that’s become almost totally dependant on the region for any semblance of growth in its housing market has, to this point, shown
little sign of impending decline.
But with concern about existing home prices we’ll be watching for any sign of the impact’s spread.





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