July 7, 2005

Inside Veritas -
Article 1 - Mandatory Education/Higher License Fees
— In YOUR Future
Article 2 - Housing/Business Briefs
Article 3 - Existing Market Activity
Article 4 - Mortgage Rate Activity
Article 5 - Taxation and Finance by Rachor; Purman & Tucker CPAs
What about that dreaded IRS audit?
Association News Update From Laura
Economic Update - Economy seems too fragile
BS: Still about Nothing in particular
Housing Industry Update
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Mandatory Education/Higher License Fees
— In YOUR Future

On June 22nd, new legislation was introduced in the Michigan Senate that will, if enacted, have a dramatic
impact on each licensed home builder. While Senate Bills # 631 & # 632 have some “clear” benefits for the
building industry (stronger enforcement and penalties for unlicensed practitioners), and arguable benefits
(increased requirements for new licensees), they’re also designed to put a greater burden on established
builders in the forms of higher license fees and mandatory continuing education.
Under the two bill package, the cost of a license will rise to $230 over a three year period. However, $30 will go
toward funding enforcement of the law “regarding unlicensed activity,” and for reimbursement of “the Attorney
General for expenses conducting prosecutions of such unlicensed practice.” Another $30 will go to a builder
education fund (and $50 for a code book).
What is disturbing to some, however, is the requirement that all licensees “Shall successfully” complete
continuing education requirements of (at least) “ 21 hours per license cycle.” And, “at least 1 hour of courses
in codes, safety and legal issues shall be completed each year.”
The additional (18) hours will come from the following "areas of competency:" Business Management, Estimating and Job Costing; Design/Building Science; Contracts, Liability, Risk Management; Marketing & Sales; Project Management &
Scheduling; The MRC & MIOSHA safety standards. And, (get this) “the courses described in the ‘NAHB University of Housing Blueprint for Success’ are considered approved for education requirements.”

Why is MAHB backing these bills?
SBs 631 & 632 are clearly the result of the Michigan Assoc. of Home Builders’ lobbying efforts, and the concept behind the legislation has been authorized by its board of directors last winter. But the impetus began in the mid ‘90s, when its leadership saw continuing education as a potential source of revenue, with a state mandate for “CON-ED” assuring a strong market for success.
However, while MAHB’s board was in support (over BAMF’s objections), the program was short-circuited because the Engler administration did NOT wish to expand the state’s regulatory control over the industry. Now, with the Granholm administration in office, there’s little reluctance to expand government or increase regulation, particularly when it involves higher state revenues. So, the climate now is “right” for the plans that fell though back in the ‘90s.
Of course, the MAHB’s public posture maintains the primary purpose for support relates to the industry’s desire for “professionalism,” while the greater cost and effort required to maintain licensure may drive many “fly-by-nights” from the industry.

Why BAMF’s been opposed
While the ideal of a “professional” industry has merit, reality suggests that the increased time and dollars required to maintain a license will merely provide an unnecessary burden on builders that already have too much “red tape” and costs to occupy their time. We’ve heard (all too often) from members who were forced to abide by “realtor” continuing education requirements complaining of the “uselessness” of the programs and the “waste of time involved.” So, we’re more than hesitant when it comes to adding an additional time commitment.
Furthermore, we’ve become wary of organizations proposing a greater regulatory burden on its members that can/will improve its own fiscal well being. It’s a concept that’s become far too prevalent in supposed
“advocacy” associations in 21st Century America.

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Housing/Business Briefs:

State employment woes; mobile society

While we’re waiting for the national June employment report, we’ve got the preliminary May data for
Michigan, and it’s not a particularly pretty sight. In actual numbers, Michigan lost some 41,000 jobs during the
month (11,000 on a seasonally adjusted basis). But what’s really disturbing is that those actual employment
data show a 6.5% decline in employment since May of 2000 (a loss of more than 300,000 jobs over five years).
What may come as a surprise to some, the Flint area’s data isn’t quite that bleak: Jobs are actually up (slightly)
from April, and its total jobs are down 5.3% over the past five years.
And, as we’ve been focusing on manufacturing in recent issues, we find the data equally disturbing. The
state’s lost roughly 3% of its manufacturing jobs over the past year (24.6% since May ‘00), while the Flint area is
“holding” in the 22,000 range. Of course, that’s less than half the level of the mid 1990s.

Years ago, there were data suggesting the average American changed residences every seven years. That's why we were surprised to see a report from RIS media, showing the national average is now at 5.2 years. If the old and new
data are accurate, the expected time of residence in the same home has declined by nearly 26%.
While much of this change is probably due to “baby boomer” activity, we can also attribute a considerable portion to dramatic changes in the economy, as Midwestern households follow jobs to growing areas. And, don’t forget the west coast movement from California to Arizona and Nevada.

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Existing Market Activity

Last month, the Realtors’ existing home sales’ report actually registered a decline. So, it meant May was “only” the 2nd strongest month on record, as sales activity fell to a 7.13 million rate (from April’s 7.18 millon level).
Also, the median price of an existing home was at $207,000, up 12.5% from May‘04, continuing the incredible run of prices (and increasing dreaded fears of a coming “bubble”).
However, what’s more interesting in May’s data is the condominium market, both in number and price. While the condo market share hit 12.9% for the month (it’s averaged less than 12% for 2003 & ‘04 combined), the median condo price was at $221,000, up 15.2% from May of last year. The median single family price was $204,600, up 12.2% in twelve months.

State/Local
Sales are up 2% across the state through May, with average prices up 1.8%. However, at the local level, while sales are up a solid 10.5%, average prices are down 9.7% (see below).
While we don’t put much credence in the value of “average” prices, so far they’ve been holding in line with other price data.

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Mortgage Rate Activity

Another month; another Federal Reserve rate hike; and lower 30 year fixed mortgage rates ... in other words, nothing’s really changed since we went against conventional wisdom in March, stating we don’t think the bond market believes the economy’s strong enough to support inflation, and long term rates remain low. However, we can anticipate slight upward movement (5.6% range) when Freddie Mac reports later this (Thursday) afternoon ...

Taxation and Finance by Rachor; Purman & Tucker CPAs
What about that dreaded IRS audit?


IRS will audit hundreds of thousands of individual tax returns this year. Although that represents but a small percentage of all returns filed, this is little consolation if your return is among those selected for audit. But with proper preparation and planning, you should fare well.
The audit’s purpose is verification of the items reported on a tax return. The easiest way to survive a tax audit is to prepare for one in advance. On an ongoing basis you should systematically maintain documentation-invoices, bills, cancelled checks, receipts or other proof-for all items to be reported on your tax return. Keep all your records in one place
and hold on to your calculations.
The government normally has three years within which to conduct an audit, and often the audit won't begin until a year or more after you file your return.
The scope of an audit depends on the complexity of the return being examined. A return reflecting business or real estate income and expenses is likely to take longer to audit than a return reflecting only salary income. You can facilitate matters by having the necessary records arranged in an orderly and systematic fashion for presentation to the IRS agent. The
typical IRS agent is experienced and knows his job. Trying to outsmart the agent or side-step questions is likely to create friction and raise suspicions in the agent's mind.
Representation: Even if you prepared your own return, it is often advisable to have a tax professional represent you at an audit. Your representative knows what issues the IRS agent is likely to focus on and can prepare accordingly. More importantly, tax professionals know that, in many instances, IRS agents will take a position (for example, to disallow
deduction of a certain type of expense) even though courts and other authorities have expressed a contrary opinion on the issue. Because the representative knows and can point to the proper authority, the IRS agent may be forced to throw in the towel.

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

Making sense of Ten Commandments’ Ruling

While the “property rights’” advocates are far more concerned about the “eminent domain” ruling, we can take solace in the judgment of Justice Stephen Breyer, who provided the “swing” vote on the two Supreme Court “10 Commandments’” rulings. Breyer voted with the majority that upheld a display of the “10” in front of the Texas State Capitol then, with the majority that shot down displays in Kentucky courthouses.
While Breyer’s rationalization for his seemingly conflicted votes related to differing purposes behind the two displays, we have to believe the “moderate” justice was resorting to common sense. As a lawyer, he’s obviously aware that display of Commandment #8 in a building where attorneys are forced to practice would be tantamount to the creation of a “hostile” work environment.
Editors’ note: We’d also be concerned about potential mixed messages from Commandments #1 & #2 if posted behind the judge’s bench.


Molbile Home in Park with "VU": $1.4 million.

We heard it on a Wednesday morning news report: So much for the term “trailer park trash,” at least as it applies to Malibu CA. A “mobile home” in the southern California Oceanside community sold for “$1.4 million” so, we assumed it was affixed to a lot (in an area where a million plus for a lot’s expected). Then we tracked it down at realtor.com/. WRONG! This home was listed as a “rare find, none other like it in the (trailer) park.” And, it’s on a “triple wide lot with
guest parking adjacent.” Estimated payment? $6,208 per month!

“Seinfeld” Brief:

In a related note to the million dollar “trailer,” prices can get pretty interesting on the other side of the nation. Just prior to learning of the previous sale, we read that the average Manhattan apartment sells for $1.3 million ... that’ll get you roughly 1,300 square feet, 2 bedrooms and 2 baths, but can’t top the “Malibu” view!

Had to note the AP report on the late Pittsbugh Steeler fan. The funeral home laid him out in a recliner, a six-pack and cigarettes at his side, TV remote in hand, and hours of Steeler’ Highlights playing continuously on the TV ...
Unfortunately, we’re highly unlikely to have a similar opportunity in Southeast Michigan. While Funeral directors may be able to perform virtual “magic,” finding “hours of Lions’ Highlights” make the task impossible!

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Association News and Events by Laura

New Member Applications - June William Floyd Heating Jeffrey Floyd Sponsor: Dave Lucas AAA Custom Concrete Dennis Severn Sponsor: Kathy White Gibralter Concrete Rob Boettcher Sponsor: Ted Cram JLI Builders Justin L. Irwin Sponsor: Steve Edwards

The Fall Parade of Homes is set to open Saturday, October 8th, and run to Sunday the 23rd (Open Thursdays, Fridays, and weekends). Entry fees remain at $2,700 ($1,850 for second entries by the same builder), if entered by the first deadline (July 20th). The fee rises by $200 between the 20th, and the final deadline, which is August 17th. Regarding the “final deadline:” In recent Parades, we’ve put members wishing to enter after the final deadline on a waiting list — which means, if someone drops out; and, IF we can work the wait- ing home into Housing Quarterly, we will accommodate the participant. However, while we’ve had extensive “waiting lists” for the past four events, we’ve only had the opportunity to accommodate 2 waiting list builders during that period — so, if you want to participate in the Parade, please don’t wait. The contracts were mailed out June 23rd — If you didn’t receive one, or misplaced yours, we urge that you call the association office at 810.603.2200, immediately. !!!2005 Golf Outing!!! Monday, August 8, 2005 at Flushing Valley Golf & Country Club We thank everyone for their response, as all 36 tee positions were reserved by June 10th. However, there are usually a few that drop out, and we’ve already filled two spots from the waiting list, leaving only one remaining on that list ... so, if you’re interested in playing, you may wish to call the office today. We also have a few open holes for sponsorships — note, each sponsorship includes a contest at the hole — the cost remains, $175 if BAMF purchases the prize; $125 if the sponsor brings the prize.

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Economic Update: Economy seems too fragile

While expecting to write about the surprising revision in GDP and change of direction in the manufacturing indexes, the fragility of the “world” economy said “in your face” Wednesday, and hit again this morning. Yesterday it was “Cindy” (the tropical storm) hitting Louisiana with potential havoc on our oil supply (if you saw the FX special, it was a hurricane hitting the ‘Bayou’ state bringing a world wide, oil crisis based depression). So, as oil skyrocketed to $62 per barrel, stock prices tumbled. Then, this morning, we awoke to news of terrorism in London, resulting in stock futures, and prices by opening, sinking again.
But, by 2:00 p.m., stocks were back to their Wednesday levels and, oil prices fell back below $60 ... and, that’s the shock. Normally, when middle eastern terrorism becomes the dominant issue of the moment, the potential of oil supply disruption sends prices upward, but not this time. Instead, oil traders apparently felt the attacks in London would lead to a
slower world economy, consequently reducing demand for oil.
Anyway, the events of the past two days show how quickly significant sectors of the economy can turn. And, that makes forecasting a proverbial “crap-shoot” for some, a nightmare for others.
Of course, it’s been difficult enough without these outside events — getting a handle on the economy. Just look at the revisions on ‘05 1st Quarter Gross Domestic Product. The first report had it rising at a 3.1% rate, sending markets plummeting. The first revision raised it to 3.5%, and the final revision had it at 3.8%. Now, if the Department of Commerce, (with access to all the data) is off by 18.4%, what’s a regular guy supposed to do?
Oh! And regarding those “Manufacturing Indexes” turnarounds: The sector’s growth was “faster” last month, and its employment index remained above the level “generally consistent with an increase in employment.” So, why are we not surprised that factory jobs declined?




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New Housing Activity

All one needs to do is look at our charts showing May’s new construction data (released in June) to understand the industry remains on its roll from a national perspective. The levels that brought new records for new single family (and with
existing) home sales, experienced in spring have been maintained, as low interest rates have kept housing affordable despite dramatically rising prices. And, single family housing starts rose above the 1.7 million unit rate for the 1st
time since February.
As we approach the receipt of second quarter data, we find the following: Housing starts up 4.4% from ‘04’s record level; Single family’s up 5.2%; and, multi-family structures with 2 to 4 units (mostly for owner occupancy rather than rental) are up a whopping 17.3%; and, sales are up 4.4% for the same period (all from record ‘04 levels). And, the sales rate is currently 6% above the 2004’s year end record.

State; Region; County
It apparently takes some semblance of economic strength to maintain solid housing activity, and if we look at Michigan data we find the lack thereof seems to be catching up to the industry. While the employment data on page #1 tell the
economic story, housing numbers are be- ginning to reflect the economic doldrums.
While total units are down a mild 3.7% through May, those likely for sale (buildings with 1, 2, 3, & 4 units) are down 1,159 homes, or 6.4%.
And, when we look at Southeast Michigan, we find a much more serious decline (12.5%) in non-rental permits.
As we’ve been noting over the past three months, Genesee is the only county running ahead of 2004. However, that percent has continued to decline since we were up 60% through February. But that number slipped to 15.8% through April, and was at 4.8% by the end of May.
A total of 826 single family & condo permits were authorized in the county during the first five months with few surprises. As has been the norm for several years, Grand Blanc Twp. leads the area, with Mundy Township running 2nd.
If there’s anything notable, it’s the lack of activity in the Fenton area, due in part to just 6 permits issued in Linden.


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