July 12, 2006

Inside Veritas -
Article 1 - Fall events take on greater promotional significance
Article 2 - Analysis: Region’s home sales’ are stronger than popular perception
Article 3 - Housing and Economic Briefs: Housing's impact on growth
Article 4 - It’s Time to “Just Say NO” to Millage Requests
Article 5 - Taxation and Finance by Rachor; Purman & Tucker CPAs
When to Deduct Entertainment Expenses
Association News Update From Laura
New Construction and Sales Activity
BS: Still about Nothing in particular
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Fall events take on greater promotional significance

In last month’s report on the Spring Parade, we noted that first “sense of optimism” in the reports from event participants regarding traffic and desire of attendees for “the 21st century housing options on display.” The biggest “negative” related to concerns of selling existing homes with so many listed on the market.

Well, as you can read below, existing homes are selling at a historically solid rate, suggesting the “negative” may not be as severe as perceived.

As we approach this Fall’s Parade, we reiterate what we said in late 2004: “It’s imperative that we create opportunities to assure BAMF members get their fair share of the market in the coming downturn.”

Well the Fall promotions are one way in which we put our members, first and foremost, in front of the potential buyer, whether they’re looking for a new home, or to upgrade their current home. In fact, during the spring event there were several reports of remodeling jobs contracted.

The Fall Parade will open October 7th, and run through the 22nd. Contracts were mailed in late June, with the first deadline coming July 20th (when participants can enter for $2,700). The final deadline is August 17th.

As always, Housing Quarterly magazine will precede the Parade, with mailing scheduled for October 2nd. Advertising contracts were mailed to previous advertisers on July 7th.

The Parade, and Housing Quarterly, are always accompanied by heavy Television, Billboard and Newspaper promotions, and this fall will be no exception. If you’ve not participated in the past, and would like to, call the BAMF office at 810.603.2200 for a contract and information

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Analysis: Region’s home sales’ are stronger than popular perception

Walking past the newsstand last Thursday you couldn’t miss the Detroit News headline. In 1.25 inch high (bright red) letters was the takeoff on a popular ABC comedy with the title: “DESPERATE HOUSESELLERS,” to draw attention to its lead article on the plight of the Metro Detroit home market.
Needless to say, there was little optimism gracing the pages of the article that focused on individuals with particularly harsh experiences in the relatively weak Southeast Michigan market. Thus, much like the conversations that take place within industry circles all across the area, it became just another item of evidence that the regional market is in the proverbial “pits.”
However, the following day, the Michigan Association of Realtors posted its May sales’ data and, while the numbers are well below a year ago, they’re a long way from the disaster that many perceive. What we found is that homes are selling at a rate that’s just 6% below the level during 2004 throughout the Flint/Detroit area. And, as you may recall, ‘04 was the all time record year for home sales.
In recent months we’ve heard many in the industry compare today’s market with that of the early 1980s (when mortgage rates made housing virtually unaffordable). But realistically, homes are selling at a rate that’s more reminiscent of the early 2000s, when most of us thought the market was “booming.”
Look at the Flint area for example. Through May there have been 1,968 sales according to the Flint Area Association. If we adjust the sales for seasonal conditions, we find homes selling at an annual rate of 5,140 during April and May, nearly the same as the 5,125 averaged from ‘00 to ‘03.
During this past Spring’s Parade of Homes, we heard several builders tell of individuals wanting to buy, but not being able to sell their existing homes.
Well, the numbers say homes are selling. The perception that they’re not, comes from the likelihood homes of their friends and neighbors aren’t selling.
A year ago we were shocked to hear of 37,000 homes for sale in the Metro-Detroit market. This past May there were 48,000.
In the Flint area we found the 6,000 units of last year amazing. Now, the more than 7,000, mean there’s a 16.2 months supply at current sales levels.
There are just too many homes on the market for homeowners to feel comfortable. So, when a builder has a prospective buyer who needs to sell an existing home, it’s clearly in that builder’s interest to help make the home “sellable.” Providing a slight ad-vantage may make the difference in that home being one of the 5,000 that sell this year.
We can’t say (for sure) why so many homes are on the market. There’s the obvious (owners re-locating to other states for jobs and those who lost jobs and can no longer afford to keep homes), and the apparent (empty nesters looking to downsize). However, there also appears to a number of homeowners wanting to cash out of expensive homes. For ex-ample, we can’t help but notice that 53 homes on Lake Fenton were listed last week, and several were “for sale by owner.”

National Market
The “Realtors” national association reported solid sales in May (though down slightly from April) at a rate of 6.67 million. But the real story came in the inventory and price reports.
While inventory jumped 5.6% in a month, the median price was up 3.6% over April, after declining the previous 10 months.
That means inventory’s risen 41% since May 05, prices are up 6%, with fixed rates up 1% and ARMs up 1.5%.
Now, we wouldn’t accuse the NAR of “Enronian” bookkeeping procedures, but it seems highly unusual that prices would suddenly rise at a 53% annual rate in a period of substantially higher financing costs and enormous inventory growth, after declining for nearly a year.
Earlier this year, the NAR said the median price never fell year over year. Well, the median last June was $229,000. Stay tuned!

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Housing & Economic Briefs: Housing’s impact on growth

While the creation of 121,000 jobs in June seems like a reasonably solid number, the numbers were well below expectations. But more damaging was that fact that it represented the 3rd consecutive month employment growth fell below expectations.
For the 2nd quarter, job growth averaged 108,000 each month, down 38.6% from the first quarter pace of 176,000.
The weak June “jobs’” report brought somewhat of a double whammy to the financial markets. While weak numbers like these normally put a temporary rest to inflation fears, June’s report also contained inflationary news: An increase of average hourly earnings of 0.5%, that means wages are up 3.9% over 12 months, the highest year to year rise since June of 2001.
What we can find particularly interesting in the Labor Department’s report are data for residential construction jobs. While housing starts are down roughly 2% for the year, the department shows the sector’s jobs up 2.7% from a year earlier. While these numbers may appear difficult to believe, they may well be accurate, reflecting the immigration service’s crackdown on undocumented workers. It’s conceivable that work done by “illegals,” that may not have been reported a year ago, is now done by citizens that show up on employment records.

Regarding construction and jobs, there was a notable article in the Wall Street Journal pointing out the fact that housing was the “biggest generator of jobs” in the current expansion. However, as the industry seems to be running out of steam, “tens of thousands of Americans, from bankers to hardware store clerks, are likely to find themselves out of work over the next few years.”
While the bulk of the article related to job opportunities, we’re more impressed by the recognition of the industry’s impact. As the WSJ explained: “Housing related employment accounted for 23% of the 4.9 million jobs created since the nation’s job market began to grow in late 2003.”

Last month’s Builder magazine contained its annual report on the market share of the “top ten” builders’ market share in each of the nation’s 75 largest markets. The “Big Builder” share ran from 74.2% (Albuquerque) to 6.7% (Fayetteville, Ark), with the median market slightly above 40%.
We did find a couple of items in those two (extreme) metros: 1st, in Fayetteville (including all of the Ozark area into Missouri), where 7,110 units were authorized, the 10th biggest company built 10 homes in 2005. In Albuquerque, the 10th largest company built 192 homes, which is 31.5% than the largest builder in Fayetteville.
However, what’s more notable (from a local perspective) is that the Albuquerque company has old local ties. Wallen Builders is owned by Garry Wallen, BAMF’s Vice President in 1981, and his wife Mary Ann, the association’s Home Owners Warranty administrator from 1979 to ‘81.

Land values are now having a negative impact on America’s biggest builders according to a recent Wall Street Journal story.
Frequently in the past couple of years we’ve written about the surging market share of the biggest builders, due in a large part to their ability to control land in metropolitan markets. Now that land may be their Achilles heel, at least as perceived by stock analysts.
Major publicly owned building companies have seen stock values plummet an average of 28% through the first half of the year, which some believe make them a good buy! However, analysts worry that their land assets are severely overvalued, suggesting their stock prices may be “overvalued” as well.
Of course, building companies counter that much of their “land” is actually held in purchase options, so they can “walk away” with no more than the loss of a 5% to 10% deposit loss.

Is there a “McMansion Glut?” That’s a question that’s received a lot of attention over the past couple of months, as more “baby boomers” across the country look at moving to smaller quarters. The American Housing survey’s 2003 findings (the latest available) show the number of homes over 4,000 square feet was up 11% in 2 years, suggesting Americans bought homes far bigger than their needs. And, considering the housing boom soaring home values, along with extremely low interest rates, since that period, one could imagine that ‘04 and ‘05 brought an even bigger surge.
Well, the jump in interest rates (not to mention energy costs) has put the nation’s largest homes out of the reach of a significant number of potential buyers, leading to stories across the nation of drastic cuts in asking price.
Note: In one of those “stories,” the WSJ noted that an “exclusive” Dallas area saw home sales drop 31% in the first quarter. However, in a nearby area with smaller homes, sales jumped 23%.

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It’s Time to “Just Say NO” to Millage Requests

In the late ‘90s I was in attendance at a “Grand Opening” of a new Condo development in “Woodfield.” When a local realtor overheard my conversation about venue, she responded “OH NO! That means Oakland County taxes.”
The developer and I found her comment quite humorous since, in reality, the tax bill on the particular home we were standing in was $1,400 less than if it stood one lot to the north, in Grand Blanc Township.
While property tax rates have set me off in the past, a couple recent events brought about this particular column. First, the Genesee County Board put 1.7 mills on the ballot for Health Care and Senior Citizens. Then, in June, I received an advertising piece from a Clarkston area builder telling me that taxes on a $300,000 home are $142 per month lower in his development than Grand Blanc.
And, finally, there was last week’s Journal article about the Parks’ millage renewal, noting it only costs $48 per year on a $200,000 home.
The problem with that analysis is that too many $48 can add up to real money. And, Genesee County taxpayers have been generous (to a fault) when it comes to millage requests.
Currently, countywide tax rates are 53% greater in Genesee than in Oakland (see chart), according to the counties’ Equalization reports. If the 1.7 mills were to pass, the differential would be 71%.
Historically, lower land costs have given the Flint area a competitive edge in the regional housing market. However, some of us knew that, eventually, our tax rates would be recognized as a “disadvantage.” Well, “eventually” finally materialized in June.

Barry

Countywide Millage Rates

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Actually, GM’s sales improved in June

While headlines focused on the “26% decline” in General Motors’ sales (‘05-’06) in June, we were somewhat surprised to see the actual numbers that showed the (still) number one auto maker with its best showing of the year in U.S. market share (27.2%). Yes, that was well below June of last year’s 32.8% (based on “employee pricing for all). However, GM had been running at 23.7% of the nation’s market share through May, so the 27.2% for June actually raised its y-t-d share to 24.3%.
Total sales for the month were down by 177,000 units (10.5%) from last year, but are only off 2.4% (202,000 units) from the first half of ‘05. Toyota picked up some of the slack last month, selling 223,000 cars and trucks, up 14.4% from a year earlier.
Of course, Toyota’s surge represented the third consecutive month the Japanese company beat Chrysler in the U.S. market (taking it to within 0.3% of becoming the third biggest seller in America), and making it, along with Honda, the only companies experiencing y-t-d growth over 2005.

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

Forget “Tiger(s),” Bears like Buicks too

Two years ago we featured a Bear with “good taste,” who threw away Busch beer for a local brew, then passed out after guzzling 3 cans. So, we were equally intrigued by last Wednesday’s story from a Lake Tahoe neighborhood, where a bear cub “munched on barbeque chicken and jalapeno pizza,” then washed it down with a “swig of Jack Daniels’ mixer,” and Absolut (vodka), then chased it all with a “beer taken from a cooler.” And, he did all this in the back of the ‘64 Skylark Convertible pictured below.

The car’s owner said there was no damage, but it slopped cheese and jalapenos on the seats and floor.

“Seinfeld” Briefs:

In an act reminiscent of the state’s best known bartender (Woody Boyd of “Cheers” fame), 35 people were evacuated from a Plymouth (IN) resort hotel due to a “blinking red light” that was feared to be a bomb. The “bomb,” that caused the bartender to call police, turned out to be part of a Pabst Blue Ribbon ad, suction cupped to a window.

Regarding an industry frequently affiliated with blinking Red Lights: We were somewhat amazed to find the U.S. Senate Judiciary committee approving legislation authorizing $2 million to establish an IRS office specifically to prosecute Pimps and Prostitutes for tax evasion. Iowa Republican Charles Grassley, the bill’s sponsor, uses the “Al Capone” analogy, suggesting that state enforcement officials don’t target these crimes, so the IRS will ... Think the IRS will open a Dort Hwy. office?

“Goldilocks” in Reverse: In another “bear” story, a Vancouver (BC) woman came home to find a young bear eating oatmeal (or porridge) in her kitchen. 3 police officers couldn’t get the bear to leave, so they let him finish his meal, then he left (without leaving a tip). No charges were filed.

Finally, here’s one on “Seinfeld Impact:” While the term “Yada Yada” has been around a long time, its use soared so high after a 1997 Seinfeld episode. it recently became one of the newest words in the Oxford English Dictionary.

Barry

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Association News and Events by Laura

2006 Golf Outing Monday, August 14th at Flushing Valley Golf Club 4 person scramble 10:30 shotgun start Sponsored Contests Lunch Anytime Dinner at 4:30 p.m. $100 per golfer Door prizes galore Hole Sponsorships $125 & $175 Tee Reservations 810-603-2200 Golf Outing update: There were still 4 foursomes and a couple of single slots available as of Friday, July 7th

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New Construction and Sales Activity

National Activity

The rate of new home sales rose for the third consecutive month in May, but year-to-date activity remained 10.8% below last year’s level. While selling at a rate of 1.234 million for the month, up slightly from April but down 5.8% from May ‘05, estimated sales for the first five months fell from 564,000 in ‘05 to 503,000 this year according to Commerce Department data.

A week prior to the “sales” report, the department released starts’ data, showing a reversal of the previous three months (see graph below) as total starts rose at a 5% rate over April, while the single family sector was up 2.1%. However, both were down from their number a year earlier.

From a year-to-date perspective, single-family activity is off by 14,500 units (2.1%), which is almost identical to the actual decline of May ‘05 to May ‘06.

Despite the rise in sales, the level of inventory continued to rise. At month’s end there were an estimated 555,000 units on the market, up 23.9% (107,000 units) from May ‘05, representing a supply of 4.9 months (at May’s rate of sales).

What may be the most notable item in the monthly report is the drop in median price (down to $235,300) from April. In ‘05 the department revised its calculation of median prices, and those prices have fluctuated up and down, from $226,100 last June, to $250,800 in February. So, while May’s price is up 3% from a year earlier, it may not have much relevance as an indicator of market direction. In fact, for the 12 months, prices have risen 6 times, fallen 4, and were virtually flat twice.

Regional and Local

The chart and graph to the right show what everyone in the industry has been aware of for some time: The decline that be-came evident last summer has has continued proportionally in the past 12 months.

Through May, the Southeast region’s authorized just 4,591 single family and condo permits (according to Housing Consult-ants) down 44.4% from a year ago, and down 51.3% from the same period of ‘04. Livingston County’s activity fell 66% over the two years; Washtenaw fell 65.8%; Oakland (59.9%); Genesee (53.2%).

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In June we began comparing selected municipalities from ‘05 to ‘06 Housing Consultants’ data. Below are permits for non-rentals through May.

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