August 11, 2004

Inside Veritas -
Article 1 - Michigan Supreme Court Really Does Stand for Property Rights
Article 2 - Auto Sales Up, But
Article 3 - Location; Location; LoWhat?
Article 4 - Taxation and Finance - Pay Now ... or, Pay Later?
Article 5 -
Association News Update From Laura
Economic Update - Jobs’ outlook keeps deteriorating
BS: Still about Nothing in particular
Housing Industry Update
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Michigan Supreme Court Really Does Stand for Property Rights

 Do you remember Wayne County’s “Pinnacle Project?” A point of contention in the 2002 Democrat Gubernatorial primary, it’s the planned development near Metro Airport that was intended to create 30,000 jobs, and $350 million in tax revenue, that was condemned as “sprawl” by candidate David Bonior.
Well, the “Pinnacle Project” suffered a major setback at the hands of Michigan’s Supreme Court, not from an environmental perspective, but in a ruling that upholds property rights, and will have “broad impact” across the nation.
At the end of July, the State Supremes overturned its landmark ‘81 ruling, generally known as “Poletown,” on a 7 to 0 vote, maintaining the decision that allowed Detroit to take 1,600 properties to make way for a GM plant flawed because a GM plant does not meet the definition “public use.” It’s that term (Public Use) that’s necessary for a justified seizing of private property to use under the concept of eminent domain. Since Poletown has been the primary defense of local governments (across America) to allow the taking of private property for private developments (such as office parks, race tracks, factories, etc) that are well beyond traditional “public” projects (roads, bridges or municipality owned stadiums), the recent Supreme Court action is sending shockwaves though city halls across the nation. As one Wayne County lawyer said to the Wall Street Journal, the ruling restricts cities’ power to spur their local economies since an “individual can simply decide he doesn’t want to sell.”

Pinnacle Project Suit
Wayne County had voluntary sales on all but 46 parcels for the Metro airport project, when it decided to invoke eminent domain on those remaining. It had the properties appraised and made new offers, which were accepted by all but 19 owners. So, in April 2001, it began condemnation proceedings.
The property owners filed suit in Circuit Court, which upheld the county’s right under “Poletown.” The Court of Appeals subsequently upheld the Circuit Court, but two justices added that, “Poletown was poorly reasoned, wrongly decided, and ripe for reversal,” which can only be done in Supreme Court.

Supreme Court Reversal
Despite the 7 to 0 ruling striking down Poletown, the Supreme Court was not in total agreement, as there was sniping by Kelly and Cavanaugh about semantics in the majority decision (written by Justice Young for Markman, Taylor and Corrigan). But the courts’ thoughts on Poletown, and property condemnation were clear, as Justice Young wrote with concurrence. Basically: Transference of Condemned property is a “public use” when it possesses one of the following characteristics: 1) Is a necessity for enterprises generating public benefits; 2) the private entity being created remains accountable to the public in the use of said property; or 3) the selection of the land to be condemned is of public concern.
Since “Pinnacle” meets none of these tests, the condemnations “do not advance a ‘public use’ as required by our constitution.” So, to overturn rulings in Pinnacle, the Poletown opinion was reversed as “inconsistent with eminent domain jurisprudence” and advancing “an invalid reading of our constitution.”

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Auto Sales Up, But

U.S. auto sales were relatively strong in July, as they were up 2.9% from July '03. However, while sales st the Japanese "Big 3" (Toyota, Honda, Nissan) rose 15.5%, sales at America's "Big 3" were virtually flat, despite a solid (5.8%) rise at Chrysler.
Led by a 36% rise at Nisan and 18% jump in Toyota sales, the leading Japanese auto makers sold 423,375 cars and light trucks in July, up from 366,666 last year. The Americans, on the other hand, sold fewer than last July, and had less than 61% of total monthly sales.
Year to date data are similar to July's, up 2.35% across the board. With Nissan leading the way (up 27.2%), the 3 Japanese companies have sold 11.1% more than during '03's first seven months, and now combine for nearly 26% of the total market, up from 23.8% at this time last year. Ford continues to drag the U.S. companies down, as its sales are 3.6% lower, with Chrysler (14.5) the only firm to hold market share. 

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   Location; Location; LoWhat?

   So much for “Location; Location; Location!” Titled 6 Bdrms/Dumpster Vu, a Friday Wall Street Journal feature’s eye-catching lead opened, “Developers start building near undesirable spots,” and focused on hot, expensive markets where land is limited, and very expensive. For example, there’s a “Luxury Townhouse” project with a view of the Hudson River, but also next to “a commuter train repair yard strewn with rusty pipes and rails.” Yet, a dozen sold this year, at prices from $400,000 to $1.6 million. There’s also a development of $600,000 plus homes in an abandoned “industrial section of Anaheim;” and several mentioned with railroad tracks for neighbors. And from Florida, to California, to New York, adjacent interstate highways no longer exclude land from from from becoming an exclusive neighborhood.
Our favorite, however, has to be the luxury development in Rye Brook (NY), built “on the site of a former psychiatric hospital, adjacent to the county airport,” where a home recently sold for “$1 million, up from $725,000 three years ago.”
The article noted the following: “One reason for high land costs is that local governments in upscale areas enforce tight restrictions on new development, generally popular with those who already own homes, (and) drive up prices of land that becomes available." Really?

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Taxation and Finance ---- Pay Now ... or, Pay Later?

   If you've ever sold appreciated property and been paid for it over several years, you are probably familiar with the tax law's installment sale rules. They allow you to report your gain in stages, as you receive payments from the buyer, instead of reporting the whole gain in the year of sale.
The installment method usually works well from a cash flow standpoint. After all, why pay taxes today on money you haven't even received yet? But you shouldn't automatically use the installment method. Sometimes, electing to report the gain up front makes more sense.
For most individual taxpayers, the maximum tax rate on long-term capital gains is currently 15%. (Higher rates apply in some instances.) But it will return to its former level (generally 20%) after 2008. If your sale is structured so that you'll receive large payments after 2008, you could save taxes by reporting your whole gain in the year of sale.
In addition, the tax law lets you offset the year's capital gains with capital losses and include only the net amount in your taxable income. So, if you have an offsetting loss in the year you sell your property, you'll probably win the tax game if you report the whole gain on your return that year.

R, P & T

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

  Just a "Normal" Monday in Davenport (Iowa)

On a normal day, Davenport, Iowa is a quiet town of 100,000. It’s considered 1 of the “Quad Cities” (with Moline, Rock Island, and I can’t remember the other), on the Mississippi River, first discovered on a rerouted flight from Omaha to Detroit during the big storm of ‘78.
But last Wednesday, that Quad Cities airport hosted two big name planes, “Air Force One” (made famous by Harrison Ford) and the “Kerry/Edwards” express, as the President and John Kerry were scheduled at places just 4 blocks apart.
Well, the dual appearances assured a lot of police protection giving (at least) 3 criminals the idea that the rest of Davenport was vulnerable. So, during the morning hours, there were robberies at three local banks, which was clearly an inspiration to Jay Leno who noted: “The robbers thought it was time to take the peoples’ money before the politicians get it.”  

"Seinfeld" Briefs:

Perhaps the most “Seinfeld” Worthy primary candidate was John Bennett Ramsey (best known as father of the late JonBenet), running, unsuccessfully, for the GOP nomination in the Northwest 105th district. Ramsey’s celebrity status put the district “on the map,” (he was even portrayed in a South Park episode, unique for a “conservative” Republican) as he drew news crews from CNN to the majors.
But most notable was Ramsey’s ability to collect money (particularly from out of state). He received roughly $51,000 in donations (along with his own $60,000) including around $17,000 from his old neighbors in the Atlanta (GA) area, and thousands from his Colorado friends. Of course, our favorite donation came from a Jacqueline Riggs of Georgetown, TX, who sent 2 cents which, he reported.
# # #
It’s pretty obvious the Democrats think they have a real winner in Barack Obama, the Illinois State Senator who, until Friday, was unopposed in his race to be the next U.S. Senator from the “Land of Lincoln.” So, after they gave him the prime Keynote Address spot at the convention last month, CBS Late Night host David Letterman responded, President Bush asked his advisors, “Obama?, Isn’t that the guy we can’t find?”
# # #
If you think Genesee County politics are tough, you should have read about the 52- 2 District Court race in Oakland County, highlighted in last Saturday’s Free Press.
In 2002, Kelley Kostin lost a contest for an open seat to Dana Fortinberry, and is currently running for another open seat in the same district. After the Oakland Co. Sheriff’s Association endorsed Ms Kostin (over Ms. Fortinberry’s choice for the office), Judge Fortinberry wrote a five page letter attacking the association endorsement process, then suggesting “Kostin, her husband (attorney Bob Kostin) and White Lake Township Police Chief Ronald Stephens covered up facts surrounding the death of Bob Kostin’s previous wife, Judy, in 1989.”
According to the Freep, Fortinberry’s letter alleges that shortly after finding out about an affair between Bob and Kelley, Judy Kostin was found dead at their home. She further notes that, al-though the death was ruled a suicide, the investigation was done quietly, as “Ron Stephens was a friend and neighbor of Bob Kostin.”
Kostin ended up as the top vote getter in Tuesday’s primary, and will face off in November with Larence Kozma. If she wins, it should make for interesting times in the Oakland County court system.

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Association News and Events by Laura

  

New Members' Applications Linden Lumber Ted Woods Sponsor: Mark Nemer Comfort Guard Eugene Luxton Sponsor: Dave Yurk

The Fall Parade of Homes will open Saturday, October 9th, and run through Sunday, October 24th, with normal “fall” hours (weekends - noon to six; Thursdays and Fridays - 4 p.m. to 7p.m). After the first (7/21) deadline, we had 18 entries and now, the “final deadline” (@ $2,900 entry), August 16th, is fast approaching. So, get your contracts in (or make sure they’re postmarked by Aug 16). If you don’t have a contract and wish to participate, call the association office immediately. # # # And, along with the Parade, Housing Quarterly advertising opportunities are available. However, as has been the custom in recent issues, are requests for full color ads are on the rise, meaning that, even though we raise the number of color pages, we still have the likelihood of coming up short after we set the pages in mid August. So, we ask those who are planning on taking color ads to let us know of their intentions early, so we can assure space. Also, as we noted last month, we’ve redesigned the editorial pages for the fall issue, and are confident it will be the most appealing issue ever. Again, if you haven’t received an HQ contract, but wish to advertise, give us a call. # # # The Michigan Association of Home Builders’ (MAHB) Directors barely defeated the $19 dues increase we wrote of last month, and compromised at $9. That means Dues will likely rise by the end of the year to accommodate their $9, plus the additional $10 from NAHB (who voted a three year increase back in 2002) ... that means you’ll be paying $230 ($150 national; $80 state) if you’re due after the end of November. # # # Monday’s Golf Outing was fantastic at Flushing Valley...Look for photos on the website, and a sponsors' tribute.

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Economic Update: Jobs’ outlook keeps deteriorating

Last month we opened with the question from CNBC: Would the president be the first in memory to face reelection with four years of negative jobs’ data? And, following the weak June employment report, pointed out that the economy would have to create 275,000 jobs per month to make up the 1.1 million deficit by November. Well, on the heels of July’s report, we now need 365,000 per month to catch up by election day.
The Labor Department’s release of July’s hiring showed an increase of just 32,000 jobs for the month, while some 300,000 were expected, which sent the financial markets reeling. Stock prices plunged for the second day in a row, while bond prices soared (a good thing for mortgage rates).
But the weak employment report was actually the third negative item on the employment scene in the previous nine days. First came the New York Times analysis of I.R.S. data, showing gross income to the agency fell 5.1% from 2000 to ‘02 (the most recent year for which data’s available), making it the first time since World War II income’s declined over a 2 year period. However, it gets worse since, due to population growth, average income is down 5.7% (and, adjusted for inflation, down 9.2%).
Then, the following day, came a report that over half of workers who “lost full-time work between 2001 and 2003, who found another full-time job by this year, are earning less than they used to.” It noted that, from January 2001 to December ‘03, 5.3 million workers lost jobs that they had held for at least 3 years. Among those “displaced” workers, 65% had found work by January of this year. However, 57% of those who had lost, and subsequently found, full time jobs reported they were earning less today, than they were in their old jobs. And, roughly 33% of those with smaller paychecks were being paid at least 20% less.
Interestingly enough, July’s employment report had the jobless rate falling to 5.5%, despite the weak job creation. However, we’re still down over a million jobs in the past 43 months and, if the Bureau of Labor statistics’ numbers, as reported, are valid, an additional 2 million workers are earning less than they were in their previous jobs, with roughly 700,000 earning less than 80% of their previous wages.
If there is a bright spot in the recent employment report, it relates to growth in those higher paying sectors that had been hit so severely since 2001. While retail payrolls fell by 19,000, hotels lost 4,600 jobs, and even gas stations shed 2,600 jobs, there was a rise in “Professional/Business service employment” of 42,000 jobs and a rise in manufacturing payrolls of 10,000. These data suggest that, while consumer spending is having a negative impact on hiring, business capital spending is keeping economic activity in positive numbers, which goes along with the ISM Manufacturing Index.

Manufacturing Activity Rises
For the 14th consecutive month the nation’s manufacturing has continued to grow, according to the Institute of Supply Management’s July survey. In its report, the ISM noted that its index has remained “above 60% for nine consecutive months.” (we frequently explain that any number above 50 means the sector is growing) What’s notable is that the last time the index was so strong for this long a period was from mid ‘72 to mid ‘73.
Also notable is that “new orders” and “production” accelerated, but inventories contracted (and customer inventories were listed as “too low”), representing the 38th consecutive month of contracting “customer” inventories. And, although it was at a slower rate, manufactuing employment continued its growth for the 9th consecutive month, after 37 months of decline.

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'04 Housing records on line; but

   Well, we now have all the first half data reported and, short of a disastrous second half, housing activity will set more records for sales and construction in 2004. However, that “disastrous second half” has become a possibility as we wonder, how long can housing activity continue upward with employment and economic growth weakening?
While the rate of first half existing home sales are running at a rate 6.2% ahead of 2003’s year end record pace, new homes are selling 14.6% faster than last year’s pace. Furthermore, new home sales’ estimates show activity (in numbers) up 20% from the first six months of last year.
And, while the housing starts’ reports generated headlines of the lowest rate of activity since May ‘03, first half starts were up 11.2% from 2003’s record pace, while single family starts were 12.2% above the same period last year.
As is evident in the new housing charts (right and below), all months in ‘04 beat their corresponding month in ‘03, except for June starts. What’s notable about that figure is the report was preceded by an NAHB notice that builder optimism had declined during the month due, primarily, to rising interest rates. However, as you can see in the mortgage rate update, rates fell at the end of that month, and continue to show signs of further decline.
The government’s single family estimates for the January - June period suggest 797,200 homes were started, up 12.2% from ‘03’s 710,400 which, interestingly enough, doesn’t keep pace with new home sales, up 90,000 units (20%) on a year to date basis.
While June’s new home sales were off slightly from the record rate of May, existing homes set a new record during the month, selling at a rate of 6.95 million units and beating the previous record (set a month earlier) by 2.1%. And, year to date, existing single family homes sold at a 6.5 million unit pace, or 6.2% above 2003’s year end record.

Local/Regional/Michigan
Housing Consultants reported that permits were up 7.3% in the nine county region of southeast Michigan for the first half, and up 12.9% when rentals are excluded. However, Genesee County was up only 4.9% in the first half (excluding rentals), well below its 12% rise through May.
What's may be more notable about the first half data is that the Southeast portion of Genesee County is the only section running ahead of last year. Burton, Davison and Grand Blanc are roughly 70 units ahead of 2003, while the rest of the communities are off by a combined 34 homes.
The state, as a whole, is in the midst of its best 1st half since 2000, with single family permits up 6.8% in comparison to last year, according to the Bureau of the Census. Year to date single family permits were estimated at 21,450 from January through June, by far the highest since 21,649 four years ago.
# # #
Regarding existing homes in Michigan, the state’s Association of Realtors says sales are up 4.97% for the first 6 months of the year, in comparison to ‘03. It also reports the average price is up 4.1%, to $145,377, from $139,701 a year earlier.
The more interesting data, however, comes from the Flint area, where sales are up 2.8%, to 2,722, on the heels of what the Flint Journal reported as an all time high volume month of June.
However, the data also show a significant (9.7%) decline in the average price, from $138,912 for the first half of ‘03 to $125,383. There could be several reasons for the decline (and Veritas never speculates?), but don’t be surprised if we find a growing share of the south county market (with its higher prices) is taken by realtors from Metro-Detroit, and reported by other realtor boards.

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