December 6, 2005

Inside Veritas -
Article 1 - BAMF says "Thanks" with 5th Annual "Holiday Open House"
Article 2 - Housing and Economic Briefs: Factory home sites; Jobs' GDP soar
Article 3 - Existing Market Activity
Article 4 - Michigan Home Price Index: 51st in U.S.
Article 5 - Taxation and Finance by Rachor; Purman & Tucker CPAs
New Tax “Credit” for Energy Efficient Homes
Association News Update From Laura
New Construction and Sales Activity
BS: Still about Nothing in particular
Y-T-D Auto Sales Up (not for "Big 3")
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BAMF says “Thanks” with 5th Annual “Holiday Open House”

It was 2001 when BAMF scrapped its annual “formal” Christmas Party (along with its ticket price) in favor of the “Holiday Open House,” as a way to “kick off” the season and say “thank-you” to its members and friends for support over the year. And, as each year passed, attendance continued to rise ... Well, this year there were roughly 140 joining us for hors d’oeuvres, libation, desserts and great conversation at the November 30 “kick off,” which ended well beyond its scheduled 7:00 p.m. conclusion.

Of course, we have several to thank for making the 5th annual event a total success, including: Elegant Catering for their excellent service; Laura Rutherford and Tracey Tucker for their combined planning, decorating, purchasing and (yes) bartending skills; and Hill Steel and Builder Supply for their continued support of this event.

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Housing & Economic Briefs: Factory home sites; Jobs, GDP soar

A recent Businessweek article focused on the 21st century phenomenon of the conversion of closed down factory sites to new, often upscale, housing developments. “The manufacturing bust and housing boom has turned industrial plants into priced real estate,” the article says, pointing to the demand for homes in cities where land is scarce.
And, if you think land has become expensive in suburban Michigan, look at some of these prices: Pulte paid $2.5 million per acre for a fruit packing plant in San Jose, and Toll Brothers paid $76 million for a 24 acre Maxwell House coffee plant in Hoboken (NJ).
Much of the manufacturing real estate is controlled by private equity firms that close down plants and sell off assets ... so, what’s the real value of “Buick City?”

While Michigan scrambled to come to a budget agreement, most state and local government coffers across the nation are “overflowing” with cash. Believe it or not, revenues are up 7.2% so far in ‘05, primarily due to the impact of soaring real estate values on Property taxes.
Now, according to a CNN report, many states and cities are returning surplus tax dollars to property owners. New York City, for example, rebated $400 to homeowners in each of the past 2 years, while New Mexico’s giving money back in the form of energy rebates on property owners’ income taxes. But our favorite is Pennsylvania. The “Keystone” state has already raised its share of local school budgets due to legalized “slot machines,” and will use those “slot” revenues to cut local property taxes.
The Economic News from a national perspective was more than amazing, as the economy added 215,000 jobs in November (as expected). But what came as a pleasant surprise was the big jump in Consumer Confidence, which was 10% higher than expectations. Then came growth, with Gross Domestic Product revised growth revised upward to 4.3% (from 3.8%) its strongest showing in nearly two years. (Editors’ Note: There was far more on the housing and economic front over the past few weeks ... for all of the news, check out Veritas Update on our web site at www.bamfhome.com/ )

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Existing Market Activity

If you just read headlines you would probably think the housing market collapsed in October, but in reality, it was the 8th consecutive month that existing homes sold sales at a rate above seven million units. Though the 7.1 million rate represents a 2.7% decline, it was still well above the 6.78 million year end record of 2004. Also, there was little sign of an imminent “bubble,” as prices continued their double digit climb, up 16.6% from 10/04 at a median price of $218,000.
However, there was a “downside” in the realtors’ report: rising inventory (2.87 million units or a 4.9 months’ supply).

Michigan/Flint Area While the “year to date” data below suggest existing homes are selling at exceptional rates, (off 1% state; up 0.24% locally) they only show part of the story as October sales were dismal. Across Michigan, sales for the month were off 8.7% from last October, while lo-cal activity, at 459 units, is off 13.1%. But more notable is the local sales’ pace, which fell to 4,636 units, down 32.4% from September. While we don’t lend much importance to one month’s data (as a rule), the severity of the October de-cline, and its impact on inventory, are particularly troubling.
At the October sales’ rate, we have a 14.9 months’ supply on the local market, up from a 3rd quarter rate of 11.5 months. To put that in perspective, as U.S. inventory’s jumped from 3.9 to 4.9 months since winter, Flint’s rose from 10.8 to 14.9 months.

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Michigan Home Price Index: 51st in U.S.

Back in the 1990s we always looked forward to the quarterly metropolitan price reports from the “Realtors” and “OFHEO” as each quarter showed us MIchi-gan (and its major metros) were at (or near) the top of the list of fastest appreciating homes.

Then, along came the 2000s, and we quickly fell to the bottom 5th of the nation. Well, last week when the government released its “House Price Index” (HPI) for the third quarter, and Michigan was dead last for the first time since the early 1980s.

The “HPI,” which reviews all financial transactions on “same” properties, found home values across the nation rose 12%, on average, over the previous year in 265 metropolitan areas led by Arizona (30.3%), Florida (25.2%) and Hawaii (21.3%).

At the other “extreme” we find Michigan (4%), Ohio (4.5%) and Nebraska (4.8%).

What’s more significant is the look of the report’s “Top 20” and “Bottom 20” metro areas. While the 11 Florida metros in the “Top 20” are primarily major markets, the 5 California towns are considered smaller metros (at least from a “Golden State” perspective), which corresponds to the trend that suggests households are “cashing out” of high priced areas and moving to lower cost communities. The five California cities’ had median prices running from $225,000 to $390,000 in the 2nd quarter, well below the state’s major metros which ranged from $461,000 in L.A. to $750,000 in S.F. Adding more credence to this theory is the continuation of soaring prices in places like Coeur d’Alene (ID), Prescott (AZ) & St. George (UT) all in the top 12.

At the other end, we can see the impact of the Midwest economy on house prices. Of the 12 lowest rates of appreciation, five were in Michigan, two in Indiana and one (Mansfield) in Ohio.

Now that “Detroit” is divided in 2 metro areas, it has the distinction of having two entries in the bottom 20, with Wayne County ranking 5th from the bottom and Oakland & Macomb just seven metros higher. Saginaw, Lans-ing and Jackson joined “Detroit” in the lower twelve.

Flint did somewhat better than its neighbors (and the state as a whole, with a 4.5% rise, ranking it 40th from the bottom, while Ann Arbor was ranked 245th, missing the “Bottom 20” by one. (Note: the 1 year rates of appre-ciation for other five cities noted ran from 2.48% to 3.34%).

Just prior to the HPI came the National Assoc. of Realtors’ 3rd quarter report on metro median prices, which showed many of the usual discrepancies in comparison. However, from a local perspective, the prices for metro Detroit were very close to the area’s HPI. In this issue, we’re taking advantage of our printing process to highlight some median price comparisons.

(HPI note: Naples (FL) was #3 with a 32.4% rise over the past year. But the rise for the quarter was 4.72% (65.2% below its 13.5% rise in the second), which probably made a great headline somewhere in the “Sunshine State.”

Taxation and Finance by Rachor; Purman & Tucker CPAs
Last Minute Tax Strategies

As the year end approaches, it’s a good time to engage in tax planning. We have compiled a “checklist” of actions that may help you save taxes if you act before year-end. Not all actions will apply in your situation:
1) If you have any capital gains or losses from sales of stock or other capital assets or you have stock or other capital assets that are ripe for sale to minimize tax on your gains and maximize the tax benefit from your losses.
2) It may be advantageous to try to arrange with your employer to defer your bonus until 2006.
3) If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss for this year.
4) Consider using a credit card to prepay expenses to generate deductions for 2005.
5) You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
6) Business clients also should consider making expenditures that qualify for the $105,000 business property expensing option.
7) Self-employed individuals should consider setting up a self-employed retirement plan.
8) If you're thinking of donating a used auto to charity, you may want to inquire whether the charity plans to sell the car or use it in charitable activities; the latter may yield a bigger deduction for you.

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

Mayor “Speak” makes great copy
You’ve got to find (Mayor) Don Williamson’s bravado somewhat refreshing. After nearly “cleaning house” of his City Council foes November 8th, a “normal” politician would talk about “working together for the good of the citizens,” or espouse some other hyperbolic cliche. But not this Mayor. He called on the two remaining to resign.

Then, there was his Kildee comment: After more than 40 years representing “Flint” in the State and Federal Legislatures, we thought Dale Kildee had pretty solid name recognition. However, Williamson’s planning on running someone with “1,000 percent more” name recognition for his seat. So, who could that be?

Well, there were reports of a “Ringo Starr” sighting at Bronners (in Frankenmuth) in October. Perhaps the former Beatle actually was on the “pre-campaign” trail.

Seinfeld Briefs:

Lighten Up NBA! The league fined the Sacramento Kings $30,000 for mocking the “Pistons” with “images of Detroit.” The arena scoreboard showed pictures of burned-out cars, abandoned buildings and piles of rubble as the Pistons were being introduced November 8th. While the Kings apologized with full page ads that ran in the “News” and “Free Press,” but that wasn’t enough for some. As Free Press columnist Mitch Albom suggested, the Kings were probably still angry about their experience with Detroit native Chris Webber. Of course, Albom at least thanked the Kings for the Free Press ad.

(Veritas note: We believe the league overreacted. After all, the Kings could’ve been much nastier and shown films of Lions’ games.)

Back in the business: Heidi Fleiss, most sought after free agent in any industry since Terrell Owens (and we know how that worked out), is moving to Crystal (NV) to work for the owner of the town’s two primary attractions “Mabel’s” and the “Cherry Patch Ranch” brothels. While the former “Hollywood Madam” is supposed to be developing a “stud farm” for female clients, we would guess her new boss is really looking for publicity ... and, by the number of times we’ve seen the hiring reported, Ms. Fleiss is already a colossal success.

*LIONS: by the numbers*
1) Prior to Steve Mariucci’s arrival, the Matt Millen run Lions won 15.6% of their games. Since, they’ve won 34.9%. As Mariucci raised Millen’s “bottom line” 124%, he got fired while Millen got a contract extension.
2) During the 15 years prior to Bill Ford’s purchase of the Lions, the team won 59.9% of its games: Since, they’ve won 42.98%.
3) Just prior to Bill Ford jr. becoming CEO, Ford had 24.5% of U.S. market share: In ‘05 it’s share’s at 18.6%.
Do you see a pattern here?

And finally, we wish you all a Happy Holiday season: Christmas, Hannuka, New Year and, of course, “Festivus” (for the Rest of Us).

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Association News and Events by Laura

The BAMF Board of Directors set the schedule for 2006 General Membership Meetings as follows: January 18; February 15 (Exhibitors’ Night); March 15; and April 26, prior to breaking for summer. The Fall meetings are set for Septem-ber 20; and October 25th. Each meeting is set for Bonapartes’, and will begin with cocktails and hors d’oeuvres at 6:00 p.m. (except Exhibitors’ Night, which begins at 5:00 p.m.) Be sure to join us January 18th for the Installation of Officers and Directors for 2006 and presentations to the outgoing leaders of ‘05. Look for complete meeting details in the January issue of Veritas. Dues for ‘06 will remain at $500. How-ever, while we were able to stop the dues increase the Michigan Association tried to push through, it was only defeated by one vote, and we expect they’ll raise the issue again, in either February or July. Remember, 44% of your dues go to the NAHB and MAHB, and nearly all raises in the past decade have gone their way.

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New Construction and Sales Activity

If you read business publications over the past month, you (too) would be sure the “housing boom” is over. After all, as interest rates soared, builders’ confidence plummeted, housing starts declined and existing homes sold at a rate of 7.1 million units, a barrage of articles and commentaries told of the industry’s demise.
Then came November’s end with upbeat economic readings and an all time record for new home sales.
While the others are noted in Economic Briefs, the 13% rise in new home sales provided a major surprise to last month’s economic reports. Selling at a rate of 1.42 million units in October, homes are selling 7.6% faster this year than during the record breaking level in 2004.
However, what we find more notable is that October’s data reflect soaring numbers in the West and Northeast, a reversal from the previous month when nearly all the growth in activity was in the South.
As you can see in the chart to the left, single family starts fell to a 1.7 million rate in October, the lowest level since April. But it was also the 7th consecutive month starts were ahead of last year’s record (and the 6th consecutive month at a rate above 1.7 million).
While we may not disagree with those “experts” who claim the industry’s now in decline, we can’t help but find it bothersome when they distort data to justify their assumptions.

Region/Genesee County

While there’s still no clear signal of a national downturn, the state’s Southeast Region continues to experience a decline that’s been evident since winter. In fact, October was a particularly devastating month as new permits, like existing home sales (see page 3), fell dramatically, according to data provided by Clarkston based Housing Consultants. An analysis of the firm’s September and October reports shows just 1,643 single family and condo permits were pulled in the nine county region for the month (30.4% less than in Oct. ‘04). October’s numbers bring the “year-to-date” decline to 19.8% (4,205 fewer units).
Genesee County’s decline has been steeper than the others over the past six months, as is evident in the graph above. In October, however, local activity plummeted, with just 95 units, down 53.4% from October ‘04.
If you recall, Genesee’s permits were running well ahead of ‘04 through April. However, it fell 303 units (24.9%) over the next six months (more than 1/3 of that coming in October).
Grand Blanc leads the county with 285; Davison’s next with 177; Mundy’s at 168; and Burton issued 151 through the ten months.

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Y-T-D Auto Sales Up (not for “Big 3”)

Despite another weak month for auto sales in November (off 2.8% from 11/04), year-to-date activity is up nearly 140,000 units (0.9%). However, the nation’s two largest vehicle manufacturers have seen a combined slip of 296,000 units (4.1%), as their collective share of the market fell another 2.4%. GM sales are off 157,000, while Ford’s are off 139,000.
While GM’s announced cuts of 30,000 workers, Ford said it will close plants that employ 7,500 workers, roughly 6% of its North American work force. (While analysts expect closings of Atlanta, St. Louis and St. Paul plants, a Free Press story story notes a “secret deal” to save Atlanta, meaning the Wixom plant is at risk) ... and, that’s on the heels of Ford announcing 4,000 “salaried” layoffs for 2006.
All major companies reported declining sales last month, with just 2 exceptions: Toyota (+ 10%) and Honda (+ 10.8%); as Japan’s largest producers continued the assault to capture the U.S. market.
As we can see in the chart, over the past 2 years, GM and Ford lost 4.1% of the U.S. market, the exact share gained by Toyota, Honda, and Nissan.
Note: When we pull trucks from the mix and look at cars only, GM leads with 1.61 million, Toyota’s 1.16 million is 2nd, beating Ford by over 200,000 (21%).
Auto Industry Briefs:
Considering the sales’ update, it’s hardly a surprise that Toyota said it would build 100,000 vehicles at a Subaru plant in Indiana (and that’s is in addition to the opening a truck plant in San Antonio that will add 200,000 to its capacity for ‘06) .... Consumer Reliability Ratings: Of the 31 vehicles that earned the “Top” reliability rating, 29 were Japanese. Of the 48 that earned the “lowest” rating, 22 were American, 20 carried European nameplates.

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