Forget what you may have read in a Michigan Association
of Realtors report a couple of weeks ago. That report claimed that Flint area
real estate sales were running 40% below last year’s levels through April.
In reality, local home sales are up 2.4% for the first half of 2000,
from 2,469 to 2,528 units, according to an analysis of Flint Area Association
of Realtors’ data. However, the total number of sales is merely a minor story
in the full analysis.
The big story continues to be the venue of the sales and their
effect on the area’s price levels. As is evident in the chart to the right,
sales in the City of Flint are up dramatically (26.3%), as suburban sales
are down 4.5%, in comparison to the January through June period of ‘99. Last
year, Flint sales made up just 22.5% of local sales, while this year it’s
responsible for 27.8%. The growing percentage of city sales has been evident
in the continued falling of local home prices (as we reported earlier this
summer, NAHB quarterly reports showed median prices falling 8.4% from the
third quarter of ‘99 to the firs quarter of ‘00). The realtors’ data shows
that average prices are down 3% from last year, despite the fact that most
communities in the county, including Flint, experienced a moderate rise in
average prices.
What’s continuing to drag the area’s real estate price levels south
is the comparatively high volume in Flint, and the declining volume in a few
of the higher priced suburbs with normally strong sales activity. For example,
the Lake Fenton school district, with an average price of $193,000, saw sales
decline 13% during the period. Flushing (ave. price $142,500) saw volume cut
by 15%. And Grand Blanc ($163,300) experienced a sales decline of 8%.
The average price in Flint did, in fact, rise to $57,256, but with
it making up an additional 5.3% of total sales, in comparison to last year’s
figures, its drag on county price levels continued.
Again, the real question that remains is, why has Flint’s sales
volume soared since the final quarter of 1999, and continued through the second
quarter? It’s probably more than coincidence that the selloff began after
the Mayoral election, but additional factors could also be responsible. An
aging population and individuals moving closer to suburban jobs may also have
an affect. An accurate census could answer those questions.
During the 2nd quarter, housing affordability
fell to its lowest level in eight years, according to the National Association
of Realtors (NAR). With higher home prices and interest rates offsetting gains
in median family income, the group’s housing affordability index fell
4.6 points, to 126.5, its lowest level since the second quarter of 1992 (and
13 points below its level one year ago).
The NAR’s Housing Affordability index measures the ability of a
family earning the median income to purchase a median priced home. An index
of 100 means a family earning the median income can afford a median priced
home. So, market conditions for buyers remains exceptionally strong from an
historic perspective. And, with interest rates falling while incomes keep
rising, the short term outlook for affordability should remain solid.
Still, the median income has lost significant home purchasing power
over the past year.
On August 2nd the Commerce Department reported
that new home sale plunged 3.7% in June, hitting their lowest level since
December of ‘97. Homes sold at a rate of 829,000 units for the month, as the
Midwest (7%) and South (5%) regions experienced the biggest drop.
Despite the recent decline in sales, builder optimism is up in
August, according to NAHB’s Housing Market Index (HMI) which jumped 3 points
over July. The new index rating is 61 (any score above 50 means more surveyed
builders see conditions as good than bad).
NAHB believes the HMI’s improvement is partially related to recent
declines in mortgage rates, giving it reason to believe the “market is stabilizing.”
Still, the rating is 17 points below its peak in late 1998.
Housing starts fell 3.2%, to a level of 1.512 million
units last month, the lowest level since November of ‘97. Permits also fell,
to an annual rate of 1.49 million.
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Primary results
teach important lesson
On the front page of the July 31 Veritas we wrote that,
in most cases, the primary elections were tantamount to actually electing
a number of local officials. Unfortunately, the only community that appears
to have viewed this year’s primary with the importance it deserved was the
City of Flint, which turned out at a much higher rate than the rest of the
county due to the school millage being on the ballot (don’t believe Flint’s
actual “turnout” percentage; it was much higher than reported because the
city’s actual number of registered voters is way overstated.)
What we learned from last Tuesday’s results came more from their
margin, then who actually won the individual races, because it became obvious
as the returns came in that there are certain pockets of anger in the community.
And, it became equally obvious that the anger was the motivator to get people
to the polls.
Perhaps the most obvious indicator came from the race for Drain
Commissioner. It was hardly a surprise that Jeff Wright beat incumbent Ken
Hardin. He ran a strong campaign, and should be commended for it. But the
fact that Wright received over 60% of the vote was a shock to the candidate
himself, and his supporters as well.
At Wright’s victory party that night, the least surprised person
was actually a strong supporter of Hardin’s ... and it was me. Throughout
the previous two weeks a number of close friends said, endorsements aside,
they were voting for Wright. And, their primary reasons had nothing to do
with sewer spills or Ken Hardin’s handling of the job. They were, as a group,
“tired of politicians running everything.” And they were willing to be part
of that 20% that goes to the polls to “voice” their fatigue.
The “fatigue” with politicians was equally evident in the Prosecutors
race, where incumbent Art Busch eked out a narrow victory over a candidate
who, quite frankly, was not even viable. And it was even evident in Grand
Blanc Township where Bill Delaney lost the Supervisor race by a 3 to 1 margin.
The lesson of these results points to the independent streak in Michigan voters
... the streak that selected Geo. Wallace, Jesse Jackson and John McCain,
exists at local levels as well. And, when the voter turnout is low, independence
of political “pros” prevails.
Barry
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Taxation and Finance .. by Rachor,
Purman & Tucker;
Selling Investment Property Like Kind Exchanges
A well known, but sometimes overlooked, way to alter investment
holdings without paying tax at the time of the transaction is through the
use of “like-kind” exchanges. In the like-kind exchange, investment property
is traded for other investment property. The person transferring one piece
of property receives different property but keeps the same basis as that for
the old property. That way, the gain is deferred while other tax attributes
are preserved.
Of particular interest are the flexible features that make a like-kind
exchange an especially useful technique. First, properties do not have to
be of identical type to qualify as like-kind. To take a few examples: commercial
buildings have been exchanged for unimproved lots; farm land for city lots;
and even cooperative housing stock carrying occupancy rights for a condominium
interest in the same property. One caution: like-kind exchanges do not work
with all kinds of investment property. For instance, neither stocks and bonds
nor partnership interests qualify.
Second, properties don’t have to be exchanged at the same time.
Therefore, it is not necessary to have already located the exchange property
to make a like-kind exchange (an important consideration if the end of a tax
year is looming). It is sufficient that the exchange property be identified
within 45 days (However, if the tax return due date for the original transfer
year occurs before the end of a 180 day period, the identified property must
be received by the tax return due date.).
To illustrate how these exchanges work, consider the following
example:
Fred owns an interest in an office building. He bought it years
ago for $10,000, but now it’s worth at least $100,000. Fred has decided to
move to Florida and convert his office building interest into an ownership
share in a Florida apartment building. Allison wants to buy Fred’s office
building interest and, for tax reasons, wants to own the building interest
by December 31. Fred wants to avoid the high tax he would have to pay after
a cash sale.
A solution is a deferred like-kind exchange. Fred transfers his
building interest to Allison on December 31. Allison agrees to locate and
buy a Florida apartment building interest of equal value suitable to Fred.
(Fred can even insist that Allison put the purchase price in escrow, so long
as Fred has no independent right to the cash). After Allison finds, buys and
transfers the Florida property to Fred, the like-kind exchange is complete.
Provided the 45/180 day rules along with other requirements are satisfied,
Fred receives the Florida property tax-free, with the same basis and holding
period he had in the office building.
A like-kind exchange can be an excellent tool to be used to achieve
investment goals.
Even in situations where it is impractical to arrange a completely tax-free
transaction, like kind exchanges may still reduce the immediate tax consequences
of altering your investment holdings. Any transaction must be carefully structured
so, you should consult with your tax advisor before entering into this type
of transaction.
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It’s still
about "Nothing" in particular
The 3 major networks had a really bad week at the
beginning of August as the number of viewers in their 10 to 11 pm time slot
fell to a combined average of 14 million viewers. To put that in perspective,
CBS had 27.4 million viewers for its Survivor series on Wednesday,
but only 5 million stuck around for the final hour of “prime time.”
So, what turned off viewers at such a dramatic rate? It was the GOP convention,
of course (and we doubt the numbers will be much improved this week).
In all cases (cable included), viewership was lower than four years ago. Even
CNN, the leading cable network with an average 1.1 million viewers, showed
a decline of 40% from 1996.
Perhaps the Wall Street Journal said it best: “In a ratings challenge
between Dick Cheney and the “Survivor” castaways, it’s clear who got kicked
off the island.” Now, do we look for cancellation notices by 2004?
After addressing the Democrat’s convention on Monday, Bill and Hillary
had planned to leave Los Angeles and turn over the symbolic leadership of
the party to Al Gore in Monroe, Michigan (is it also symbolic that they chose
the birthplace of George Armstrong Custer?). Of course, some people had another
take on the situation. Late Night’s Conan O’Brien (of NBC fame) said
that, “when asked about it, the President said,” I’ll endorse Al Gore but
I’ll be damned if I’m gonna hang around and listen to him speak!
In Holland (MI) last week, GOP Vice Presidential candidate Dick Cheney
told a rally that voters should reject Gore, not because of Clinton’s personal
failings but because “his administration would be a continuation of the last
8 years.”
Now, one must wonder, what part of the past 8 years would the voters not
want continued: Low unemployment? Low inflation? The longest economic expansion
in history? Record home sales and single family housing starts? World peace?
Lower crime rates?
If Gore can convince voters that his election will bring eight more years
of the kind of prosperity the U.S. has been experiencing, he’s looking at
victory in November. If Cheney continues to help Gore make that argument,
it’s proof that George W. Bush is no more adept at choosing a running mate
than his father was twelve years ago.
Another knock on the NRA “Victory Fund.” After screwing up the date
of the election they sent out conflicting cards to members, telling them to
pick up the “Republican” ballot for State Rep, and calling for the Democrat
ballot in the prosecutors race ... and we entrust them to protect our 2nd
amendment rights?
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Association News and Events - Golf
outing makes big splash; Parade hits 21
The drains were obviously working well in
the Southeast section of Grand Blanc Township as, despite the fact that several
courses around Genesee County were closed due to flooding, the BAMF golf outing
went off without a hitch on August 1st. Thirty-six foursomes of members and
guests hit the tee with a “shot-gun” start at around 11 a.m. and, despite
a few sessions of sprinkles, completed the annual event in surprisingly comfortable
weather.
Although the round, slowed by the need to keep carts on paths only,
took nearly 6 hours, the 144 golfers remained refreshed throughout the event,
thanks to the frequent appearances of the beverage carts, sponsored by Bank
One, Citizens Bank & Republic Bank; more refreshments at the first and
tenth tees (and at the clubhouse), sponsored by Hill Steel and Building
Supply; and the ice cream supplied by Metropolitan Title at the
5th tee.
After dinner and door prizes the winners for lowest score, women’s
contests, and 13 sponsored contests were announced ... The team from 84
Lumber was lowest at a 15 under par 57, followed by Wolohan/CML
with a 13 under par (59). Mindy Ball won women’s closest to
the pin and longest drive.
Following are the hole #; sponsor; prize and winner
of the 13 golf contests:
1) Hill Steel; set of Taylor Made irons and a bubble II driver to
Ron Stephens
2) Flint Journal; a Taylor Made lob wedge to Dennis Carnell
6) Hill Steel; a set of King Cobra irons — Jerry Leonard
7) Greco Title; another Taylor Made lob wedge to Nick Will
8) James Lumber; a Porter Cable Drill — Jerry Edwards
9) Knapheide Truck equipment; a special gift pack to Darrin Lum
10) S & M Lumber; a gift certificate to the Speakeasy to Jay
Molina
11) Express Service; an Odyssey putter to Andy Aagesen
12) 84 Lumber; a unique break down putter
14) Republic Bank; a gift pack including Buick Open tickets, won by
Bill McKay
15) Citizens Mortgage — Teri Lucas; a gift pack won by Dave
Lucas
16) Wolohan/CML; a golf bag won by Derrick Riley
18) Verizon Wireless; a cell phone won by Andy Aagesen
As always, individuals who attend several golf outings each year
rave about BAMF’s in comparison to others. Why? It’s the quality of the contests,
and the prizes that go with them, along with the refreshments that flow throughout
the event ... and, it’s the support from the sponsors noted that allow us
to make this event special ... that’s why we’re sold out in June.
Fall Events: As of this writing, there are 21 homes in
the Fall Parade (there conceivably could be additional entries in the mail
that were postmarked by yesterday’s deadline). We’ll present a complete breakdown
on the Parade participants in the next issue of Veritas ...
With parade participation in the low 20s, we’ll have additional
distribution options for Housing Quarterly magazine. Despite
the strong response on advertising, the magazine will remain at 72 pages or
less, and we’ll be mailing between three and four thousand with considerable
numbers available for distribution outside of mailing and parade models.
Remember, the final deadline for advertising is August 28th,
and all copy is expected in by that date. Also, we will accept articles from
members as late as Tuesday, September 5th.
Finally, for those who request additional copies for distribution, we’ll be
far more able to accommodate your request for this issue ... if interested
in advertising, give us a call at 603-2200.
Economic Update: More Indications
of cooling economy
For investors and those concerned about interest rates, the news
of the past couple weeks is about as good as it gets. So many signs continue
to suggest the economy is slowing from its six percent growth pace of the
past year, that long term interest rates fell below 5.7% yesterday, mortgage
are lower than they were twelve months ago, inflation has settled back from
summer’s oil shock, and Greenspan’s affection to productivity has reached
new heights.
Perhaps most indicative of the unlikelihood of another rate hike
prior to the election comes directly from the Federal Reserve’s “beige book”
report that was released last Wednesday. The report from the Fed’s 12 branches
found that, although the tight job market and rising energy costs did bring
about a rise in business expenses, they failed to translate into higher prices.
Instead, a mild decline in demand, combined with a continuation of greater
productivity and intense market competition, worked together to keep inflation
under control.
Furthermore, the report says that growth appears to be slowing
in seven of the districts, and accelerating in just one.
Productivity
Much of the “good news” is derived from the 5.3% surge in productivity
during the second quarter, as announced by the Labor Department on August
8th. The report came on the heels of two addresses by Alan Greenspan that
lauded the productivity gains throughout the economy, and credited them for
keeping inflation under control.
For comparison with the 2nd quarter last year, productivity gained
at a rate of 5.1%, the biggest annual jump since ‘83 when the economy was
pulling its way out of recession. The productivity numbers, coupled with price
data, further suggests rates will remain untouched at the August 22nd Fed
meeting.
Perhaps the best news in the productivity report was the fact that
labor unit costs (the actual measure of what workers cost employers
on an hourly basis) fell at a 0.1% rate (They were expected
to rise by a 0.6 percent rate). And, the measure posted a 0.4% decline
over the past 12 months, the first decrease in 16 years.
Employment
The unemployment rate held at 4% for the third consecutive month, despite
a decline of 108,000 jobs in July, according to the monthly employment report
by the government. The decline, however, is somewhat misleading because it
relates to nearly 300,000 census bureau layoffs. Without the loss of census
jobs, the economy experienced a gain of more than 182,000 positions.
In the employment report, it was also noted that average hourly earnings were
up a mild 6 cents per hour (0.4%).
Leading Indicators Flat
The index of leading economic indicators, now compiled by the Conference
Board, showed no movement in June, after falling 0.1% in May. The indicators,
which suggest economic activity 6 to 9 months in advance and, their mild numbers
in recent months are cooling from their rapid pace at the end of last year.
However, the Board’s coincident index, which measures current business
activity, was up 0.2% in each of the past two reported months.
Inflation Reports
Last Thursday, the Labor Department reported that the rate wholesale
inflation, measured by the Producer Price Index, remained unchanged in July,
after gaining 0.6% in June. At the same time, the core rate of wholesale inflation
(minus food and energy) gained 0.1%, after falling 0.1% in June.
An oil price drop of 0.7% was primarily responsible for the excellent
July report, as gasoline prices fell 9.1%.
After a barrage of good news on the inflation front, the PPI report
was merely confirmation that no major price increases are expected in the
near future. In fact, we’re so confident, we’ll publish this issue without
even waiting for tomorrow’s consumer price report.
Economic Notes:
Also last Thursday, the Commerce Department reported retail
sales rising faster than expected during July, up 0.7%, with auto sales
particularly hot in response to manufacturer incentives. Furthermore, factory
orders were up to a nine year high rate, driven by transportation industry
orders. Without that sector, orders as a whole would have been flat. And,
total manufacturing remains steady, according to the purchasing managers’
index.
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Housing Industry News’ Update - See
Article 1
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Look Here for Previous Issues of Veritas
