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   For years we’ve been noting how Michigan’s home values have outperformed the rest of the nation’s since the passage of “Proposal A” in 1994. During the final half of the ‘90s, Michigan, along with Colorado and Oregon, led the nation in real single family home appreciation as calculated by the government’s Office of Federal Housing Enterprise Oversight (OFHEO), which measures values in metropolitan areas according to actual transactions on the same properties over the past 21 years.
   In last year’s fourth quarter, for the first time since the mid ‘90s, Michigan fell below the national average as prices literally exploded in the Northeast and California. Well, the OFHEO’s 1st quarter of 2001 data was reported last Friday, and the new trend not only continued, but intensified.
   As is evident in the chart, the state’s appreciation rate (6.9%) was higher than 3 of its recent first quarters. However, rather than its usual ranking near the top of the nation, it ranked 21st, nearly 2% below U.S. average of 8.8%. What’s becoming evident is the fact that incredible rates of appreciation are taking place in the heavily populated coastal areas, and despite solid growth in real estate values in the state, Michigan can’t possibly keep in step.
   Of the 13 states (and DC) that beat the national average, only 2 (Minnesota & Colorado) lack ocean frontage. And, with the exception of the Carolinas, each state on the Atlantic beat the U.S. average.
   In the past 12 months a home in the nation’s capital experienced an increase in value of 15.4%, more than any state. California was 2nd at 14.7%; followed by New Hampshire, Massa-chusetts, Colorado, Maine, New York & Rhode Island, all above 11.7%. Because these areas contain such a high percentage of the nation’s population, and ultimately its real estate sales activity, their appreciation rates dominate the nation as a whole. After all, the median state’s rate was 6.7% for the 12 months.
   What may be more indicative of the impact of heavy population areas is a look at Metro areas. The top 12 are all from Northern California, with Santa Cruz (27.4%) #1, and Yolo (16.2%) #12. And of the next 12, five are in suburban Boston, while three are in California.
   Locally, Ann Arbor ranked #75 at 7.8% while Detroit was 82nd at 7.5%. Flint fell to #127 at 6%. The Tri-Cities came in at 5.7% for the twelve months, as its homes experienced a decline in value of 0.4% during the quarter.
   Kalamazoo led the west side of the state (6.3%), followed by Grand Rapids (5.9%) and Lansing (5.4%).
   For the five year period since the first quarter of 1996, Michigan home values have grown by 44%, well above the U.S average of 31.8%. However, its ranking for the period fell to sixth, surpassed by California for the first time in years.
   Ann Arbor (43.5%), Detroit (47.9%) and Flint (37.6%) all remained well above the national, five year, average.

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Business News & Issues

Guess who’s paying City taxes in Detroit?
   Years ago, the City of Detroit was the leader of “big league” cities collecting income taxes from visiting professional athletes. There’s even a story that it threatened to arrest three New York Yankees for delinquencies several years back.
   Well, according to a recent article in the Wall Street Journal, a number of cities have seen the potential windfall, and their coffers are swelling from their piece of big league salaries.
   Consider Alex Rodriguez, the all-star shortstop who signed a $252 million long term contract with the Texas Rangers. At an annual salary of somewhere in the vicinity of $25 million, he’s earning something in the range of $155,000 per game. So, with a 3 game series in Comerica Park, he grosses roughly $465 thousand so, if memory serves, as a non-resident, he’s subject to 1.5%, nearly $7,000 for the series (no wonder the city wants the NFL back).
   Think that’s tough? The Ran-gers’ schedule has 25 games in California, a state that collects its 9.3% income tax from all its celebrities. Rodriguez’ bill to the state this year will hit $330,000. What’s fascinating about this is that he signed with a pathetic team in a state with one advantage: no state income tax.
   Obviously, baseball players aren’t singled out. For example, Shaquille O’Neal’s $19 million salary nets Minnesota and Minneapolis a combined $36,400 for just two games (perhaps he should challenge the Governor to a fight). And Baltimore Raven linebacker Ray Lewis, who makes a paltry $7 million, is charged $16,500 for just one game in Pittsburgh (and he never killed anyone in that town {yet}).

GM Up:Ford/Chrysler Down
   General Motors experienced an unexpected gain in sales last month, selling 454,054 cars and light trucks, which was 0.3% above its May ‘00 sales activity. What was more surprising, however, was its rate of daily sales rising to 17,464, up nearly 16% from its January through April pace.
   Ford and Chrysler were down 10.5% and 8%, respectively, from their year earlier rates. However, both were up (15% and 4%) from their sales’ rates of the first four months of 2001.
   Unfortunately, even with the improvements, the Big 3 continue to lose market share to foreign automakers as Toyota, Audi, Hyundai, VW, BMW, Subaru and Mitsubishi reported strong sales, some setting records for the month.

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Left Wing Attacks on NAHB Staffer

   Monday morning I had quite a surprise when I turned on my computer, as more than 250 messages were awaiting me ... nearly all from supporters of “Pacifica” radio, each calling for the removal of Ken Ford, a staff member of NAHB, from the Pacifica Foundation Board.
   The e-mailed letters all had the same basic message: 1) Pacifica was founded by left wing activist Lewis Hill 52 years ago; 2) Mr. Ford was selected to the board in ‘97, and has been antagonistic to the views of Pacifica listeners since; 3) his ties to business interests do not reflect the “spirit” of Pacifica; 4) His behavior hurts NAHB’s credibility and makes us look like “jerks;” 5) I must contact NAHB President Smith to suggest Ford quit the Pacifica board.
   Now, I’m hardly going to be moved by this group of left wing malcontents any more than I would by Rush Limbaugh’s “ditto heads.” But I have to admire the fact they can generate the number of messages I received. And that, my friends, is the problem.
   It seems that only the extreme have the passion of conviction to take such action. Spiro Agnew was right about the “silent majority.” They sit back and let others have their say. Is it any wonder that politicians of both parties look to pacify their extreme wings prior to acting with reason?

Barry

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Taxation and Finance ---- New Retirement Plan Distribution Rules

   When you’re approaching retirement, consideration should be given to when you should begin taking distributions from your qualified plans and IRAs. In addition to restrictions on, when you can start to take money from your retirement accounts, the IRS also has requirements concerning distributions you must take.
   In the case of a qualified plan in which you participate, you are required to begin taking, at least, minimum distributions starting April 1 of the year following the year in which you reach age 70 1/2, or retire, whichever comes later. In the case of your IRAs, you must also begin distributions starting April 1 of the year following the year you turn 70 1/2, regardless of whether you’ve retired.
   If you have enough other assets for your support, you probably want to minimize plan distributions so that your plan assets can continue to accumulate, tax deferred, as long as possible. Now, there are new tax rules to help you achieve this goal.
   While you must still begin taking minimum distributions from your accounts as of your required beginning date, the new rules reduce, often dramatically, the annual amounts you are required to take. (If you have a Roth IRA, the news is even better. Since contributions to a Roth IRA are a result of after tax dollars, no tax is generally due on distribution after retirement age, and there is no requirement you distribute your account balance according to any particular schedule.)
   The minimum amount that must be distributed from your retirement accounts depends on your life expectancy, or the joint life expectancy of both you and your spouse (if your spouse is more than 10 years your junior). If the required amounts are not distributed, a 50% excise tax is imposed on the amount that should have been distributed.
   Under the old rules, you had to choose among 2 or 3 methods of figuring required minimum distributions. The new rules simplify your calculations greatly.
   In order to determine the amount of the minimum distribution you must receive for a year, you will now simply locate your current age on one uniform table each year to obtain the updated number of years over which the benefits are expected to be paid. That number will then be divided into your account balance as of the end of the previous year to give you the amount that must be distributed to you for the current year. The table you will use is the same table that will be used by all retirement plan participants to calculate their required distributions. (In the only exception to this new uniformity, a participant whose spouse is more than 10 years younger may use the old joint and last survivor table to stretch out and reduce annual payments even more.)
   Not only is the new one-step procedure simpler, it’s also more liberal. Most participants will find that their payout period is appreciably longer and their required distributions considerably less than would have been the case under the old rules. As your payments are reduced, more of your money can stay in your account and continue to grow tax-deferred; and your annual tax liability, of course, shrinks along with your required distributions.
   After your death, your remaining plan assets will be paid to your beneficiary over his or her lifetime (unless you or your plan provide for a shorter distribution period). If you die before naming a beneficiary, but after the date the IRS says your must begin distributions, from your plan, your remaining plan assets will be paid out over a period equal to your life expectancy, immediately prior to your death, unless the plan calls for a shorter period. If you die before that date without having named a beneficiary, your plan assets must be paid out within 5 years of your death.
   Working within the distribution rules, you must make decisions about your post-retirement finances and planning your estate. If you want to know more about the rules and how they will work best in your situation, be sure to contact your tax adviser.

R, P & T

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Recent Industry News’ Items

  Manufactured Housing Industry in Crisis
   A recent Wall Street Journal article began, “the manufactured housing industry looks like a trailer park after a tornado.” Then it asked “how did an industry so hot, go so wrong?”
   Amazingly, while housing activity growth was given credit for keeping the nation out of recession last year, the manufactured sector experienced a decline of 28%. And, while homes were selling at a record pace in the first quarter of 2001, manufactured home shipments plunged 41% from last year’s depressed level.
   In fact, times are so bad for the industry that roughly 90 factories, about 25% of the industry, closed in the past 2 years.
   The article explained that the industry has become a victim of “easy credit,” but between the lines one can read the subliminal word, “GREED.” Notes the WSJ, “to pump up business, lenders let buyers get a home without any down payment and stretch payments over 20 to 30 years (traditionally it’s 10% down and 12 to 15 years).”
   The result was, many of the new buyers were in “over their heads,” leading to some 75,000 repossessions last year alone. The repossessed homes went back on the market (some with discounts as much as 40%), and new home sales plunged immediately.

Environmental Terrorism and Public Radio
National Public Radio recently aired a commentary by Arizona author Mary Sojourner showing support for arson as a means to stop construction, noting that when she hears of such action she wants to “send money for matches.” Now we can wonder if her matches were found near the three logging trucks torched in Oregon last Friday?

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

  “Kramer” for Mayor
   Well, he lost out to Michael Richards when it came to playing himself, but now we find that Kenny Kramer, who inspired the creation of Jerry’s neighbor Cosmo Kramer in “Seinfeld,” plans a “serious” bid to become New York’s mayor. And, considering he’d be following in the footsteps of the likes of Ed Koch and Rudy Giuliani, his potential electability may not be too far a reach from reality.
   However, it does raise one interesting question: Could a TV series based on a New York City administration resurrect Michael Richards’ career?

Is Walking “Fundamental?” Not when it comes to golf
   In a move almost certain to bring an end to Western Civilization as we know it, the U.S. Supreme Court upheld a lower court ruling that the federal disability-bias law requires the PGA Tour to waive its requirement that players walk the course during tournaments. According to the 7-2 majority opinion, the “walking” requirement “is not fundamental to the game of golf.” Therefore, allowing a disabled golfer the use of a cart would be a reasonable modification that does not fundamentally alter the game, putting it within the realm of the Americans With Disabilities Act.
   As would be expected, golf purists condemned the decision, with Jack Nicklaus stating that, if he could get the Justices out on the course they’d understand that walking is a basic part of the game. Nicklaus, along with fellow golf legend Arnold Palmer, had previously stated that use of a cart would give Casey Martin, plaintiff in the suit, an unfair advantage if he used a cart in PGA events.
   Palmer’s position on the physical aspect of the game came as quite a surprise to those who recall his position as the leading celebrity spokesman for L & M (cigar-ettes) back in the ‘60s, when he was the best player in the world .... so much for the importance of physical conditioning.

Case Study: Environmental “Group Culture”
A recent series by the Sacramento Bee shows that environmental groups have become “more interested in profits and perks than in pollution control and conservation.” The piece “demonstrates how the nation’s largest and best-known environmental organizations have become addicted to fund-raising, and much of the money raised is then used for more fund raising.”
Ironically, this tidbit comes the National Association of Home Builders.

Epilogue: Current NY Mayor
We’ll end this column in the same office it began: With so much media attention directed at Rudy Giuliani’s wife’s insistence that he remove his mistress from (dis)Gracie Mansion, we had to love the cartoon of the scowling Mayor sitting at a bar with the former President, lamenting that “my wife won’t let my mistress in the house.” The smiling ex-president, with his wife living in Washington, responds “I’ve got room!” (from Handelsman — Newsday in the May 28th Newsweek)

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Association News and Events -- Regional Meetings set; Golf Outing Near

   Well, traditionally it’s summer. In other words, the Spring Parade’s concluded (Memorial Day may have something to do with it) and, for the first time, we will begin a series of Regional Meetings which will take place during daylight hours (lunch or breakfast included) in 6 county regions where building activity is strong.
   The meetings will be geared toward builders in the areas, as local inspectors and governmental officials will be invited. However, all association members are welcome (RSVP).
   The first meeting is geared to Flushing (plus Flint and Clayton Twps. whose officials are being invited) at the Speakeasy on June 20 (11:45 am) with a limited lunch menu. We will order lunch, make introductions, and discuss industry issues that are directly related to those areas.
   Due to the holiday, the next meeting won’t be held until July 11th. This meeting, geared to the Davison area (including the City of Burton, along with Genesee and Richfield Townships), will be held at Walli’s East, for breakfast, with the buffet opening at 8:00 a.m. Further details about the July 11th, and additional regional meetings, will appear in the June 19th Veritas.

As we wrote May 23rd, with the new Michigan Residential Code set to take effect July 31st, the local building officials have set a training session, primarily for BAMF members, on Wednesday, July 25th ... again, we stress the importance of this seminar, and urge your participation. If you have any questions, call the BAMF office.

Economic Update: Surprise! Confidence up; jobless down

   The nation’s economic outlook became increasingly clouded during the past couple of weeks, and nothing short of a nightmare for the analysts who get paid for predicting its direction. For example, after reporting that 1st quarter Gross Domestic Product grew at a surprising 2% rate in April, the Commerce Department revised growth downward to 1.3% on May 25th. The same day the department announced that durable goods orders slumped 5%, while home sales had fallen from their record pace of the previous month.
   The slower rate of growth had analysts assuring that the Federal Reserve would continue to cut rates, but speeches by Chairman Greenspan and board member Laurence Meyer, at the same time suggested this period of aggressive easing may be nearing its end.
   Four days later, the Conference Board surprised the analysts again, reporting that Consumer Confidence rose sharply in May, reflecting optimism about jobs and the economy. Then, as if to put an exclamation mark on the confidence report, the Commerce Department said consumer spending increased by $28.9 billion in April, nearly double expectations, while income rose $24.2 billion and the savings’ rate continued in negative territory.
   Then, last week, while nearly all economic analysts were predicting the unemployment rate had risen again in May, the Labor Department announced that the rate fell back to 4.4%, the first drop since September. Confused? Well, you’re not alone.

Employment
   Despite the fact that the unemployment rate fell last month, U.S. business actually cut 19,000 jobs from their payrolls, as the manufacturing sector lost 124,000, offset primarily by employment increases in construction and services. The decline in the jobless rate resulted from the actual labor force shrinking by 500,000 in May.
   So, does that mean that a half million workers became discouraged, and quit looking? Probably not!
   Let’s remember, prior to fifth year of the current expansion, there was a belief that 6% unemployment was about as low as this economy could go without putting a serious strain on prices. In the late ‘90s, with the economy operating above the “full employment” threshold, there was a heavy push to bring retirees and other nonworkers into the labor force. So, if a number of those new workers subsequently left the workforce, they’re unlikely looking for new employment.
   Furthermore, as we’ve been noting in housing circles for some time, the baby boom generation is reaching retirement age, meaning many in their mid-50s have joined the retiree ranks.
   So, unlike what most analysts are suggesting, the decline in the unemployment rate may actually be legitimate, despite the ultimate loss of jobs.

Spending and Income
   Americans’ spending patterns hardly resemble those of individuals concerned about an economy heading downward. As incomes grew at a 0.3% rate in April, consumer spending rose 0.4%, and the personal savings’ rate fell to minus 0.7%. And, adjusted for inflation, incomes were up 0.1% while spending expanded 0.2%.
   The spending data shows that the American consumer still refrains from reining in consumption, as has been expected due to declining personal equity from lower stock values.
   Well, a recent study by a pair of Federal Reserve economists may explain why this expected decline in consumption has yet to materialize. the study concluded that nearly the entire decline in savings’ rates over the past decade reflects the actions of the most affluent households in the top 20% on the income scale. The study suggests that the spending increase, in comparison to income, comes from these households selling stock and spending the proceeds.
   The study says most households increased their savings’ rate with lower income households rates rising from around 4% in 1992 to over 7% last year.

Housing Industry Update

U.S. Dept. of Commerce data was in line with our report on local housing activity (taken from Housing Consultants’ data) in the May 23rd issue. However, its report on local activity showed the “Flint” sector of Metro Detroit permit activity up 62%, to 908 units, for the January/April period of this year, in comparison to the first four months of 2000. Furthermore, its single family data showed the “Flint” area was up 34.4%, but noted a significant decline in multi-family building with 2 to 4 units(the department doesn’t distinguish between rental and condo units).
Total “Metro Detroit” activity is down 6.2%, with single family units authorized down 14.1%, or 977 units. The single family decline was confined to the traditional “Detroit” area (Oakland, Wayne, Macomb) which was off by 1,123 units (Data from the “Ann Arbor” sector was nearly identical to ‘00).

   New home sales continued at a strong pace in April, despite the effects of a revision in the way the government charts activity. Although the rate of sales dropped by 9.5%, its largest decline in four years, new homes sold at a rate of 895,000 units, well above the 881,000 average of the past three years.
   Part of the reduction in sales activity related to a Commerce Department change in the way it calculates homes sold. It no longer counts sales until a permit is issued, so all sales data since January ‘99 have been revised downward.
   Regionally, the Midwest experienced a decline of 10.9%, to a rate of 164,000.
April’s figures follow March data that originally showed a record level of sales at 1.02 million units. However, due in part to the previously mentioned changes in departmental calculations, the March data was revised downward to 988,000.
   On the heels of the Commerce Department’s report came the National Association of Realtors’ report noting that sales of existing homes remained “exceptionally” strong in April, despite sliding from their second highest level on record, selling at an annual rate of 5.2 million (identical to the highest year end total on record). The April sales’ rate was 4.2% below March’s, but 4.4% above the April ‘00 level.

   Some consider April’s decline in home sales a sign that the market’s topped out, and mortgage rates are getting some of the blame. Thirty year rates climbed to 7.24% last week, and are now up 0.17% since the Fed began cutting the federal funds' rate on Jan. 3rd.

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