Kerkorian makes GM power play

The real estate market in metro Detroit is suffering through its worst malaise in at least three years (see post below re article on front page of Detroit Free Press on June 24, 2006). There are many theories as to why this is happening, but the most obvious is that the auto industry is suffering. There are many schools of thought as to what happens from here, ranging from quick turnaround to bankruptcy for GM and or Ford. My personal opinion is that things will start to improve once GM demonstrates that it is NOT going to file for bankruptcy. Given that there will be no tangible event to conclusively demonstrate that this has occurred - how does one prove they are NOT going to do something? - the next best thing is some bold, unexpected act on the part of GM (I say GM only because a lot more has been written about the possibility of GM failing than Ford, and GM has the added potential millstone of the Delphi bankruptcy with which to contend) to prove it ain't foolin' around. Today, an event which could lead to that sea-change, tipping-point event took place. Kerkorian - who has been, for him, surprisingly patient in waiting for Rick Wagoner to prove that he can turn the ship around - went public today with his recommendation that GM, Nissan and Renault should join forces in some meaningful fashion. I'm not expert in such things, but this sure feels like one potentially large step toward Carlos Ghosn being handed the keys to the car. That, of course, is not an original thought, but Kerkorian's going public with the idea of gives real legitimacy to this speculation. And, given Ghosn's reputation as the savant de jour within the auto industry, one can only sit and ponder the potentially positive outcomes of such a move. Very, very interesting...

Kerkorian Presses GM to Join
Alliance of Renault and Nissan

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
June 30, 2006 2:22 p.m.

Billionaire investor Kirk Kerkorian is pressing General Motors Co. to "fully explore" joining the alliance between Renault S.A. and Nissan Motor Co., and said those auto makers are interested in expanding their partnership and buying a minority stake in GM.

Shares of GM were up $2.46, or 9%, at $29.90 in afternoon trading on the New York Stock Exchange after earlier spiking to $30.56. Tracinda Corp., Mr. Kerkorian's investment vehicle, owns 9.9% of GM's common stock.

Renault and Nissan Motor confirmed they have been approached and are open to the idea.

Tracinda said it sent a letter to GM Chairman Richard Wagoner in which it proposed that GM's board of directors establish a committee to examine teaming up with Renault and Nissan, which are both run by Carlos Ghosn.

In the letter, disclosed in a regulatory filing, Tracinda said: "It is our understanding that Renault and Nissan are receptive to the concept of including General Motors in their partnership-alliance and purchasing from General Motors a significant minority interest in the company."

Tracinda said the existing French-Japanese partnership has created "tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings to both Renault and Nissan.'' The letter added: "We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the company and enhance shareholder value."

The letter also indicates that Tracinda has reached out to Renault Chairman Louis Schweitzer and Mr. Ghosn, who is chief executive of both Nissan and Renault, to alert them to its contact with GM. In a separate letter advising the two of the GM correspondence, Tracinda noted that "as we recently discussed with Mr. Ghosn, Tracinda believes that General Motors, Renault and Nissan should explore a three-company, partnership-based alliance."

GM issued a three-sentence statement Friday, saying it hadn't received any "offer or proposal from Renault/Nissan with respect to its participating in the Renault/Nissan Alliance, as suggested in the 13-D Filing made today by the Tracinda Corporation. The Tracinda request will be taken under advisement by the GM board of directors. At this time, we have no further comment."

Simon Sproule, corporate vice president of global communications and investor relations for Nissan commenting on behalf of both Renault and Nissan, said both companies are "open" to Tracinda's idea of GM joining the French-Japanese alliance.

Mr. Sproule said GM's board and management team will have to fully support the three-way-alliance idea "in order to start a study of this opportunity." He noted that the Renault-Nissan alliance is an open partnership which has never been restricted to the two partners. "Under the right circumstances and with appropriate partners, the alliance could be expanded further," he said.

The spokesman said the next move is up to GM.

Earlier this week, GM said it expects to report slumping June and July sales amid tough competition and efforts to wean itself from price wars that have hurt industry profitability.

GM's forecast, given at the company's quarterly sales-and-marketing update for analysts and the media, underscored the challenge the company still faces in attracting customers in an era of high gasoline prices, even as the buyouts and early retirements of about 35,000 hourly workers announced Monday show some progress in its efforts to reduce costs. Demand in particular has waned for some of the larger models of pickup trucks and sport-utility vehicles, which carry hefty profit margins for Detroit's auto makers.

Earlier this year, Jerome York, the senior adviser for Mr. Kerkorian's investment in GM, took a seat on GM's board, less than a month after he prescribed a dividend cut and other tough medicine for the auto giant. Mr. York, at that time, criticized GM management for not setting clear targets in its turnaround effort, in contrast to the approach taken by Mr. Ghosn.

Mr. Ghosn, who took over Nissan in 1999 at a time when the company was near collapse, laid out in public a series of goals for returning Nissan to break-even performance, eliminating debt, and later, achieving specific profit margins. His effort is generally considered the most successful automotive turnaround of recent history, and his name has even gone through the rumor mill as a possible successor to Mr. Wagoner at the helm of GM, which reported a loss of $10.6 billion for 2005.

DIY architecture

A few years ago, I designed an addition for my 1950s-era home. I used a software created by Punch Software, LLC, which is one of the software companies mentioned in the article below, which appeared in the Wall Street Journal June 29, 2006. If you are considering building a new home or making additions or modifications to your existing home, I would highly recommend buying one of these programs and giving it a go. I thoroughly enjoyed the experience, and saved a lot of money in architects's fees I didn't have to pay.

Unlocking Your Inner Architect

New Home-Design Software Saves Money, but Some Users Neglect Details, Like Plumbing

By SARA SCHAEFER MUÑOZ June 29, 2006

A slew of sophisticated software for home design has recently hit the market, allowing homeowners embarking on a remodeling project to plot everything from shingle styles to window placement and even see how shadows fall across the porch at different times of the day.

If used properly, the do-it-yourself products can save thousands of dollars in architects' fees on a major project. But the growing popularity of the products is making them a point of tension between builders and their clients. Homeowners can spend hours on a design, only to be told they've taken out a key beam or put in a toilet where there are no pipes.

Homeowners "can draw to their heart's content, but that doesn't mean it's legal or it's buildable," says Ben White, vice president of Benvenuti & Stein Inc., a design and construction firm in Evanston, Ill.

Jessa New spent about five hours drawing up a plan for two children's bedrooms and a bathroom in a second-story addition to her 1925 Craftsman bungalow in Oberlin, Ohio. Then she presented them to her builder -- and learned with dismay that the bathroom she envisioned was too far from the main plumbing lines and its placement would interfere with a staircase.

Better Homes and Gardens Home Designer Pro lets users see how various exterior and roof materials look.

"Being able to visualize it in a computer program is very different from when it translates into physical space," she says.

Her builder, Peter Lehrer of Artistic Renovations LLC in nearby Seven Hills, says he quickly drew up three new plans. (They ultimately put a master bedroom upstairs.) When people draw up their own designs, it helps them focus on what they want, he says, but sometimes "locks them in" to a single idea.

The complications come as companies have been rolling out new lines of design-it-yourself software, in part a response to unprecedented spending on home remodeling, maintenance and repairs: $215 billion in 2005, up from $199 billion in 2004, according to the Census Bureau. Even as the housing market cools, people are still putting money into their homes, especially kitchens and bathrooms.

In contrast to computer-assisted design programs of the early 1990s, which were cumbersome and often crude, the latest programs feature realistic graphics, automatic processes for complex steps like adding cabinets, and thousands of materials, textures and even landscaping plants to choose from.

In the past year, Chief Architect Inc., one of the two software companies that dominate the home-design-software market, rolled out three new programs under its Better Homes and Gardens brand. One $495 program includes more than 1,500 sample plans and thousands of doors, windows, lighting and other furnishings that users can drop into virtual rooms. The company, which is based in Coeur d'Alene, Idaho, also launched a scaled-down $149 version, and in March, it rolled out a $19.95 program called Picture Painter that lets users upload photos of a house to see how they look with different paint colors and materials.

Punch Software LLC, the other big market participant, released a new version of its Architectural Series 4000 software that offers more than 2,000 paint choices, hundreds of furniture options, a swimming-pool designer, and accurate depictions of various lights, including the way sunlight enters the home at various times of the day. The $199 program is also compatible with the U.S. Geological Survey's Web site, allowing users to trace the topography of their lots.

Another program, Google SketchUp, was made available for free in April at http://sketchup.google.com. It allows users to create house models and pull items like windows, columns and appliances directly from a virtual "warehouse" and drop them into a scene. When finished, users can share their designs in the online repository 3D Warehouse or add them to Google Earth, the satellite mapping program, to see how they fit in with the neighborhood.

The Internet now features more free, interactive tools than ever, as makers of appliances and fixtures beef up their presence online. At E.W. Scripps Co.'s HGTVKitchenDesign.com and

HGTVBathDesign.com, both launched this spring, a 3-D design tool allows the user to drag and drop products like Viking ranges into virtual rooms. Many paint sites are also getting more interactive:

PPG Industries Inc.'s Pittsburgh Paints last year created voiceofcolor.com, allowing visitors to try out different colors in model rooms.

Interest in home-design software grew in 2005, even as sales of other, non-game software was flat, according to data from NPD Group, a Port Washington, N.Y.-based research firm. Americans spent $24 million on home-design software in 2005, up 1.2% from 2004, NPD says.

For homeowners dreaming up a project, builders say it's important to be aware of the software's limits. Some house-building programs emphasize "professional" results and plans that are "accurately scaled" on their packaging. But most builders say the finished product often requires tweaks or clarifications. For instance, some less expensive programs may not be able to create the house's frame, adjust wall thickness or customize rooflines. And the programs usually don't take into account the frequently arcane rules of state building codes. (In California, there are detailed rules about how close a window can be to a shower.)

Homeowners sometimes dream up layouts that don't take into account support walls, plumbing or central air systems, says Michael Quail, who owns a construction firm in Lyons, Ill. It's a particular problem in older houses, because their internal walls are often load-bearing, while newer homes' walls can be moved more easily. Plus, he says, once clients have invested several dozen hours in mastering a program and coming up with a plan, they can be resistant to change. "These people think we can just put a toilet anywhere," he says.

Homeowners, meanwhile, may face disappointments when they start building. Todd Storbeck, a 44-year-old publishing specialist from a suburb of Kansas City, Kan., said he enjoyed designing his $150,000 dream addition last year with a Better Homes and Gardens software program, getting kitchen ideas from the program and crafting everything from room layouts to cabinet color.

But a problem arose when he decided to remove a support post in the garage after construction had started. Mr. Storbeck made the change in his software plan but then felt taken advantage of when he was charged an extra $9,000 -- a price the builder says was necessary to make the second floor structurally sound. Mr. Storbeck paid the fee but later fired the builder.

His contractor, Ronald Sobanek of Home Improvement Services LLC in nearby Prairie Village, says a professional architect or designer would have helped his client understand the difficulties of such a change. Mr. Sobanek says he plans to steer clear of clients using their own design programs from now on. "What we ended up with was an unhappy customer," he says. "I just wouldn't do it again."

Still, many architects praise the software for improving communication. When Bruce Spenner, a homeowner in Boise, Idaho, was planning his 1,200-square-foot addition, his wife sometimes had trouble visualizing the plans. So he put his ideas into a Punch software program and gave her a 3-D tour -- just to make sure "there were no surprises when it was built," he says.

The designer he worked with, Michael Snow of Strite Design + Remodel, said Mr. Spenner's plans were helpful. "When you are working with people who are really into the process, it makes it a richer experience."

What to Look for in Inspections

The following is a reproduction of an article that appeared in the June 23, 2006 Detroit News. There are some decent tips here. Enjoy!

What to look for in inspections

Lynne Schreiber / Special to The Detroit News

In her book, "100 Questions Every First-Time Home Buyer Should Ask," author Ilyce R. Glink advises home buyers of the most common potential problems they could come across when undergoing an inspection of a home they want to buy. Here are a few to watch for:

Wet, clammy, sticky, smelly basements. Any of these characteristics in a basement could be an indication of water seepage caused by improperly graded soil or a shaky foundation.

Cracks in the basement. A crack line that you can see could mean more-than-normal settling, Glink writes. Or, it could mean the house was built on a former landfill, hill or improperly graded site.

Discolored spots on walls and ceilings. Discoloration could mean a water problem like a leaky roof, walls or pipes. And, sometimes a new paint job is more than just a way to impress potential buyers, Glink says. It could be an effort to cover up a problem.

Sloppy masonry work . If the homeowner has tried to patch up masonry without a professional, that could point to a bigger problem, Glink says.

Insulation . Always ask, and then investigate, as to whether the house has adequate insulation. If not, you'll either need to add the cost of adding insulation to your purchase costs or figure higher heating and cooling bills.

Improperly fitted skylights. Discoloration, peeling paint and other signs indicate that skylights were improperly fitted or may be leaking.

Buyouts, buyouts, buyouts!

The following article appeared in the Wall Street Journal June 27, 2006.

GM's Buyout Package Attracts 35,000 Workers

Response Lets Auto Maker Accelerate Job-Cut Target, Raise Cost-Savings Goal

By LEE HAWKINS JR. in Detroit and KRIS MAHER in Pittsburgh
June 27, 2006

General Motors Corp. said about 35,000 hourly workers agreed to take financial incentives to leave the auto maker, allowing it to meet its job-cut target ahead of schedule and to increase its cost savings to $5 billion this year.

More workers than expected took part in what has become one of the largest employee buyouts in U.S. history, representing about 30% of the company's hourly work force, mostly represented by the United Auto Workers union. The reductions put the world's No. 1 auto maker by production ahead in meeting its job-cut target, which it set at 30,000 jobs by 2008 through attrition and other methods

Meanwhile, GM's former parts division, Delphi Corp., which separately offered a similar program to its union workers, said 12,600 UAW-represented workers took packages to leave. That total, also greater than expected and representing about 38% of its hourly work force, should help the parts maker emerge from bankruptcy-court protection as a more streamlined competitor and could reduce the power of the UAW there as it discusses wage and benefits cuts with the company.

GM said the reductions would help it increase cost savings this year by $1 billion to a total of $5 billion in reduced structural costs, which it said don't vary with production and include all costs other than material, freight and policy and warranty costs.

"Our goal in restructuring the company is not just to change GM's bottom line from red to black," said Rick Wagoner, chairman and chief executive officer. "Our goal is to structure GM for sustained profitability and growth, to set us up to be successful for years to come in an ever-more competitive global auto industry. Today's announcement takes us one step closer to that goal."

The faster-than-expected job reductions should help GM stabilize its finances and help secure Mr. Wagoner's position. His future at the top of the company had been uncertain after GM reported a loss of $10.6 billion for 2005, amid sliding North American market share and a decline in popularity of more profitable but less fuel-efficient models.

GM said it expected to take a $3.8 billion charge mostly in the second quarter, reflecting payments to employees, the change to its pension and benefits liabilities and a revision in accounting for announced plant closures. GM said it would disclose more details when it releases second-quarter results next month.

The company offered 113,000 hourly workers $35,000 to $140,000 in lump-sum payments to leave the company. The deadline for accepting was Friday, although some workers have until the end of the week to change their minds.

GM said about 4,600 employees accepted buyouts and about 30,400 chose to retire. Workers with 27 years or more at GM would receive full retiree benefits, while workers with less seniority could keep their accumulated pensions. GM said the program would reduce the ranks at its Jobs Bank, which provides pay and benefits to idled workers. As many as 5,000 Delphi workers could leave but return to GM.

The auto maker faces a number of challenges. Mr. Wagoner needs to halt the company's slide in U.S. market share and persuade customers to pay higher prices. The buyouts pose a challenge because some plants may be left short-handed. GM said it will use temporary employees as necessary.

At a GM metal-stamping plant in West Mifflin, Pa., slated to close by the end of next year, roughly half of the UAW workers, 241 out of 520, accepted packages to leave including cash buyouts, according to Rick Vargesko, president of local 544. Workers there make hoods, doors and roofs for models that include GM's Cobalt.

Some workers will leave when they retire in the fall, but Mr. Vargesko said he expects "a good size exodus" in July and August. He said the company has been hiring temporary workers and training them during the past several weeks. As for how the buyouts will impact production at the plant, "it all depends on the skilled trades," Mr. Vargesko said. "We have really good skilled tool-and-die people here."

Local union leaders have expressed concerns about whether the right workers at the right plants -- mainly older workers at plants set to close -- took the buyouts.

Workers taking severance packages in droves

The following article appeared in the Detroit Free Press June 27, 2006.

47,600 hourly workers take severance package from GM, Delphi

June 27, 2006

BY MICHAEL ELLIS and JASON ROBERSON
FREE PRESS BUSINESS WRITERS

In a historic exodus, 47,600 U.S. hourly General Motors Corp. and Delphi Corp. workers have accepted buyouts and early retirement offers as part of a large cost-cutting effort to restore the world's largest automaker to profitability.

The unexpectedly high acceptance rate will result in more than one in three of GM and Delphi's U.S. hourly employees departing by the end of the year, making both companies substantially smaller but more competitive in a brutally tough market.

The companies currently employ about 146,000 hourly workers in the United States. Those accepting the offer include 12,600 workers at Delphi and 35,000 at GM -- far above some early estimates of 20,000 to 25,000.

"We're coming very rapidly on the road back," GM Chief Executive Officer Rick Wagoner said at a news conference Monday at GM's Renaissance Center headquarters.

The impact on the Michigan economy is uncertain. But a partial list of plants obtained Monday night by the Free Press showed that at least 13,500 workers plan to leave from plants in at least 13 Michigan communities. More than 3,400 in the Lansing area alone will be leaving their GM jobs behind.

The job cuts and other sweeping measures Wagoner enacted in recent months will cut costs by a combined $8 billion annually, part of his plan to recover from last year's $10.6 billion in losses.

Over the past year, GM has announced plans to close or idle a dozen plants in North America, dismissed hundreds of white-collar workers, reduced salaried benefits and won concessions from the UAW to shift some health care costs to hourly retirees. Of the GM workers who accepted the offer, 30,400 elected to retire early and 4,600 took a buyout that pays a lump sum of $70,000 or $140,000, depending on years of service, but with no future benefits.

The popularity of the program enabled GM to beat its target of cutting 30,000 jobs in North America by the end of 2008, more than two years ahead of schedule. In addition to the job-cutting offer, about 6,500 hourly workers left in 2005.

GM and Delphi reached agreements with the UAW and another union, the IUE-CWA, in March on the job-cutting offer as part of their efforts to craft a new labor deal at Delphi. GM, the former parent of Delphi and its largest customer, is obligated for some of the retirement costs of Delphi workers, and therefore took an active role in the negotiations.

The Delphi buyouts could help it avoid a costly strike by allowing the automotive parts supplier to cut its workforce without a confrontation with the UAW. But Delphi, which filed for Chapter 11 bankruptcy protection from creditors last October, is still working on negotiating a new labor contract with the UAW.

As a result of the strong acceptance rate of the attrition program, GM increased to $8 billion from $7 billion the amount it expects its cost-cutting measures to save. Of that total, about $5 billion will be realized this year, GM said.

GM workers had until last Friday to sign up for the early retirement or buyout offer. That also was the deadline for thousands of Delphi workers to take early retirement or to transfer to GM. But many Delphi workers could accept a buyout offer similar to GM's that was announced June 9. Delphi spokesman Lindsey Williams said Delphi offered to all hourly workers buyouts ranging from $70,000 to $140,000.

Employees who signed up within the last seven days are still allowed to back out of their decision. But Wagoner said that few had done so in the past.

Even with the large cuts, GM still must reverse the loss of U.S. vehicle sales to competitors such as Toyota Motor Corp.

Gerald Meyers, a professor of management at the University of Michigan and former chief executive at American Motors Corp., said GM should be congratulated for achieving its job-cutting target, but challenges remain ahead.

GM has already cut its UAW workforce heavily -- down from 266,000 in 1993 -- and yet it still hasn't been able to post strong profits consistently. GM suffered its worst year financially in 2005 since nearly going bankrupt in the early 1990s.

"The forces are still there that were cutting them back," Meyers said, referring to GM's falling car and truck sales. "It's not over yet. Unfortunately, in my view, this is one more downsizing, and there will be others."

As workers leave over the remainder of the year, GM will be hard-pressed to keep up its quality, Meyers said.

Brett Hoselton, an auto analyst with Keybanc Capital Markets in Cleveland, Ohio, said the numbers are a little better than he expected. And they only confirm his positive outlook for GM.

"We've been fairly bullish on General Motors for two reasons," he said. "One, we believe they are making substantial changes to the product development program, and two, we thought ... buyouts would be a useful tool." To ease the transition to a smaller workforce, GM has already started hiring temporary workers at some plants, who will be paid wages of about $18 to $19 an hour without benefits.

Traditional union workers cost GM about $81 an hour in 2005, including benefits and retirement costs, or about $168,000 each without overtime, Burnham Securities Inc. analyst David Healy told Bloomberg. Each temporary worker costs about $39,520, he said.

The temporary jobs will eventually be eliminated as GM idles or closes the dozen North American plants it targeted last November, including several in Michigan.

In addition, some GM workers currently in the so-called "jobs bank," where they are paid most of their wages and benefits even though they are not working, could be recalled and put back to work, GM spokesman Dan Flores said. GM also has agreed to hire up to 5,000 workers from Delphi.

The attrition program will cost GM about $3.8 billion.

For tens of thousands of GM and Delphi workers, the offer means a new life outside the automotive industry, and perhaps a short-term spending spree.

"I would think most of this will be saved, but some of this will be spent," said Dana Johnson, chief economist at Comerica Inc. "There's a joke that a lot of man caves are being created."

But Johnson said most of the workers are expected to invest the money for retirement and health care expenses.

Information about Rochester in Free Press

This is an informative piece that appeared in the Detroit Free Press a few weeks ago. The broker quoted, Dan Brunell or RE/MAX Meadowbrook, is an outstanding agent. He and his wife Janet run one of the most sophisticated real estate operations in the country. If you're looking for a home in the greater Rochester area, I highly suggest that you give them a call. Learn more about them on their website at http://www.brunellteam.com/.

BRENDEL HIGHTOWER: Rochester/Oakland County

June 11, 2006

APPEAL: Rochester, a vibrant city with a small-town atmosphere, is surrounded on three sides by Rochester Hills. It has experienced a lot of growth. Projects recently completed or in the planning stages include the 143-room Royal Park Hotel that opened in 2004, mixed-used developments, new office buildings, a new pocket park and several residential developments.

The city's charming old-fashioned downtown along Main Street offers a variety of unique businesses, many of them housed in well-preserved buildings from the 19th Century, registered as historic sites. More than 20 buildings on Main Street are more than 50 years old. A broad range of upscale lofts and condominiums are being constructed in the downtown area.

A rebirth of the downtown housing market on infill lots is bringing larger homes, some enhanced with brick and stone exteriors, priced from $400,000 to more than $1 million, next to small ranches and bungalows, says Dan Brunell from RE/MAX Meadow Brook in Rochester. This building is taking place in well-kept, traditional neighborhoods surrounding downtown, taking you back in time with restored houses close to each other with alleys for access to most garages.

A broad range of subdivisions with houses priced from $300,000 to more than $1 million are also in Rochester's rolling terrain.

In 2005, the Rochester area was ranked 39th in a list of the Top 100 cities in which to live by Money Magazine and CNN-Money.

FACTS: This 3.8-square-mile community became a village in 1869 and a city in 1967. The City of Rochester, the City of Rochester Hills and Oakland Township make up the greater Rochester community. Rochester and Rochester Hills operate joint recreation programs and the Older Persons' Commission center. The public library is shared among Rochester, Rochester Hills and Oakland Township.

Rush-hour traffic can be very heavy on main roads like Rochester Road-Main Street and the many two-lane roads. In light traffic, Rochester is about 40 minutes from downtown Detroit.

To find out more, visit www.ci.rochester.mi.us.

PREVALENT ARCHITECTURE: Styles vary from restored Victorian- and Craftsman-era houses from the 19th and early 20th centuries to ranches and colonials from the 1960s and later. Large new houses that measure more than 3,000 square feet with three-car garages are being built. Rochester also has condominiums and apartments. In 2005, houses sold from $145,000 to more than $700,000, according to multiple listing services.

POPULATION: 10,467 in the 2000 U.S. Census; about 93% white, 4% Asian, 2% black, 2% Hispanic. The population increased 45% between 1990 and 2000.

EDUCATION: Math and reading MEAP scores for the Rochester Community School District run about 25% above state averages.

TAXES: $34.51 per $1,000 of a property's taxable value in the Rochester district. A $347,517 (average price) house with a taxable value of $173,758 would have annual property taxes of $5,996.

MAJOR EVENT: Christmas in July Sidewalk Sale -- 10 a.m.-6 p.m. July 13 and 14 and 10 a.m.-6 p.m. July 15. One hundred sixty-five merchants are expected to participate. There will be a kids' zone and strolling entertainment. Info: 248-656-0060.

PUBLIC TRANSPORTATION: Older Persons Transportation, 60 and older or disabled, 248-652-4780.

PUBLIC SAFETY: Rochester Police reported six burglaries, five motor vehicle thefts, no cases of criminal sexual conduct, two robberies and no homicides in 2005.

SHOPPING, DINING AND ENTERTAINMENT: Shopping and dining are available. Plenty more is available in neighboring Rochester Hills.

Six parks include walking paths, a tot lot, sand volleyball, a pond with skating allowed in the winter, lighted tennis courts, softball fields and a nature center.

MAJOR EMPLOYER: Parkdale Pharmaceuticals, Superior Plastic.

WHY I LIVE HERE: Shelley Johnston, said: "We enjoy living in the small town of Rochester because it has a nice Main Street with good places to eat and shop, combined with a small-town atmosphere where you know and care about your neighbors."

Delphi workers taking GM buyouts on massive scale

The following article appeared in the Wall Street Journal June 23, 2006.

Buyouts Promise a Big Boon for GM

Some 37,000 Workers Plan To Exit Auto Maker, Delphi;
Fresh Obstacles Emerge

By JEFFREY MCCRACKEN and LEE HAWKINS JR.

About 37,000 hourly workers have so far accepted offers by General Motors Corp. and auto supplier Delphi Corp. to leave the companies, union officials say, potentially giving the auto maker greater cuts than expected but presenting a new set of questions to overcome.

In one of the largest employee-buyout programs in U.S. corporate history, about 28,000 GM workers -- or nearly 25% of the car maker's work force represented by the United Auto Workers union -- had taken early-retirement offers or buyouts as of late yesterday for an offer that ends today, UAW officials said. At Delphi, the former GM parts unit that filed for Chapter 11 bankruptcy in October, about 9,000 workers had so far taken offers, those officials said.

GM in the past had said it hoped to cut 30,000 hourly jobs by 2008 through attrition and other methods, but the buyout program has put it near that goal after less than a year. The number could grow some, as many workers make last-minute decisions, UAW officials said. Workers who put in for a buyout have another week to change their minds. Both GM and Delphi are expected to disclose preliminary numbers next week.

Indications that the offers are drawing more takers than expected have cheered Wall Street, which has worried about GM's ability to stanch hundreds of millions of dollars in losses at its core North American auto operations and the potential liabilities it faces as Delphi seeks to streamline its operations. As a result of the acceleration, John Murphy, analyst with Merrill Lynch & Co., estimated last week that GM by early next year could save $2.5 billion of the $3 billion it had said it expects to save by 2008.

But GM still has to tally the cost of the program, which offered 113,000 UAW workers between $35,000 and $140,000 to leave the auto maker. Workers with 27 years or more at GM would receive full retiree benefits, while workers with less seniority could keep their accumulated pensions. GM may also face questions of whether the right workers at the right plants -- specifically, older workers at plants set to close -- took the buyouts, or whether it may have to realign its work force somewhat to adjust for different acceptance levels at different plants.

GM, which had a loss of $10.5 billion last year, is still discussing when it will release the financial impact of the buyout program. GM spokeswoman Toni Simonetti said it might provide information next week or when it releases second-quarter earnings. "There is an initial cost of offering this program, but in the long term, there is a tremendous ongoing savings," she said.

Ms. Simonetti said a tally of GM's savings must include whatever number of Delphi workers GM takes back as a result of a flowback agreement with its former parts unit. As many as 5,000 Delphi workers can transfer back to GM.

On the issue of staffing at plants, Ms. Simonetti said company officials "have been planning to make sure that we have appropriate staffing levels where needed so we can continue operations."

Delphi made early-retirement and buyout offers to its 24,000 UAW members and later extended them to other unionized Delphi workers. Delphi has about 33,000 hourly employees.

GM expects to see its retirement obligations shrink considerably, since GM employees who accept the cash buyout will forgo larger pensions and health-care benefits.

It isn't clear what percentage of workers took early retirement compared with those who took larger cash buyouts to leave behind retirement health care. At the Corvette plant in Bowling Green, Ky., 257 workers out of 1,075 have decided to leave GM, said UAW 2164 President Eldon Renaud. He said 79 workers are taking buyouts and 178 early retirement. "We had 60 walk in and take one of the offers in the last day or so. We will fill about 80 of those jobs with GM people from Oklahoma City or Spring Hill [Tenn.], where plants are closing."

Standard & Poor's credit analyst Robert Schulz said the ratings agency, which has GM rated deep into speculative-grade territory, is encouraged by the company's progress.

Delphi buyouts huge success

The following article appeared in the Detroit Free Press June 24, 2006.

Exits soar at Delphi plant

Coopersville buyouts bode well for supplier, GM

BY JASON ROBERSON

FREE PRESS BUSINESS WRITER

June 24, 2006

When Robert Betts, UAW president of Local 2151 in Coopersville, got to work Friday morning, 470 of the Delphi plant's 560 workers were in line, signing up to leave the company.

Betts, who has signed up for the $35,000 early retirement offer, fears the attrition program designed to relieve Delphi of its workforce will leave the auto-parts plant without enough workers. Delphi's second attrition offer hasn't been formally issued for the remaining 90 workers.

"That could be a major train wreck. I'm hoping it's not, but I don't think it's avoidable," Betts said. "Time will tell. We're turning people over so fast it's crazy."

Thousands of similar decisions made through Delphi Corp. and General Motors Corp. bode well for the companies' going forward. The fewer active workers they're responsible for, the cheaper GM's bill to bail out bankrupt Delphi.

For GM, the attrition plan allows for a mass exodus of high-wage employees, which moves toward the goal of shedding 30,000 hourly U.S. workers by 2008. Reports and those close to the tallying say the number of GM workers accepting the early retirement or buyout offer has surpassed 28,000, and the number of Delphi workers is at 9,000.

Those empty spots on the assembly line give GM flexibility. It can hire cheaper temporary workers or relieve Delphi of its most-expensive remaining workers by allowing more employees to flow to the automaker's open positions.

And each attrition participant means one less union worker who might strike, which the UAW has threatened to do if Delphi unilaterally cancels labor contracts and slashes wages.

A full strike at Delphi would affect GM in a matter of days and eventually the entire auto industry, starting with other Delphi customers and GM's 3,000 other suppliers.

Delphi, which filed for bankruptcy Oct. 8, seemingly will be positioned well after all of the attrition is tallied, because it will have:

• Alleviated the shock of its sweeping reorganization plan that aims to close 25 of 33 U.S. plants and eliminate 23,000 hourly workers and 8,500 salaried workers.
  
• Simplified remaining negotiations with GM and the unions to reduce wages and benefits. Fewer workers mean fewer have to be convinced to accept concessions.
  
• More resources to devote toward technology initiatives. Earlier this week, Delphi won the first of three rounds of approval from the Department of Energy for a fuel cell that could be available for commercial vehicles or other uses by 2011.
  

"I think Delphi comes out of this smelling pretty good, quite honestly," said Erich Merkle, auto analyst for IRN Inc. of Grand Rapids.

Workers had until midnight to decide whether to accept the attrition offer. After workers check boxes and sign their name on the paper attrition packages, GM spokesman Tom Wickham said, local plant officials will go through the attrition responses, one at time, looking for errors.

The results will be e-mailed to a staff of GM corporate human resources workers. A preliminary tally won't be available until "the middle of the afternoon Monday," Wickham said. GM CEO Rick Wagoner has a news conference scheduled for 5:15 p.m. Monday to reveal the results.

There is concern that the attrition plan could be too successful, Merrill Lynch auto analyst John Murphy told clients.

"If the take rate is significantly above our estimate of 30,000, there may be some offsetting costs associated with hiring temporary workers to backfill." Murphy said. "This could pose a short-term problem, which we view as a high-class problem that can be resolved over time."

It's a buyer's market in Metro Detroit

The following article appeared on the front page of the Detroit Free Press June 24, 2006.

It's a buyer's market as house sales sag

BY SUZETTE HACKNEYFREE PRESS REAL ESTATE WRITER
June 24, 2006

Source: Free Press research

What the Free Press analysis found
• Metro Detroit home sales are in the worst shape in three years.
• Livingston County homeowners took the biggest hit in sales, a 24.1% drop.
• Nationwide, home prices scored double-digit gains.
• Buyers have more homes to choose from and more leverage.
• Some communities fared well, including Birmingham, Detroit, Hamtramck and Harrison Township.

Metro Detroiters looking for new homes are finding that this is fast becoming a buyer's market.

Sellers are increasingly willing to negotiate on price and throw in perks to close the deal. With the local housing market struggling in an uncertain economy, today's buyers also have more available homes to choose from -- with more reasonable asking prices. For buyers who are in the right position to pounce, it's bargain time.

"Even though the economy is in the state it's in, you can't stop living," Lakendra Hampton, 28, said earlier this month. She and her husband, Larry Hampton, recently closed on a 3,000-square-foot colonial in Eastpointe. "When we saw this house, we knew we had to buy it because it's been our dream."

A Free Press quarterly analysis of home sales in every southeast Michigan community during the past three years shows that the number of sales and the value of homes are plunging in most areas. Fewer homes were sold between January and March of this year than during the first quarters of 2005 and 2004. Those that did sell went for less than they would have in either of the two previous years.

Overall, metro Detroit sales and home values are in their worst shape in three years. Only Wayne County experienced an overall first-quarter jolt in the number of homes sold, with strong sales in affordable Detroit, Hamtramck, Trenton and Wyandotte.

Homeowners in Livingston County took the biggest overall hit in sales during the first quarter of 2006: a 24.1% drop, with the number of sold homes in Hartland and Oceola townships dropping by 39.6% and 34.9%, respectively. Oakland and Macomb counties experienced 12.9% drops in the number of homes sold.

That's creating opportunity for a select market of first-time buyers and move-up homeowners who are lucky enough to sell their starter homes. At the same time, the falling market is creating headaches and financial crises as more sellers compete for fewer -- and choosier -- buyers.

Bargains are out there

Despite what some would call unstable employment in the auto industry, the Hamptons wanted to move from their Detroit bungalow into a larger home that could comfortably house them and their two daughters.

The couple works at the Ford truck plant in Dearborn, building F-150s, and are aware of the economic realities facing the region's auto companies. But they were determined to buy the bigger home they had saved for.

Their real estate agent identified dozens of homes in their price range, and even some a bit over it. But early in the search, they walked into the pristine colonial with four bedrooms, 2 1/2 baths and a finished basement. The $279,000 asking price was a little more than they had intended to spend, so the Hamptons decided to take a gamble and offered $270,000.

The owners, eager to downsize into a condominium, snatched up the offer."I feel we got it for a steal; none of the other houses we looked at offered that square footage," Lakendra Hampton said.

In Sterling Heights, homeowner Sarvang Shah has reduced the asking price of his 3,300-square-foot, four-bedroom home three times -- from $485,000 to $435,000. He's seen lots of lookers, but no takers.

"It's quite the bummer," said Shah, who needs to move into a new house he just had built in Rochester Hills. But home sales in Sterling Heights are down 21.2% compared with the first quarter of last year, and house values have dropped 6.4%. "It's hard to believe that Michigan, a state that had one of the strongest economies in the '90s, has come to this," Shah said. "We thought what most people probably think -- that we'd buy a house, and in five years, we'd make some money back. ... "We're basically going to break even, based on what we've done to improve it."

How did we get here?

To understand the current state of the housing market and its fallout, look at what really happened during the bustling and booming market of the late 1990s and early 2000s.

During those years, the typical home in southeast Michigan rose about 50% in value, an unprecedented gain and among the fastest in the nation. A healthy economy, rapid suburban growth and new home construction, affordable housing and wealthy baby boomers willing to spend more money on their homes fueled the local market.

As the economy took a dramatic downturn in 2002, so did the existing housing market. Sales slowed, as did appreciations. With every announcement of layoffs, plant closings or company restructurings, more people left the area, downsized to smaller homes or lost their houses to foreclosure. Interest rates kept rising, making new mortgages too expensive for some people.

The inventory of unsold homes soared. The drop in demand led to a drop in property values.

At the end of March this year, 43,159 homes were actively on the market in metro Detroit. Last year, that number was 28,349, according to Realcomp II Ltd., a multiple-listing service in Farmington Hills.

Michigan's struggling economy has made lots of potential buyers too jittery to take the leap.

"In the 1990s, we were in such a fast, fast market -- there wasn't enough supply to meet our demand," said Jean Van Oosterwyk, an associate broker for RE/MAX First in Clinton Township. "We were getting three or four offers on one house, which raised the value of our homes.

"There are some areas that are doing very well," she said. "I'd love to say the market as a whole is experiencing this, but we're not. People still aren't realizing that they have to price their house according to what the market dictates."

How our area stacks up

Nationwide, home prices scored double-digit gains in the first quarter of 2006, up 10.3% from a year earlier, according to the National Association of Realtors. The median sale price for an existing single-family house rose to $217,900. That means half of the sales were for greater amounts, and half were for less.

Despite the growth, the housing market in most U.S. cities is slowing from the record-setting pace of the past five years. Several once fast-growing cities, including Boston, San Francisco and San Diego, experienced flattened prices during the first quarter.

In addition, national home sales were down more than 15% in the five areas -- California, Arizona, Nevada, Florida and the District of Columbia -- that have had the hottest housing markets. Overall, national home sales fell 2.1% in the first quarter.

In metro Detroit, sellers lucky enough to find buyers are making much less profit on their homes, especially when they haven't spent a lot of equity-building years in those houses. Sales are decreasing by more than 30% in some metro Detroit communities.

Consider Rochester, an appealing community because of its historic charm and Victorian- and Craftsman-style homes and architecture. Tucked inside the border of Rochester Hills, Rochester serves as a quaint retreat with a charming, old-fashioned downtown.

Still, in the past year, sales have slowed considerably and were down 33.3% in the first quarter of 2006, compared with the first quarter of 2005. An oddity: Despite sagging sales in Rochester -- 24 homes sold during the first quarter compared with 36 in that time last year -- house values have made a 9.5% jump, a modest increase. During the first quarter of 2005, the median sale price in Rochester was $314,000; this year, it was $343,750.

Other spots that are bucking the trend:

• Oakland County: Though the number of homes sold in Birmingham during the first quarter of 2006 decreased by nearly 25% compared with the first quarter of last year, home values there continue to grow. Median sale prices have increased by 39.3% to $390,000, the largest increase in Oakland County.
  
  
• Macomb County: Harrison Township led the pack in the first quarter, with a 23.7% jump in home-sale prices, despite sales declining by 35.3%. The median sale price for a home there is now $241,588.
  
  
• Wayne County: Hamtramck leaps above other communities, with a 55.1% increase in sale prices -- to $25,975. In addition, Hamtramck experienced a 50% increase in the number of homes sold, from 48 during the first quarter of 2005 to 72 during the first quarter of this year. Grosse Pointe Park also experienced a 50% jump in the number of sold houses, from 20 to 30.
  
  
• Livingston County: Oceola Township experienced the largest jump in sale prices over the past three years, though prices dropped 0.4% in the first quarter of 2006. The number of sales dropped from 43 to 28, but jumped in nearby Hamburg Township from 55 to 66.
  
  

Comparable Washtenaw County numbers were not available for Free Press analysis.

Sam Baki, president of the Western Wayne Oakland County Association of Realtors, said he's expecting an upturn starting this summer. His long-term forecast: a better overall sales year than in 2005.

"The fear of all the job loss and people not making any moves because they're waiting to see what happens with the Big Three is going to subside," said Baki. Keep in mind, too, he said, that during the first quarter of any year, the weather is cold. It's just not the prime home-buying and selling season.

Added RE/MAX associate broker Van Oosterwyk: "The serious buyers are definitely going to buy and sell, even in this market. You may get less for your house now, but you're going to pay less for your new house, especially if you're upsizing.

"Now is the time."

Professional One Quoted in Detroit Free Press May 7, 2006

BRENDEL HIGHTOWER: Northville
Wayne and Oakland counties
May 7, 2006

APPEAL: The city of Northville is a charming town nestled in the gentle rolling hills of the Northville community, which includes Northville Township. The city provides a glimpse of the past with grand, beautifully restored older homes and a vibrant oldfashioned downtown in its historic district. The historic district has more than 70 buildings, some dating to the early 1800s. A band shell in the center of town serves as the community's gathering place for special events, concerts and parades. Several redevelopment projects downtown are bringing new shops, offices and condominiums. Although the city is almost fully developed, homes are still being built. Small homes are being torn down and larger ones built to replace them, says real estate agent Phyllis Lemon from Professional One Real Estate in Plymouth.

FACTS: This 2.2-square-mile community was incorporated as a village in 1867 and as a city in 1955. Northville is divided between Wayne and Oakland counties. I-275 and M-14 are nearby. Northville is about 30 minutes from downtown Detroit and about 25 minutes from downtown Ann Arbor. Visit www.ci.northville.mi.us for more.

PREVALENT ARCHITECTURE: Restored Victorian, Queen Anne, Greek Revival and Gothic Revival homes built before the 1930s, plus some post-World War II ranches and bungalows. Large newer houses, some that measure more than 3,000 square feet, along with condominiums and apartments are in Northville. In 2005, houses sold from $122,500 to $925,000, according to multiple listing services.

POPULATION: 6,459 in the 2000 U.S. Census; about 96% white, 1.9% Asian, 1.6% Hispanic, 0.4% black. The population increased 4% between 1990 and 2000.

EDUCATION: Math and reading MEAP scores for the Northville Public Schools district run about 26% above state averages.

TAXES: $41.14 per $1,000 of a house's taxable value in the Northville district in Wayne County and $37.75 in Oakland County.

MAJOR EVENT: 19th Annual Flower Sale -- 9 a.m.-6 p.m. May 26 and 9 a.m.-5 p.m. May 27 on Main Street in downtown Northville. Call 248-349-7640 for more information.

PUBLIC TRANSPORTATION: Senior transportation services, for residents 50 and older or disabled, 248-449-9934.

PUBLIC SAFETY: Northville police reported 18 burglaries, two auto thefts and no cases of criminal sexual conduct, robbery or homicide in 2005.

SHOPPING, DINING AND ENTERTAINMENT: Several highly rated restaurants, shops and a live theater are downtown. Neighboring Novi, Livonia and Plymouth have plenty of additional shopping and dining Northville Parks and Recreation is a shared service of the City of Northville and Northville Township. Several parks, which include a dog park, have lighted playing fields, tennis courts and pathways. There is also a portable skate park shared with the Plymouth community; Mill Race Village, which has historic buildings, and harness racing at Northville Downs.

MAJOR EMPLOYER: Northville Downs Racetrack, Belanger Inc., Jack Doheny Supplies.

WHY I LIVE HERE: Wende Boerema says, "What we like about Northville is the historic downtown area, great neighborhoods and excellent schools. Since I grew up here, I knew what a nice town it was and we chose to move to the city of Northville after my husband Dick and I graduated from college. "We love our neighborhood with its sidewalks and tree-lined streets, and we often ride bikes with our three boys into town. We visit the library and the park and stop for ice cream. Our oldest two boys are in elementary and preschool and we've had wonderful experiences with their schools."

Delphi reaches buyout agreement with union

There's more good "auto industry" news in the article below, which appeared in the Wall Street Journal June 18, 2006. As all of us who live and work in this area know, like it or not, and admit it or not, we ARE heavily influenced by what happens in the auto industry. I believe that what is going to turn our 'down' real estate market around in more news like this. Once people realize that GM IS turning around, that will be the be the emotion tipping point that will start the pendulum swinging back the other way, hopefully returning us to the outstanding real estate market that we enjoyed for so many years.

Delphi Reaches Buyout Agreement With Union, GM for Hourly Workers

Associated Press June 18, 2006 11:30 a.m.

DETROIT -- Delphi Corp. has reached an agreement with its second-largest union and General Motors Corp. to offer buyouts to hourly workers that is similar to an earlier deal with the United Auto Workers union.

The auto parts supplier announced the agreement with the International Union of Electronic Workers-Communications Workers of America and GM, Delphi's former parent and its largest customer, late Friday.

"We continue to be focused on the transformation of Delphi and this attrition plan provides a stronger framework to position our successful emergence from Chapter 11," Delphi President and Chief Operating Officer Rodney O'Neal said in a statement. "This plan further enables an effective transformation of our U.S. manufacturing and support operations."

Delphi said the deal was an important step in its restructuring.

GM has agreed to provide financial support under the proposed plan, which is subject to bankruptcy court approval, Delphi said. GM spokeswoman Toni Simonetti said Saturday that the automaker will split the cost with Delphi.


"This is just another good step in reaching a consensual resolution in the Delphi bankruptcy and restructuring situation," Simonetti said. "We're pleased with that."

About 8,000 hourly workers represented by the IUE-CWA are eligible to participate. Some may be offered a lump sum payment of $35,000 to retire, Delphi said, while eligible employees may decide to accept buyout packages ranging from $40,000 to $140,000.

The plan also permits the transition of up to 3,200 Delphi workers represented by the IUE-CWA to GM for retirement purposes, Delphi said.

Messages seeking additional information were left Saturday with Delphi and the IUE-CWA.

Delphi filed for Chapter 11 bankruptcy protection in October. The buyouts are part of an effort to provide early-retirement incentives to Delphi workers as the Troy, Mich.-based company seeks to cut its work force.

Earlier this month, Delphi announced a deal with the UAW and GM to offer buyouts to all hourly employees. Those buyouts greatly expand early-retirement incentives announced in March and meant that all UAW-represented employees will be offered something if they want to leave the company.

The UAW -- the largest of Delphi's six unions -- represents about 22,000 of Delphi's 31,000 workers. At the time, Delphi said it was negotiating with other unions to offer similar packages for their members.

GM and Ford Motor Co. also are working to trim their work forces. (See related story.) GM, which offered buyouts to all of its 113,000 U.S. hourly workers, plans to cut 30,000 jobs and close 12 facilities by 2008. And Ford announced in January it would cut up to 30,000 jobs and close 14 facilities by 2012.

Last week, UAW officials said about 25,000 GM workers and 8,500 from Delphi have agreed to take buyout or early-retirement offers. On Saturday, Ford spokeswoman Marcey Evans said the automaker expects 10,000 to 11,000 of its union workers to take early-retirement or buyout offers this year.

Advie re home renovations

Much of this article, which appeared in the Detroit Free Press June 16, 2006, is cliche/old news, but it is worth noting some of the age-old truths of home renovations, which are as follows:

• Kitchen and bath renovations are generally good ideas
• Any renovation that has any element of "personalization" is generally a bad idea
• Pools are break-even propositions at best. My personal experience is that pools are actually more of a negative than a neutral
• Everything else being equal, "neutral" trumps everything. Even when vivid colors are "in style" (and I have no idea who can really accurately assess such things), the odds of your selecting the same colors that your ultimate purchaser would have selected are small

Having said that, here's the article. Enjoy!

Be selective in home renovations

Lynne Meredith Schreiber / Special to The Detroit News

Before you renovate your home in order to reap the reward of a higher selling price, you should know that not all renovations are equal. In fact, some won't do much more than make a homeowner happy.

In a This Old House article, "Remodeling Returns," writer Carol Vogel warns sellers about the renovations that help boost sales prices and those that don't.

Kitchens and baths rank highest, said Kermit Baker, director of the remodeling futures program at the Joint Center for Housing Studies at Harvard University. Of course, these rooms are often the most expensive to renovate, but they may pay for themselves in a sale.

Adding rooms are also a good bet, especially a family room or master bedroom suite.

Swimming pools rarely return their cost, and home-offices don't garner a lot of sympathy. Minor improvements like painting a kitchen or refinishing its surfaces might bring in bigger bucks than a major remodel in the wrong room.

Remember when renovating for resale that the more mainstream the look, the better the chance that others will like it, too. "You might want a room in your house in the shape of a cat or a mouse, but can you find a buyer who wants it?" said Gopal Ahluwalia, director of research at the National Association of Home Builders.

Keep renovations in line with the original style of the home. Don't price yourself out of the local market; know what other homes are worth before you renovate. And make sure improvements are in line with the value of your home.

Lastly, when housing is in great demand, buyers are more willing to shell out more cash for improvements. But it is possible to "over-renovate." Ultimately, don't renovate just for the sake of earning more money in a future sale. Do it because you want to enjoy the new look, space or style.

The McMansion Glut

Much has been written about the changing demographics in America and how demand for larger/more expensive homes will decrease as the baby-boomer generation reaches retirement age. The following article, which appeared in the Wall Street Journal June 16, 2006, in the most recent illustration of this expected trend. I believe we'll see a lot more of this as we move forward, particularly if rising energy and raw materials costs continue to play a role in this situation.

The McMansion Glut

America's love affair with sprawling homes is showing signs of waning as the real-estate market softens and aging boomers seek smaller houses. Our reporter on nervous sellers and the growing supply of 'faux chateaux.'

By JUNE FLETCHER June 16, 2006

Mickey and Jane Finn put their five-bedroom, 6,200-square-foot home in Leesburg, Va., on the market in April, but already they've cut the price to $899,900 from $1.1 million. Now, they've decided to put it up for auction.

What's the hurry? Down the street in their leafy subdivision, two similar-sized houses are also on the market, and around the corner, five more have for-sale signs. The Finns, who paid $692,000 for the new house in 2002, recently retired and, with their two children grown, they're eager to move to a place half the size. "We don't need this big a house anymore -- if we ever did," says Mr. Finn, age 63.

The golden age of McMansions may be coming to an end. These oversized homes -- characterized by sprawling layouts on small lots, and built in cookie-cutter style by big developers -- fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut.

Interviews with dozens of real-estate agents, sellers, developers and housing economists turn up signs across the country. In an affluent Dallas ZIP Code, where half the houses have four bedrooms or more, home sales fell 31% in the first quarter compared with the previous quarter. But sales rose 23% in a nearby ZIP Code where 7% of houses have that many bedrooms. In Santa Fe, N.M., homes in the 2,000-square-foot range sell within weeks, while larger ones languish for months, says broker Pat French. In the Boston metro area, sales of homes with four or more bedrooms were flat in the first quarter from a year earlier; sales of homes with three bedrooms or fewer rose 14%. New Jersey appraiser Jeffrey Otteau says the inventory level statewide for large, $1 million-plus houses stands at 13 months, more than twice the state's overall average of six months.

A TALE OF TWO ZIPS

Sales of larger homes are flagging in many markets. See a comparison of home sales in nearby ZIP codes.

There is no formal definition of what constitutes a McMansion. (Some would say it's any home bigger and showier than your own.) One broadly accepted definition, used for this article, is a house larger than 5,000 square feet -- about double the national average -- with four or more bedrooms that is built cheek by jowl with similar houses. Most have been erected since the mid-1980s, when major developers such as Toll Brothers and K. Hovnanian Homes began to chase couples who wanted more space -- and luxury -- than they had when they were kids. These houses often boast grand, two-story entryways, three-car garages, double-height family rooms and master-bedroom "suites" equipped with sitting areas and whirlpool tubs. Developers market the homes under names such as the Grand Michelangelo, Hemingway and Hibiscus -- while detractors have dubbed them "garage mahals," "faux chateaux" or "tract castles."

Big Fuel Bills

The 2003 American Housing Survey, the latest available, found nearly 3.2 million homes in this country with 4,000 square feet of space or more -- the largest category the group tracks -- up 11% since the previous survey in 2001. Part of the big-house mania was fueled by speculation as home prices surged, says housing economist and consultant Thomas Lawler in Vienna, Va. "Folks bought megasized houses well beyond their needs to increase their investment in real estate," he says.

Now, some boomers in their late 50s are counting on selling their huge houses to help fund retirement. Yet a number of factors are weighing down demand. With the rise in home heating and cooling costs, McMansions are increasingly expensive to maintain. Nationwide, electricity rates have risen 12% over the past three years, while the price of natural gas for heating has risen 43% in the same period, according to the U.S. Energy Information Administration. That means it can cost $5,000 a year or more to heat and cool a 5,000-square-foot house in a city such as Farmington, Conn., according to Connecticut Light & Power Co.

The overall slump in the housing market also is crimping big-home sales. The volume of newly built homes sold fell 11.2% in the first four months of the year from a year ago, while sales of existing houses fell 5.7%, says the National Association of Home Builders and the National Association of Realtors. Yesterday, one of the biggest home builders, KB Home, cut its earnings outlook for the year, citing declining demand. Bruce Karatz, chairman and chief executive, said demand has fallen "largely due to a sharp reduction of speculative purchases and an oversupply in new and resale inventory."

Tom Green threw in a high-definition TV to sell his house in Loudoun County, Va.

Meantime, the jump in interest rates has put the cost of a big house out of more people's reach. With 30-year mortgages at 6.2% yesterday, a $700,000 loan costs about $4,300 a month, up from $3,900 when rates were 5.28% in June 2003, according to Bankrate.com. "The young people coming up don't have the means to absorb these big houses," says Mr. Otteau, the New Jersey appraiser.

Since February, Kris and Ray Victory have been trying to sell their five-bedroom house in Brookville, N.Y., built in 1987 with a sunken living room and a fireplace in the master-suite wing. The couple raised three children in the 8,000-square-foot home, but they say younger families seem turned off by its $1,000-a-month utility bills and $25,000 annual taxes. "Buyers tell us it's too big," says Mrs. Victory, a 45-year-old electrical engineer. The couple recently shaved $200,000 off the $2.35 million price.

This dynamic could become more acute in coming years. As the nation's 78 million baby boomers, born from 1946 through 1964, become empty-nesters and hit retirement age, many are already selling their trophy homes and trading down to smaller models. There are roughly the same number of people in the next pool of potential buyers, but they're marrying later and often have smaller families: U.S. Census statistics show that the average household size in 2005 was 2.57 people -- down from 3.14 in 1970.

Already, the McMansion oversupply is acute in places like Loudoun County, Va. In the fast-growing area northwest of Washington, D.C., thousands of hulking, red-brick colonials sprouted over the past 10 years on quarter-acre lots that had been carved from farmland and woods. In May, 4,719 houses were for sale, more than three times the year-earlier level. The number of sales dropped 39% to 484 in the month, and the number of days a home remained on the market lengthened to 70 from 14. "Sellers are dying out there," says local real-estate broker Michele Stash.

In one Loudoun subdivision, Tom Green, a 47-year-old airline pilot, put his five-bedroom house on the market six months ago for $1 million so he and his wife could downsize to a $592,000 townhouse nearby. But his home had to compete with 38 others for sale in the neighborhood with four or more bedrooms. His 5,600-square-foot, five-bedroom house, which he bought new for $515,000 in 2000, didn't get a nibble for months. Finally, a relocating California family agreed to buy it if the Greens would leave behind their high-definition TV and a lifesize Spiderman statue that had been a gift from Mr. Green's sister -- plus slash the price to $820,000. (They also had to throw in a cookie jar with "Biscuit" -- coincidentally, the name of the buyers' dog -- written on the side).

Mickey and Jane Finn have decided to auction their Leesburg, Va., house (left); the pool and waterfall at the Mumme house in Phoenix (right).

The Greens complied. The buyers, John Zuccaro and Cindy Fonseca, say they were emboldened to make their demands when they saw how much the market had cooled since April 2005, when they sold their three-bedroom house in Torrance, Calif., for its full asking price of $759,000 in only five days.

Though huge houses continue to be built across the country, many architects and builders appear to be responding to shrinking demand for McMansions. In the latest quarterly survey by the American Institute of Architects, 68% of the 500 residential architects polled said home sizes are stable or declining, compared with 58% a year ago.

Focus on Smaller Homes

For anti-McMansion activists, who hate to see big homes supplant smaller "teardowns" in established neighborhoods, a decline in demand may be good news. Homeowners in some areas have successfully lobbied for laws designed to rein in the light-and-view-blocking monsters: Last year, Arlington County, Va., limited home footprints to no more than 30% of a lot, while Wood-Ridge, N.J., recently said homes could take up no more than 55% of a lot.

Faced with dwindling demand and a fall in their stock prices, many national builders are starting to focus more on smaller houses, which often feature separate dining and family rooms but just two bedrooms. K. Hovnanian Homes, long known for McMansions, is building such houses under its "Four Seasons" label in nine states. Toll Brothers is creating communities like Cranbury Brook Villas in Plainsboro, N.J., which has two-bedroom homes ranging from 1,656 to 1,958 square feet that can be equipped with lofts, sunrooms and dining-room accent columns (the "Bayberry" model starts at $389,975).

Yet some families have found it hard to downsize. In Phoenix, David and Mary Mumme, both 49, are selling their 4,938-square-foot house, partly because their oldest son is heading to college and partly because maintaining the house and yard -- with pool and waterfall -- takes about eight hours a week. They're asking $1.8 million, about three times what they paid for it six years ago, because they saw nearby houses sell quickly for about $2 million last year. But even though the house has 12-foot ceilings, marble countertops and skylights in the closets, no one has made an offer during the month it's been on the market.

John and Barbara Fiore, both 54, had to slice $50,000 off their $900,000 price to move their 5,500-square-foot house in Warwick, N.Y. Ms. Fiore, who has five grown children, says she worried that no one would want her six-bedroom home while it sat on the market all last year, because today's families are smaller. (The eventual buyer was a married doctor with three young children.) The delay in selling "was scary," says Mrs. Fiore. The Fiores, who built the house 14 years ago, now live in a three-bedroom house nearby that's less than half the size. Meanwhile, Mrs. Fiore's parents recently sold their Warwick house in a month -- but it's only 2,500 square feet.

And even some young couples who have tried the big-house life are getting out of it, trading space for higher-quality construction. Last October, Andrew and Sheri Leppert of Alpharetta, Ga., both 32, exchanged their four-bedroom, 2½-bath home for a smaller one that has only three bedrooms and two baths -- yet, at $450,000, cost 50% more. Ms. Leppert, a homemaker who now has a young child, says she was attracted by the new house's details -- including beaded-glass windows, wide-plank flooring and 9-foot-tall doors made of solid wood -- which elevated it in her mind above the "Georgia sprawl" house she was leaving. She and her husband never used the fourth bedroom of their old house, she says, and she doesn't miss cleaning the extra space. "Taking care of it became a burden," she says.

Wall Street Journal Luxury Home Index

The following chart, which details price appreciation of a given area's "most expensive homes" from June 2005 to June 2006, was excerpted from today's Wall Street Journal. As you will note, of the major real estate markets mentioned, Detroit had the largest percentage decrease, at 3.1%. This means that, for example, a home that sold for $1,000,000 a year ago would sell for $970,000 today. While this is undeniable "bad" news, I am thankful that the decrease was not more significant than it is.

Response from Zillow: Whatever Gets Them Through the Night

On June 12, I posted a piece about Zillow (see below). On June 13, David Gibbons of Zillow posted the following response (my reactions to his comments are in red font below):

To set the record straight, we don't consider ourselves in competition with Real Estate professionals. Quite the contrary; through our consumer-focus, Zillow is growing a large and productive audience for our advertising clients, most of whom are Real Estate service providers. Zillow simply saw a gap in the market for a service that equips buyers and sellers to enter the market better informed. That would be like saying "We saw a gap in the stock-trading industry, so we thought we'd post stock prices that are not inaccurate in an attempt to have buyers and sellers enter the market better informed with information that is not accurate." David, I like your moxie, but your logic and reasoning skills need a LITTLE work. What you REALLY mean to say is that you saw an opportunity to:

• Create a website with a great concept (which you did; too bad it's not possible to pull this off in reality)
• Create a massive buzz about the site (which you did)
• Roll the site out prematurely, because it was NEVER about accuracy, it was ALWAYS about GLITZ and DRAMA and PUBLICITY (BRAVO!)
• Get a huge flow of visitors to the site (which you did)
• Sell advertising on the site to the very people we are harming: Realtors! (GENIUS!)

It's the classic website formula for success: buzz + traffic = advertising revenue. It's textbook. If you would simply ADMIT that this was plan from the start, you will have my complete respect and I will shut up forever on anything and everything relating to Zillow. If you continue to hide behind the "no, really, it's legit" smoke screen, you'll only throw endless gasoline on the fires of people like me.

Clearly there was pent-up demand for this data. If by "pent up demand" you mean "people have an insatiable curiosity for information of this nature," you are correct. EVERY human being is curious to know what others think their home is worth. Hell, I looked up my home as soon as I heard about Zillow. Everyone that I know did this. That's curiosity, David. It's not "pent up demand." In every city in America, any home owner on any given day can get 10 Realtors in their living room THAT SAME DAY providing REAL estimates of the value of their home if they wanted to. Trust me when I say that there is NO such "pent up demand." Realtors fall all over themselves to provide this information to people FOR FREE. If you truly believe what you wrote, you know nothing of the industry.

We believe that by educating consumers we have facilitated a more productive discussion between homeowners and their RE service providers. If by "educating" you mean telling people that "1+1=3," or "monkeys can fly" or "the earth is flat," and having them believe you, then, yes, you are doing a GREAT job of educating consumers.

A valuation discussion is a great opportunity for you to demonstrate your expertise to a potential client and win their confidence. Zillow.com provides a framework to have that discussion around facts, not just opinions; even when the relevant facts are Zillow's accuracy in the area in question. Let me get this straight: you are saying that I am somehow ahead of the game when you put me in a position where I have to debate with my clients the accuracy of the information that Zillow provides? HOW? What it does is create a hurdle that I and everyone else in my industry has to overcome every time we meet with someone that wants to sell their home. I have been able to overcome this quite easily, to be honest, because I pull out my laptop and go straight to my post on the Zillow blog that I wrote long ago (and, now, I'll direct them to my blog and this communication that I'm having with you). This gives me instant credibility. But what about all the other agents that aren't quite as tech savvy as I am? Stated more directly, BAD information NEVER improves ANY situation.

I am surprised that you would consider that discussion a waste of your time. We clearly need to work on educating professionals on how to use our website as a tool in their daily interactions with consumers. Ouch, Dave. I suppose that's a thinly veiled insult. What you "clearly need to do" is to provide data that is ACCURATE! How about we start with that? There is NO WAY to use Zillow as a "tool in our daily interactions with consumers" in any productive fashion. Here's how the discussion goes, EVERY TIME:

• Client: "We'd like to price our home at $550,000"
• Realtor: "With all due respect, that is not even remotely realistic based on the comps. I have them with me. Why don't we review them and I'll show you upon what data I am basing that opinion. May I ask where you obtained your number?"
• Client: "From this awesome new website called Zillow.com. It's AMAZING! You just put in your address, and it tells you what your home is worth!"
• Realtor: "I am sorry to be the one to break the news to you, but Zillow's information is HORRIFICALLY inaccurate. I can give you example after example of instances where Zillow's estimate is off by literally as much 300%. You simply CANNOT rely on information from that site"

At this point, the Realtor has a problem, because the client WANTS DESPERATELY to believe the bad information that Zillow has so recklessly provided to them. And, as so many humans do, they often "opinion shop" until they can find SOMEONE, ANYONE who will agree with their "pie in the sky" belief that their home is worth dramatically more than it is. Sometimes, they'll move on to the next Realtor...and the next...until they find one dishonest enough or desperate enough to agree to their crazy price. Zillow has become the GREAT ENABLER of sellers who want to overprice their homes (which is MOST SELLERS).

As to the accuracy of our Zestimates, we are improving daily but more importantly, please note that we measure and report on our performance. You will find aggregate reporting on Zestimate accuracy by region here (http://tinyurl.com/fgz5k) and a discussion of how we report our confidence in each house's Zestimate here (http://tinyurl.com/qt4r8). Lastly, I'd gladly take a look at your home and reply with my assessment of why we got it so wrong. We learn from and are improving on our algorithms based on this type of feedback. You can send me your address at davidg [at] zillow [dot] [com]. I have ZERO interest in helping you do your job properly. ZERO. And I have no confidence in YOUR estimates of YOUR accuracy. Allow me to repeat: what you did in rolling out Zillow in such a radically premature condition was unconscionable. I shudder to think of how many bad decisions have been made by how many good, honest people based on the faulty data that Zillow spews forth daily.

If there's any good news in this from my perspective, it's this: BECAUSE you rolled your site out in such a sub-Beta condition, you have completely misplayed the incredible buzz you had going at the inception of the site. People WERE talking about Zillow for a while. Now, it's just another real estate technology novelty. I've listed several homes recently, and I brought up the topic of Zillow just to get a reaction. In the last three situations, all my clients said the same basic thing: "Oh, yeah, we know about Zillow. We looked up our home's value. It's not even remotely accurate. I hope YOU aren't basing any of your thinking on that site."

And, please, allow me to repeat, ONE MORE TIME, I have NO issue with Zillow's concept. It's a GREAT idea. It just isn't realistic at this time. I'm sure technology will evolve in the future to the point where a site like Zillow can provide good, accurate, meaningful information. But that day has not arrived.

Thanks for writing and good luck with the blog. Thank YOU, David. Your post has inspired me to start another blog, which is called "Zillow is Awful." Look for it at http://zillowisawful.blogspot.com/. I look forward to collecting a collage of horror stories about the negative fallout from Zillow. I already have a few nice anecdotes to share. Here's one: I know an agent whose own MOTHER stopped talking to her because the mother looked up her condo's value on Zillow and now believes her daughter gave her bad advice on the purchase of the condo. Isn't that heartwarming? NICE WORK, ZILLOW!

How to Select a Realtor

When it comes to accountants, doctors and lawyers, people do a relatively good job of researching their options before making a decision. Generally speaking, these types of professionals handle very important matters that involve risk - whether it be financial, medical or legal - and which need to be handled properly. On the other hand, people often choose Realtors in a haphazard fashion with little research or background checking. We all know people who sold their home with their "uncle that just got a real estate license," or purchased a home through their "next door neighbor because he seems like a nice guy."

At the risk of sounding self-important, I would argue that the selection of a Realtor can be as important as the selection of these other professionals. Here are my reasons for saying this:

• The consequences - both legal AND financial - of a typical real estate transaction are usually quite significant. In most cases, the purchase or sale of a home is the single largest investment transaction most people will ever make in their lifetimes. The difference between truly professional representation and what passes for "normal" representation in real estate is often measured in thousands, or TENS OF THOUSANDS, of dollars
• In public accounting, medicine and law, there are significant barriers to entry. People have to have college degrees, and they have to pass very difficult examinations. In real estate, the barrier to entry is VERY low. I've been selling real estate for 15 years, and I've known only one - ONE! - person that has failed to pass the real estate test on their first attempt. Contrast that with public accounting (I'm also a CPA), where only 10% of all people who sit for the CPA exam pass on their first try
• In public accounting, medicine and law, there are strong "self-policing" mechanisms in place. In contrast, the "self-policing" function within real estate is weak. I can speak from first-hand experience, as I am a member of the Professional Standards committee of the Western Wayne Oakland County Association of Realtors (in lay terms, this means that I am a judge in cases brought against Realtors by the public or by other Realtors). Here's the bottom line: the perception within the industry is that the "bad guys" never get penalized, so no one files complaints. Which means the bad guys can continue to be bad guys without fear of reprisal
• The "range of competency" in real estate is RADICAL. While there are certainly outstanding professionals in most companies, the hard reality is that the average person with a real estate license in the United States made an income of something like $9,000 last year. One of the largest offices in my market has 250+ agents, and the average agent in that office sold $300,000 worth of real estate last year - that's less than the average sales price of a SINGLE HOME in the community in which that office is located! The industry is loaded with part-timers and people who got a real estate license on a whim, in large part because it IS so easy to get a license. The obvious point: there are MANY, MANY people out in the world with real estate licenses that lack the experience to serve ANY client properly. Accounting, medicine and law, on the other hand, are serious professions in which lower-end practitioners typically have very short careers. In real estate, these people can hang around for decades, stumbling along doing one or two deals a year in an incompetent fashion

I hope that I've at least made you think about this a little bit. I am NOT suggesting that you should only work with a Professional One (the company that I own) agent. I AM suggesting that you work with an agent that is a professional one! For more information on things you can do to locate a quality real estate professional, read "Do Your Homework" on our website at http://www.professionalone.com.