   To kick off its ‘02 series of meetings, the builders association has turned to former Governor of Michigan, and Ambassador to Canada, James J. Blanchard. At a time when the issues surrounding trade with our northern neighbor are taking front stage at, both, the local level in regards to future economic development plans, and the national level regarding the cost and quality of new homes, Mr. Blanchard’s experiences in Congress, as Chief Executive of a border state, and as Ambassador during the period that NAFTA became a reality, give him a unique perspective on a these critical concerns.
   In recent months the home building industry has been hit with two rounds of protective tariffs on Canadian imported timber, which the NAHB believes will raise the cost of the average home by $1,500 and drive 400,000 American families out of the new housing market.
   Furthermore, many of Genesee County’s economic development plans are tied to its location along I-69 (which will ultimately link Canada and Mexico), with focus on “Flint” being a distribution center for transporting the products of North American free trade.
   Although Blanchard will be addressing these issues in his appearance next Wednesday, we shouldn't ignore the fact that he's currently the “front runner” in his attempt to, once again, serve as Michigan’s Governor. Recent polls show him with a strong, and growing, lead over Attorney General Granholm for the Democrat nomination, and a resounding lead over likely GOP nominee, Lieutenant Governor Dick Posthumus.
   So, although this shouldn’t be considered a campaign appearance, an understanding of how Jim Blanchard perceives issues relating to the economic future of the Flint area in general, and the home building industry in particular, may well serve to guide us in making electoral decisions in August and November.
   Wednesday’s meeting will also feature the formal installation of Steve Edwards as President, Steve Lissner as 1st V.P., and Mark Nemer as the new Secretary.

Business News & Issues

17.2 million vehicles sold during ‘01’s (recession?)
   As we were finishing up this newsletter, CNN reported that U.S. auto sales climbed in December as the industry ended a “difficult year” with a “strong end.” We’re changing this article to reflect that report, due to the fact that it coincides with so much written in this issue in regards to the housing industry at a time economists say the nation’s in recession, and has been for the final 9 months of the year.
   According to CNN’s website, GM sold 357,748 light trucks and cars during the month, up 6.8% from December ‘00, as Ford sold 281,158 vehicles, slightly above last December. For the year, GM’s total sales were down 1.1%, while Ford’s fell 6%.
   It also reported that Chrysler said U.S. vehicle sales were up six percent over last year’s final month. However, its total sales for the year fell 10%.
   Notes the site, although final sales figures are not available, “it appears the strong fourth quarter allowed the industry to post its second-best sales year ever. Ford estimates total U.S. light vehicle sales will come in at 17.2 million, trailing only the 17.4 million sold in 2000, and topping the nearly 17 million sold in ‘99, previously the second best year.”
   Obviously, the 0% financing incentives were credited with the remarkable results. So, what can we expect now the the 0% has come to an end?
   Well, GM announced at the same time it was about to offer $2,002 in incentives for 2002. And, it’s likely the other companies will follow suit.
   Still, incentives or not, sales data continues to suggest that the consumer isn’t folding up .. .. and that’s a good sign.

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State’s #1 in Home Ownership

   In recent years, the Federal Government has continuously lauded the growth in the rate of U.S. homeownership, which set a new record in last year’s third quarter at 67.9%. And, the housing industry has taken pride in its role regarding the rise, as homeownership creates wealth for the nation’s families, and stability for communities across the nation.
   Well, a recent Wall Street Journal brief, noting that the nation’s “homeownership rate increased in all but a handful of states in 2000 compared with 1995,” sent us running to the Census Bureau’s website for further information. Why? Because it also stated that “Great Plains, East South Central and Great Lakes’ states had the highest rates of homeownership, due to lower home prices and fewer opportunities to rent. Michigan topped all states with a 77.2% ownership rate for an additional reason: its many higher wage factory workers.”
   For the final half of the last decade, the nation’s homeownership rate rose from 64.7% to 67.4%. But during the same period, Michigan’s rate soared from 72.2% to 77.2%. To put that in perspective, in 1995 the state’s homeownership rate was 11.6% greater than the nation’s. Last year it was 14.5 percent greater.
   Census data show homeownership data dating back to 1984. From ‘84 through 1994, the rate actually declined, ever so slightly, at both the national and state level, as is evident in the chart below. Then, as the economic expansion continued to roll, homeownership steadily rose during the rest of the ‘90s.
   However, while the rate of increase was 4.2% across the nation, Michigan’s rate rose a whopping 6.9%. A likely reason Michigan outperformed the rest of the nation may well be tied to 1994’s passage of proposal “A,” drastically slashing property tax payments, thereby making homes affordable to many who were previously unable to make the payments.
(Note: If you live in a state that starts with “M,” you’re far more likely to be a homeowner. Five states have ownership rates above 75%: Michigan, Maine, Minnesota, Mississippi, and West Va. {also, 100% of all states with independent party governors hit 75%})

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Taxation and Finance ---- Unclaimed Property Issues

   Most businesses outside of the financial industry are totally unaware that they may be incurring significant liability under state unclaimed property laws. Just about every state requires property holders to report and deliver abandoned and unclaimed property to the state. Typical types of unclaimed properties include:
· Account credit balances
· Security and other deposits
· Customer overpayments
· Uncashed refund checks
· Uncashed accounts payable checks
· Unused gift certificates
· Returned interest and dividend check
· Credit memos Uncashed payroll checks
   Many business owners believe these unclaimed items belong to them, but under the state laws business owners are required to turn over, or escheat them to the state if certain conditions leading to the presumption of abandonment are met.
   Generally, intangible property is deemed to have been abandoned if held or issued in the ordinary course of business and not claimed for a period of five years after it became payable or distributable. For payroll checks, the period may be a short as one year. Businesses holding unclaimed property are generally required to file an annual report with the state listing the property, and to deliver the property within specified time frames. Persons failing to file such reports can be subject to interest and penalties. A number of states have recently intensified their efforts to enforce unclaimed property losses and threatened severe penalties if companies did not file reports within a specified amnesty period. Some states are also increasing their audit capability and performing a greater number of unclaimed property audits. Obviously, these factors increase the risk of exposure.

R, P & T

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How times change in 12 years

   As the 1980s came to an end a dozen years ago, we were as happy to see that decade go as most were to say goodbye to 2001. It was a decade where Michigan became the ultimate symbol of a declining rust belt state, decimated by the worst recession since World War II, and struggling to maintain its economic base. However, the decisions made to alleviate the pain on Michigan business in the late ‘80s, along with the growth experienced by the U.S. economy allowed Michigan to thrive for the next 11 years.
   Now, as we enter 2002, the state’s experiencing its first, noticeable, economic downturn since the mid ‘80s. But we’re looking at recovery from a totally different perspective.
   I’m reminded of the differences because of our speaker at the January meeting, former Governor James J. Blanchard. In the ‘80s, we often blamed the state’s problems on his party’s control of the legislature, despite having a Republican Governor, since the early 1960s. And, we were somewhat justified in assigning that blame. So, in 1982, ‘86, and ‘90, we strongly opposed his gubernatorial aspirations.
   Times have changed dramatically since those days. The GOP controls the legislature, the economy’s been relatively good, and few crises have existed in recent years.
   But, perhaps the most evident change is how we look at enhancing our economy. In the ‘80s and early ‘90s, the Flint area based its future on preserving GM Jobs and building a theme park. Today, it looks to take advantage of its natural gift (its location) to become an international trade oriented distribution center.
   The point is, although the former Governor may not of been our man for the ‘80s, he could be for the 21st Century.

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

Atlas Mixing it with HIP-HOP: Forever?
  Now it all makes sense. Late last month the gossip columns wrote that Pam Anderson was seeking to have former husband (Motley Crue drummer) Tommy Lee’s child visitation rights revoked. It’s now obvious that her concern related, not so much for the kids, but how her new neighbors would react to the heavy metal bad boy making frequent appearances in her new community, Lake Shinanguag in Atlas Township. That’s right, the Flint Journal’s front page story on December 19, coupled with Ms. Anderson’s court appearance, suggests Kid Rock will, in all probability, be moving to the Township, long known as a hotbed of anti-growth zealotry. And, judging by Ms. Anderson’s concerns, it looks like the currently happy couple want to “fit in” with their new “Home Town.”
   So, it came as little surprise when a Rock ‘n Roll insider reported that Kid Rock was already in his Ortonville studio, working on an album, “NIMBY in the Making,” expected to be released in conjunction with the closing on their Atlas Township digs next spring.
   Genesee County has been hit with several celebrity relocation disappointments in the past decade, but our unnamed “in-sider” says this one’s real, and suggests more are coming.

A “New” (American) religion in the UK?
   Well, the Pilgrims left England in search of religious freedom in America. Now, we find that an American based sect is apparently flourishing in the motherland, proving that Hollywood’s impact stretches far across the pond. Taken from the Parade Magazine “Best and Worst” of everything section comes the following: “Centuries after King Arthur, a new wave of knight is wandering Britain — and Luke Skywalker would be proud.”
   “When asked their religious affiliation on 2001 Census forms, many Britons wrote in ‘Jedi Knight’ — so many, in fact, that the government was forced to give ‘Jedi Knight’ its own category when compiling census results.”
   “Stay tuned for the census sequel: The Empire Strikes Back.”
Parade also noted the “Best (academic) Major” at American universities, making some of us wonder why we had to be born so early. Notes the magazine, “at least 1,400 students at eight universities are majoring in ....... golf. One school just opened a $1.1 million ‘learning laboratory’ — a model clubhouse.....Fore what?”
   Perhaps that explains why University of Michigan’s golf course may become the new home of the Buick Open. They’re probably planning a golf program to help in the recruitment of quarterbacks and basketball players (two species known for their propensity to golf). Or, its possible that Keniesiology program they put the other jocks in may be getting too difficult.

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Association News and Events

Along with the address by former Governor/Ambassador Blanchard, January’s meeting will feature the official installation of association officers for 2002. When the association decided to host a holiday open house (rather than a traditional Christmas Party), it moved the installation to the first general membership meeting of the year. Also, the evening’s social hour will be sponsored by several of the institutions that normally sponsor cocktails and hors d’oeuvres at the annual Christmas Party.
As we’ve noted in past Veritas issues, Bonaparte’s will be home to all meetings this year. Furthermore, we’re committed to bringing important, timely speakers, like Governor Blanchard. So join us in kicking off what promises to be an exciting year that will make your membership in this association a valuable experience: Member dinners free; Guests cost $20. Since we have to give the restaurant a minimum number of attendees on Friday, by 10:00 a.m. So, we urge you to R.S.V.P by 4:30 p.m. Thursday, January 10th.

The (Parade of Homes) committee met! Since there were no surprises, the Spring Parade will open on its traditional Mothers’ Day weekend (May 11th), closing on the 26th. Hours will remain at noon to six on weekends, 5 to 8 p.m. Wednesday through Friday. The entry fee will remain at $2,500 (multiple homes by same builder receive $750 discount). Since the committee met at the end of last year, we’ll be sending out the registration forms in early January. If you don’t receive one and wish to participate, give the association a call at 603-2200.

Look for two important Land Development council meetings early this year. One regarding coming soil erosion rules, and on with the road commission.

Economic Update: So, now the turnaround’s in progress?

   It’s just been around six weeks since the National Bureau of Economic Research’s declaration that the nation’s been in recession since March, and now there’s so much evidence of a growth resurgence economists all across the board seem to be writing obituaries for recession ‘01. Two days prior to the year’s end came reports that housing, consumer confidence, and business investment, all showed “surprising and widespread improvement,” suggesting to many analysts that the end of the recession may (always cautious) well be in sight. Then, on the first day after the new year, the closely watched index of manufacturing activity of the National Association of Purchasing Management (NAPM), which is viewed as a primary indicator of the health of the manufacturing sector, displayed a “surge” in activity during the final month of the year.
   The NAPM index, which has showed the sector contracting for 17 consecutive months, jumped from 44.5 the previous month, to 48.2 in December (the cautious economists had expected the index to come in at 45.8). Although the reading (below 50) suggests the sector continues to contract, it’s now surged nearly 9 points in two months. Furthermore, the organization’s “new orders” index rose to 54.9 — its highest level since April 2000 — and its inventories’ index fell, suggesting the combination of new orders and lower inventories will, ultimately, result in a turnaround for the sector.
While late December reports showing solid growth in the housing industry were being released, the Conference Board announced its Index of Consumer Confidence surged to 93.7, up from November’s 84.9, putting confidence nearly back to pre-9/11 levels, in line with the University of Michigan’s earlier report that put confidence in December up to 88.8 from 83.9 at the end of November.
   But, perhaps, more important, was the report from the Commerce Department that orders for capital goods (unrelated to defense), an important indicator of business investment, jumped 4.8% during November, on the heels of a 5.9% rise in October. Adding the Purchasing Index report to the two month surge in capital goods’ spending, may present the strongest evidence that the manufacturing decline is coming to an end.

Leading Indicators rise again
   For the second consecutive month, the Conference Board’s Index of Leading Economic Indicators, designed to forecast economic activity six months in advance, rose 0.5%, well ahead of the 0.3% forecasts by an economic consensus. While six of the ten indicators were on the rise, the four dealing with manufacturing continued their downward direction. However, the subsequent rises in manufacturing data will likely lead to a turnaround there, as well.
   Just prior to Christmas, the Commerce Department announced that its final revision of 3rd quarter Gross Domestic Product found the economy contracting 1.3%.

   Despite all of the new optimism, there is one particularly critical reason for concern: The recent rises in market set interest rates (bonds, mortgages, etc.) and the emerging federal deficit. First of all, the bond market has been a flaw- less indicator of future Federal Reserve action in recent years. Secondly, the need for the government to borrow, indefinitely, to meet its fiscal obligations, doesn’t hold well for the future of interest rates. Interestingly enough, many who’ve said balancing the budget would lead to a 2% reduction in mortgage rates, have acted like the biggest budget busters in the past year.

Housing Industry Update

Even the “Realtors” say '01 "may" break record

At the year’s end, the National Association of Realtors, when reporting that sales of existing single family homes sold at a rate of 5.21 million in November, admitted the data “set the stage for a possible record year.” Although we’ve been claiming the likelihood of a “record” since mid summer, this is the first time the NAR has suggested such.
For the first 11 months of the year, existing homes have sold at a pace of 5.25 million units, nearly 1% ahead of the 5.205 million sold in 1999, the all time record. If December’s pace fell to the lowest rate of any month during the past three years, the record would be beaten by approximately 9,000 units.

New Homes continue to sell at record pace
The same day, the Department of Commerce reported that new single family homes sold at an estimated rate of 934,000 units in November, up 6% from October’s revised rate of 878,000. Though the first eleven months of the year, a total of 844,000 new homes were sold, up 4% from 2000’s level of 877,000.
Currently, the all time record for new single family sales was 885,000, in 1998. If 2001 sales beat the previous year by just 1%, they would set a new record.However, the average monthly sales rate for 2001 has been 908,000, a pace that would beat the ‘98 record by 2.6%.

Housing starts/permits also soared in November
Builders broke ground on new housing units at an annual rate of 1.645 million in November, up 8% from the previous month’s rate according to the Commerce Department. Furthermore, permits were pulled at a rate of 1.56 million for the month, 5% higher than in October. Both reports shattered economists’ expectations and suggested that 2001 will end as another exceptional year for the housing industry.
Single family homes were begun at a rate of 1.261 million for the month, bringing the monthly average rate to 1.273 million, a pace that represents the second strongest year (1,303,000 were started in ‘99).

Michigan/Region remain
   As we point out in the brief on Michigan’s new housing activity, the state’s building permit authorizations, in recent months, have been running at their slowest pace in the post “Proposal A” era. And, the drop in activity seems to be based right here in the state’s Southeast sector.
   For example, according to the U.S. Department of Commerce, the state’s been averaging approximately 52,500 permits annually (43,300 single family) for the past five years (nearly identical numbers to 2000). And, as is evident in the chart to the left, state wide single family activity is off nearly 1,900 units in comparison to ‘00, representing a 4.8% decline.
   However, if we examine the data from the “Detroit” sector of Metro-Detroit, we find a decline of 2,119 single family units, and the total “Metro-Detroit” area, including Ann Arbor and Flint, is off by 1,998 units. So, the rest of Michigan is actually running ahead of 2000.
   The one sector of the Metro-Detroit area that continues to run strong is the “Flint” sector, primarily Genesee County, with total housing activity up 24.8% by census figures, and 33.4% according to Housing Consultants of Clarkston. And, regarding permits for “owner occupied” housing, Housing Consultants has Genesee County up 10.8%, while the government’s single family data has “Flint” up 10.5%.
   Obviously, everything we’ve reported are merely preliminary. However, when we finally see year end data, we’d expect that Genesee County’s total number will likely surpass 1999’s modern day record.

NAHB’s Index shows big
NAHB’s Housing Market Index (HMI) rose 8 points last month to 57, the biggest jump since ‘98 and marking a return to the general range of builder optimism that was evident prior to 9/11. Each of the HMI’s components, current sales, expected sales & and model traffic rose 8 points.

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