February 12, 2003

Inside Veritas -
Article 1 -Biggest “Exhibitors’ Night” Ever! RSVP for February 26th
Article 2 - Business News & Issues
Article 3 - What’s with these local rentals? (from previous issue)
Article 4 - Taxation and Finance - Crisis Management Plans for 2003
Article 5 - Sewer and Water Update
Association News Update From Laura
Economic Update - So, the jobless rate dropped 0.3%?
BS: Still about Nothing in particular
Housing Industry Update

Would you like to see a previous Veritas Issues? Click Here

Biggest “Exhibitors’ Night” Ever! RSVP for February 26th

   Exhibit reservations are up 20% for the 6th annual BAMF Exhibitors’ Night, with 40 tables (39 exhibits) set for, what has become, the association’s most popular General Membership meeting of the year. The ‘03 edition, however, will open at 4:00 p.m. with the complimentary beverages (beer wine, coffee, soft drinks) and the “Exhibitor’s Night” special buffet (burgers, brats, pizza etc) coming shortly thereafter. The event is scheduled to run until 7:00 p.m. The change in hours reflects the attendance patterns at a number of recent association events, in an attempt to be as accommodating as possible to the membership as a whole. As always, several exhibitors are bringing prizes for drawings that will given away throughout the event’s duration.
We originally moved exhibitors’ night to Bonaparte’s in ‘00, as it outgrew the Beechtree in its 2nd year (‘99). Of course, at the time, we had no idea Bonaparte’s would be the regular site for general membership meetings by 2002.
However, the combination of meeting room size, convenient location and cooperation by the staff, provided a reasonable alternative when the Beechtree was no longer available.
As always, we need to provide a guarantee by the preceding Thursday afternoon, so please RSVP by noon, February 20th, at 810.603.2200.

SPRING PROMOTIONS:
The Spring Parade of Homes is set to open May 10th and run through May 25th. Contracts were mailed to potential participants in mid January, with the first deadline coming February 17th (final deadline March 10) ... if you haven’t received a contract and wish to participate, call the BAMF office.
And, with the Spring Parade comes Spring Housing Quarterly magazine. Advertising contracts are being mailed out to previous advertisers on Friday ... and, we’ll have contracts for both, the Parade and HQ at Exhibitors’ Night.

SPEEDWAY DISCOUNT:
During the third quarter of ‘02 approximately 50 BAMF members save more than $1,600 on their gasoline bills by signing up on the Speedway discount program with the MAHB. However, the MAHB and Speedway parted ways at the end of last year, and the company has offered a similar program to local association members.
Therefore, BAMF will be taking part in the program, and the current members involved will see no change in their discount program. However, we’ll also

promote the program in an attempt to get more companies involved which would mean even greater savings than the 3 cents per gallon. We urge you to see Speedway’s representative at exhibitors’ night and take advantage of the opportunity.

NAHB DUES INCREASE:
Although we haven’t been formally notified, we understand that NAHB’s Board of Directors agreed to a $30 dues increase ($10 each year through ‘05) to begin with members due in April. That means that National dues are rising to $130 this year, and $150 by 1/1/05.
We also understand that National has found itself in a financial crunch, due to its losses on investments, and cost overruns during the expansion of its headquarters, and is passing those losses on to the members.
So, when you receive your dues’ bill in for April, you’ll find that $191 goes to state and national. Of course, we wish to remind you that local dues have not been raised.

Costs: 1978 to 2003
Inflation — up 176%
NAHB Dues — up 160%
MAHB Dues — up 103%
BAMF Dues — up 55%
Dinners — up 267%

Back To Top

Business News & Issues

January auto sales softened from their hot “year end” pace, and total activity was down 2% from its rate last January. However, one U.S. Company had a good month as Ford’s sales were up 4.1% (of course, a year earlier was a total disaster).
It’s difficult to take much direction from one month’s activity, however Chrysler & Volkswagen sales plummeted (per-haps lower priced German cars are victims of the nation’s foreign policy pursuits) 11.7 and 15.9% respectively.
GM’s market share, though down from 32.5% the previous month, was at 26.8%, the same level as a year earlier. And, even Toyota lose 0.4% of its market share in comparison to a year earlier.
However, as Chrysler’s share fell 1.2%, Toyota came within 25,443 vehicles (2.3%) of replacing it as a member of the proverbial “Big 3.”

As MOLD continues to be a big legal and financial problem in the building business, a “handful of insurers are offering mold coverage in separate environmental insurance policies, under the umbrella of ‘indoor air quality,’” according to a Wall Street Journal article last week. However, these “environmental insurers” require a “loss control program” in the form of the insured’s plan to respond to mold claims ... and, the coverage usually adds about 20% to already soaring liability premiums.

As the Federal deficit continues snowballing out of control, it was interesting to read the “big print” in the Wall Street Journal: “Amid widening deficits, there’s the risk of another black eye for agriculture, which faces resentment over the cost of subsidies.” It was part of an article showing malfeasance in the allocation of disaster reflief ... (SO, let's preserve farms at housing's expense).

Back To Top

What’s with these local rentals?

   When America’s housing industry was recovering from the devastation of the early 1980s’ recession, multifamily building played a significant role in that recovery process. From 1984 to ‘87, multifamily starts were responsible for 37% of all new housing activity with over 650 thousand units per year.
   However, a drastic change in Federal Tax policy in 1986 made rental properties, both residential and commercial, all but worthless, bringing virtual end to apartment building except for Government subsidized units. Less than 170000 units per year were built from 1991 through ‘93.
   After the Clinton tax bill of ‘93 reinstated most of the real estate tax breaks cut in ‘86, apartment construction recovered to some extent, but only to about half of its mid ‘80s level, and seldom made up 21% of new housing activity.
   With the exception of 1999, rental units hadn’t made up 20 percent of Genesee County’s housing starts in any year since the early ‘80s. Then, last year, there was an explosion in rental permits (Census data suggests 1,550 units [45%]; Housing Consultants says 835 units [31%]), which gave housing its strongest year since the early 1970s. But from an economics perspective, the surge in rentals is somewhat puzzling.
   Three recent events grabbed my attention (I’d say four if we include the fact that it’s Apartment developers that are suing the Drain Commission). First, I went to an “open house” at a project by an “affordable housing” agency and discovered that, while the subsidized rental rates were attractive, the non-subsidized rents were more than the monthly payment on any home within three miles of the project. Secondly, I ran into a friend who works for one of the new, high rent complexes, who admitted that rentals were extremely slow.
   But what really got me was the third, a Flint Journal article about “Lockwood of Mt. Morris,” a “senior housing” complex on N. Linden Rd. The article read: “Rent begins at $935 (1-BR) and $1,035 (2-BR). A limited number of ‘income restricted’ units are available at $540 and $650” for incomes below $26,700. The problem is that $1,035 per month is what it would take to support financing and property taxes on a $140,000 home with just 5% down. And, prices in that sector of the county seldom climb above $70,000. It truly makes one wonder about the basis for decision making in some of these companies? Or, is it all a charade to make all units subsidized?

Barry

Back To Top

Taxation and Finance ---- Crisis Management Plans for 2003

   With the new year upon us, it is a very good time for for firms to ensure they have a crisis management plan in place so that the organization can recover quickly from a sudden major disruption of its business caused by an act of terror or by a natural disaster. Here are some key considerations in developing a viable plan:
1. Place responsibility for disaster recovery in a senior executive.
2. Review, evaluate and update security procedures throughout the organization.
3. Maintain an off-site list of all employee addresses, phone numbers, family contacts and other pertinent employee information.
4. Review business insurance policies for business interruption, extra expense, business income, ordinary payroll and terrorism coverage.
5. Evaluate adequacy of computer file backup procedures and off-site storage of the data.
6. Establish and practice employee evacuation procedures.
7. Provide an emergency off-premises meeting site for managerial personnel.
8. Arrange for use of alternative data processing facilities in an emergency.
9. Explore the use of wireless communication systems.
10. Arrange for the use of alternative production and administrative facilities on a temporary emergency basis.

R, P & T

Sewer and Water Update

   More than 140 members and guests attended the January 29th meeting to focus on the crisis that’s nearly 8 months old, and is now becoming a serious threat to the industry as it’s clearly interfering with plans for the nearing development and construction season. We were joined by 4 County Commissioners, the Drain Commissioner, and a delegation from the City of Burton’s administration to show its support.
Since that meeting, there are a few items that need to be updated: First, the following Monday, Judge Neithercut set an April 15th trial date, early in the scheme of court, but not early enough to alleviate damage to the industry. Secondly, we’re continuing to work closely with County leaders to implement an immediate (temporary) solution to the problem. Any progress, or changes, will be immediately updated on the website ... www.bamfhome.com

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

Jerry Springer: The right Rx for the U.S. Senate

  When Jerry Springer said he was considering a run for the U.S. Senate, many of his media colleagues had a field day. But we think it’s evident that no one is more prepared to deal with America’s political elite than the ultimate star of “trash T.V.” After all, most of Springer’s talk show guests possess the same demeanor as the average senator, and the intellect showcased in most senate debates is reminiscent of that showcased daily by Springer himself.
It is, however, somewhat unfortunate he wasn’t elected in the late 1990s. He would have been an invaluable asset during the Clinton impeachment hearings.

Fortune Asks; "What Would Satan Drive?"

In a response to the Christian environmental anti-SUV “What Would Jesus Drive” campaign, Fortune magazine editors told a reporter to drive a “Hummer H2 through mid-Atlantic coastal states. The “H2” had a big sign on the back with the reporter’s cell phone and invitation to call.
He drove from New Jersey to Maryland, to a D.C., then was heading into Virginia to pick-up Reverend Jerry Falwell (who had said Jesus would drive a Hummer) but turned back when “God hit Northern Virginia with an ice storm.” So, after turning back to the north, even stopping at an environmental center before getting to Atlantic City. With nary a discouraging word, the author came to the following conclusion: “Nobody gives a damn what you drive!"

Back to top

Association News and Events by Laura

  

NAHB DUES INCREASE: Although we haven’t been formally notified, we understand that NAHB’s Board of Directors agreed to a $30 dues increase ($10 each year through ‘05) to begin with members due in April. That means that National dues are rising to $130 this year, and $150 by 1/1/05. We also understand that National has found itself in a financial crunch, due to its losses on investments, and cost overruns during the expansion of its headquarters, and is passing those losses on to the members. So, when you receive your dues’ bill in for April, you’ll find that $191 goes to state and national. Of course, we wish to remind you that local dues have not been raised. Costs: 1978 to 2003 Inflation — up 176% NAHB Dues — up 160% MAHB Dues — up 103% BAMF Dues — up 55% Dinners — up 267%

Back To Top

Economic Update: So, the jobless rate dropped 0.3%?

   The big news last Friday was the Labor Department’s report that U.S. employers added 143,000 jobs to their payrolls last month, sending the unemployment rate tumbling to 5.7%. The job growth was the biggest in 26 months, and followed the loss of 156,000 jobs in December.
However, few economists took much solace from Friday’s report, due primarily to distortions in the retail sector, which was responsible for 101,000 of the new jobs. In reality, fewer seasonal workers were hired during the holiday season than normal, so fewer layoffs occurred in January. Therefore much of the retail employment rise was due to “seasonal adjustments,” according to “economists.”
What continues to trouble the employment picture is manufacturing. The Labor Department’s data showed the sector’s employment down by 16,000, which continues in line with the Institute of Supply Management’s manufacturing index. The index showed manufacturing activity on the rise for the third consecutive month, while employment in the sector continues to contract. In fact, the index suggests that activity’s been on the rise for ten of the past thirteen months, but manufacturing employment’s remained in continual decline since mid 2000.
Which brings us to the question; Why? As we noted here two weeks ago, prices on manufactured goods are 1.5% lower than they were, while labor costs, particularly relating to health benefits, soared dramatically. Furthermore, we’re finding that wages, for individuals still working, on the rise, as are hours worked. So, it becomes somewhat evident that, there’s no way manufacturers can keep up with costs, without cutting employment.

4th Quarter Economic Growth, Anemic
The first report on economic growth for the fourth quarter showed Gross Domestic Product growing at a scant 0.7%, off sharply from the 4% rate of the 3rd quarter. And, it was primarily a rise in defense spending that kept the economy in positive growth.
However, there was one bit of encouraging news in the Commerce Department release of its initial 4th quarter estimate: A 1.5% increase in fixed business investment was its first increase in more than 2 years, which suggests, at least to optimists, that the corporate sector may finally be ready to play a role in the recovery.
However, on the down side is growing concern that consumer confidence is beginning to take a toll on consumer spending, as analysts are beginning to question whether the Americans will continue to spend the economy into prosperity.
A recent report said spending slowed to a 1.0% annual growth rate in the final quarter of ‘02, the slowest pace in nearly a decade. And, world economic leaders now fear the questionable impact war, oil prices, and debt loads will have on the U.S. consumer.
Add to that the apparent end of the refinancing boom (which has been responsible for increasing available dollars), as lenders tighten mortgage standards, and concern grows that the only consistent stalwart in the economy could be in jeopardy.

Back To Top

Housing Industry Update

Sales rate above 1 million 5th consecutive month

  In 2001, sales of new single family homes set a record with 908,000 units sold. Last year, that one year old record was smashed, as sales activity rose 7.5% to 976,000, as the rate for the final half of the year soared to a nearly unbelievable 1.033 million units. In fact, activity continued to rise through the end of the year, with the month of December setting an all time record with a rate of 1.082 million sales. And, most fascinating, represented the fifth consecutive month with a “million plus” sales rate.
Noting the record sales’ activity, NAHB’s CEO Jerry Howard also pointed to the fact that the U.S. Homeownership rate hit its highest level ever, 68.2%, in the final quarter of 2002.
Now, NAHB is forecasting a 3.2% decline in 2003 sales ..... however, that would still represent 942,000 units, by far the second strongest year ever.

No Surprise as existing homes smash record too

As with new homes, sales of existing homes rose strongly in December, while easily setting a new annula record. Selling at an annual rate of 5.86 million units during 2002’s final month (just short of last January’s all time record of 6.05 million), the real estate industry raised its annual level to 5.56 million, a 5% rise above 2001’s record 5.296 million units.
For all of ‘02, the median price was at $158,300, up 7.1% from the previous year’s median of $147,800. And, December’s median price was up to $164,000, also 7.1% above the level of one year earlier.

To put a proverbial “exclamation mark” on last year’s sales’ data, the Realtors announced last Wednesday that existing condominiums and cooperatives smashed their previous sales record by a much greater margin than new or existing single family homes. The 824,000 condos and co-ops sold last year represented a rise of 10.5% over the previous record which was set a year earlier.
Furthermore, the median price of an existing condo rose 11.3% over the year, compared to the 7.1% rise in existing single family homes. Noting that the condo market is “outperform-ing” the market for single family homes, NAR Chief Economist, David Lareah, explained the market is being impacted by a large number of “baby-boomers” who are buying upscale units after selling their primary single family home. It’s a phenomenon we’ve noted frequently in recent issues of Housing Quarterly, that’s evident in the Flint area.

So, we find that new home sales were up some 68,000 units; existing condos were up by 78,000; and existing single family rose by 264,000 units, raising the total number of units sold to 7,360,000, as each sector of the housing market smashed its previous (‘01) record. Well, that combined growth of 410,000 shows an increase of 5.9% for total home sales, and helps explain why the homeownership rate set another new record.

Finally, conditions for strong sales continue as the NAR’s “affordability index” took a jump in the 4th quarter, finding that the typical household had 140.7% of the income needed to purchase the median priced home.

Back To Top

Look Here for Previous Issues of Veritas