Veritas

   For the first time since the passage of Proposal A in 1993 Michigan's home values grew at a slower rate than the nation as a whole. According to the nation's House Price Index (HPI), published by the Office of Federal Housing Enterprise Oversight (OFHEO) last Thursday, the value of the average American home experienced surprisingly large 8.1% growth during 2000 as prices exploded in the nation's Northeast section.
   Only twelve states beat the U.S. average, and two-thirds of those were all eight states that run from New Jersey through Maine (with rates ranging from 15.1% in New Hampshire to 9.1% in Vermont).
   The HPI is based on continual monitoring of real estate transactions on the same houses during the past 21 years. So, it provides a more accurate basis for determining real values than merely using sales price data, which is often distorted by local market conditions.
   Michigan's statewide appreciation rate was 7.4%, ranking it 16th among the fifty states, still a solid performance. However, over the past year, it fell from being the leader in appreciation over a five year period, to fifth, as its sixty month appreciation rate inched up from 43.6% at the end of '99 to 44.1% a year later.
   Of the state's seven metro areas that were included in the HPI, only Lansing equaled the national average, as Southeast Michigan's three communities all were close to the state average of 7.4% growth.
   The 8.1% national appreciation rate was well above the 6.4% rate during 1999. Michigan, on the other hand, experienced a substantial decline in comparison, falling from 9.1% in '99 to 7.4% last year, and seeing its ranking drop from 5th to 16th for the one year period.
   What's surprising about the 2000 data is how far the Western states of Utah and Oregon have fallen back. Two years ago, Michigan's five year accumulated appreciation was fourth in the nation, behind the two states plus Colorado, and all three remained in the top five for 1999. Last year, however, Utah's homes gained 3% while Oregon's gained 4.9%, bringing their five year accumulations down to 24% and 29% respectively, both below the national average. Oregon's downturn is particularly interesting because, as we reported a couple of months ago, it's land use policies artificially drove existing home prices beyond an affordable level for median, and even above median, households in the Portland area.
   Now, it appears that appreciation rates have fallen off due to the comparatively low affordability levels.

Local Notes:
Metro Detroit experienced an exceptional rate of appreciation (48.1%) over the past five years, ranking 15th of the 180 metro-areas in the HPI. Of the higher ranking cities, ten were in the greater Boston or San Francisco areas ... Metro Flint's 7.1% rise last year came during a period when no rise was evident in median or average sales prices. This phenomenon provides additional evidence of the skewing local real estate prices by the surge in Flint sales.

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Venice: A 21st Century Atlantis? Italy’s “Greens” obstruct “Project Moses”

  What many consider the most beautiful city in the world may go the way of the legendary lost continent of Atlantis by the end of the century. Venice, the city built in the sea, is sinking, and guess who’s thwarting its salvation? The Italian “Green” party.
   What some believe is representative of mankind’s “most sublime achievement is threatened today as never before,” according to a “60 Minutes II” feature early last month. CBS’ Bob Simon’s report caught our eye because it shows that environmental extremists not only threaten growth, but they’ll attack the preservation of one of Western civilization’s most fascinating ancient treasures.
   In today’s Venice, gondoliers have trouble navigating under the city’s bridges while, in what 60 Minutes called “a conspiracy of the Adriatic, the moon and the wind turns the city of serenity into a blocked sink.” Stores flood and hotels transform into “sinking ocean liners.”
   To save the city, engineers developed a $2 billion proposal for “giant mobile gates” to separate the Venetian lagoon from the Adriatic. The seventy-nine gates would “pop up from the ocean floor at high tides to stop the Adriatic from swamping the city.”
   Dubbed “Project Moses” (it would part the waters), the proposal has run into stiff opposition from Italy’s Green Party which has been successful in “paralyzing” its implementation, according to CBS. The Italian government controls “Moses’ fate, and the Green Party, for now, holds veto power over Rome.”
   The report said that, it took 20 years for Project Moses to be drawn up, and Italy’s “been arguing about it for the past 10.” So, what do the Greens want?
   Well, they want to raise the city “a few inches at a time, brick by brick,” because, if the gates are shut for an extended period of time, it will pollute the waterways inside the city. And, the Greens have an American ally.
   Archaeologist Albert Ammermann, from Colgate University, says that, to keep out the tides which are expected to rise a foot in the next hundred years, the Moses gates would have to be shut for months at a time, not allowing the Adriatic to cleanse the lagoon of pollution.
   So, while the Greens hold it hostage, the city dies. As CBS concludes, “no one lives on the ground floor anymore,” and the city’s population is “less than half of what it was 50 years ago,” while the average age is “rising with the tides.” In fact, only tourists are keeping the city afloat.
   The “Green” parties throughout Europe have experienced a number of electoral successes in countries across the continent, but in Italy, they’ve gained real political power. Of course, in the U.S., we should be able to take some comfort knowing that, despite fielding an extremely well known candidate for President, the American Greens were unable to draw enough votes to make themselves viable as a third party alternative.
   Still, the significant number of major party officials who have adopted bits of Green dogma are enough reason for concern. And, if you don’t believe that it’s right here in Michigan, read the MAHB report below.

Michigan’s “Greens” take action

   In the February 19th issue, we noted that Governor Engler had endorsed the “land use” reforms championed by the “anti-sprawl wing of his (GOP) party” ... and, that building was standing alone in support of property rights.
   Well, in the “Bills in the Mill” section of March’s MAHB “Update,” came the following:
   “The 2001-02 legislative session is starting to boil. The heat is on. As many of you are aware when the last session ended the House’s adventure into statewide coordinated planning was strongly opposed by MAHB ... Representative Patty Birkholz (R-Saugatuck) is readying the bills for reintroduction soon.”
   “The MAHB has not been invited to the table with others to discuss these proposals.”
   “To date, she has introduced - —- HB 4346 — This proposal is titled the Development Rights Market Act...a disguised attempt to pass TDRs (Transfer of Development Rights). The bill sets up ‘sending and receiving zones’ between local units of government, and allows governmental units to use any legal means to finance the DRM program.” .... —HB 4118— which would expand “wetland authority” to circumvent the Supreme Court ruling noted in the 1/16 Veritas.

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Economy: Recalling a mid ‘50s commercial

  Recent economic news and its elicited public action have drawn the first television commercial that (apparently) had a dramatic impact on me to mind. It was back in the mid 1950s and there was a lot of talk about business being “bad,” when the Commerce Department (or whatever it was in the Eisenhower days) put out a TV spot (stick figures and all) about a man, who owned a thriving hot dog stand. Since he was hard of hearing, he was unaware of news reports about the economy’s decline.
   The man’s son came to the stand one day and shouted the words: “Father! Haven’t you heard? There’s a recession on!” So, according to the announcer, the man “cut back on his bun orders, his hot dog orders, and his hours ... and sure enough, a recession was on!” Then the announcer ended the spot with the immortal words, “loose talk sells no hot dogs!”
   Why does this 45 year old commercial keep coming back to me today? Probably because of the ironic comparison of the current administration’s reaction to today’s economic climate.
   The negative reports of the past three months have brought a tremendous erosion of Consumer confidence and, according to a U-M survey, 2/3 of Americans believe we’re in a recession today. However, in the middle of last month, Fed Chairman Greenspan told a Senate committee that economic weakness evident at the end of last year apparently “did not” continue into January, a concept in line with data. But last Wednesday, he said the “retrenchment” has yet to run its “full course.”
   Furthermore, Treasury Secretary Paul O’Neill recently suggested that the “worst was over,” then spent Sunday on the talk shows backtracking. And, of course, his boss keeps talking of the need to avoid a (impending) recession.
   The irony is just too much! In the ‘50s, the administration derided “loose talk.” But today’s new administration encourages it.
   Quite frankly, this year’s economic data looks surprisingly good ... that is, with the exception of recent inflation numbers. And, improved economic data, as well as re-igniting inflation, would jeopardize the Bush tax cut proposal.
   So, with 45 months until November ‘04, this administration is willing to trade the short term pain of a consumer induced recession for a big tax cut. It’s along way from the ‘50s, but an excellent reelection strategy.

Barry

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TV 2’s “Problem Solvers” focus on industry

   A big builder with sick homeowners! A building inspector who prefers Golden Arches to homes under construction! So, what’s their commonality?
   Both were the focus of mid-February “sweeps” hype by TV 2 News’ “Problem Solvers” feature. And, although they may not have reached the plateau of the station’s affiliated Fox network (Temptation Island and Darva Conger’s wedding), from a local perspective, they were enough to make Rupert Murdoch (Fox founder) proud.
   On its February 12th segment the owner of one of Michigan’s largest building companies was hounded by “problem solvers” about three families in a Milford subdivision who had a severe, health threatening, mold in their homes. And, the “solvers” took credit for the builder finally offering to buy back one of the affected houses.
   Six days later, they featured Ken, a building inspector for the city of Flat Rock, who they followed for several days through a series of trips to McDonald’s, Big Boy and construction sites where he was far more likely to remain in his car and take naps than inspect homes .. they even showed him getting out of the car at a mobile home site, following a nap, not for inspection services but to “relieve” himself along side a home.
   With the two features, plus the considerable attention paid to problems of Tri-Mount, a large Novi based builder, one begins to think that, at least in Metro Detroit, building has become a media target .. beware!

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

In this spot two weeks ago we told of the report that UCLA football players had asked the United Steel Workers of America for advice on getting better benefits from the University. So, it was notable when a basketball commentator reported, this past weekend, that the NCAA is considering making special $20,000 loans to "student"-athletes as an incentive to remain in school.

   Here's one for those concerned about declining moral character in America. A couple of weeks ago there was a short article in "Businessweek" about the high level bankruptcies during the 1990's, a period of unprecedented prosperity. There was s a concern that the level was a result of individuals spending without concern, due to the good times. However, a study by a couple of academics found otherwise.
   According to their investigation, there a re two reasons for the rise: 1) There's no longer a great stigma attached to those who file; and 2) we now have so many counselors and lawyers advocating it, people who never would have considered it in the past are exposed to bankruptcy as the solution to financial problems.
   With all the attention given the Mark Rich pardon, we were glad to read about the Borel brothers, a couple of "good ol' boys" from Arkansas, needing Presidential pardons so they could once again, go hunting with a rifle rather than a crossbow. On his last day as president, Clinton did issue their pardon, and never received a dollar for Hillary's campaign or his future Presidential Library.
   So, just what was the Borel brothers' crime? They were convicted of rolling back odometers in used cars. Now that's what pardons are for!

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Association News and Events: Final Parade Deadline coming Friday, 3/9

   As of this morning, (Monday) 33 homes are currently entered in the 2001 spring parade, with this Friday’s final deadline fast approaching. We’re expecting at least six additional entries by the week’s end, but believe that even more are expecting to get into the event.
   As previously reported, opening day is Saturday, May 12, as the fifteen day promotion starts on its traditional Mothers’ Day weekend. Since the first deadline of February 20 has passed, the entry fee is now at $2,700.
   If you plan on participating, call the association office immediately (look for a complete list of Parade participants in the next issue).
   As we approach spring, it’s time to update the listings in the association directory, as we historically publish in mid April. In the center of this issue, you’ll find the form to list your company under a number of classified headings. To be listed, it’s imperative that you fill out the form and return it to the association office on or before April 2.
   Each year, when the directory is mailed out, we’re bombarded with calls of members asking why they’re not listed in a particular category. Because of concerns about omissions, we must make this process as fair as possible, so we update listings for a nominal fee each year (as always, there is no additional advertising in the directory).
   We’ll mail the update form in both March issues of Veritas, and urge you to respond early.

   Consumers’ Energy will be the focus of March’s Land Development Council meeting as Jimmy King, the company’s District Manager, will be our guest. The meeting is set for Tuesday, March 20th, beginning at 3:00 p.m. in the association office.
   Although this is set as a Land Development meeting, all association members are welcome and urged to attend. Historically our association’s meetings with Consumers have been extremely productive and always worth the time spent.

   MAHB’s “Capitol Day” is just three weeks away. On March 27th, association members all around the state will descend on Lansing, beginning with an 8:00 a.m. breakfast featuring the House of Representatives’ Speaker and Minority Leader.
   After breakfast, participants will meet with legislators, then join more for lunch ... last year more than 80 legislators were in attendance (despite many going to Comerica Park for opening day). If you would like to attend, call Barry at 603-2200, and BAMF will even pay your $25 registration fee.

   More than 220 members and guests poured into Bonaparte’s in the Great Lakes Technology Center last Tuesday evening for the association’s 4th annual exhibitor’s night, and made it the most successful one yet.
   The evening began at 5:00 pm and continued until 8:15, as members viewed the displays of the 35 exhibitors, munched on burgers, coneys and pizza, and enjoyed the continuously flowing beer, wine and soft drinks.
   Several of the exhibitors presented prizes for drawings that continued throughout most of the evening.
   The demand for exhibitors' display space caused the association to move the event from the Better to Bonaparte's in 2000, and the response has been nothing short of tremendous. Of course, we'll try to expand in '02 ... in the meantime, check out the photos on last Tuesday's event.

Economic Update: Is inflation data troubling Greenspan?

   The 2/19 Veritas noted the “scary” PPI (Producer Price Index) numbers, showing inflation at the wholesale level surged at its fastest pace in more than a decade (1.11%) suggesting it could complicate the continuation of the Federal Reserve’s “anti-recession posture.” The PPI report was followed by the release of consumer price data that wasn't’t much better, jumping 0.6%, its fastest pace in ten months.
   Along with the inflation data came reports that leading economic indicators experienced their biggest monthly gain in two years, manufacturing showed signs of recovery, while personal incomes and spending rose at their fastest rates in five months.
   Considering the economic data reports, coupled with a guaranteed tax cut on the way, a conservative economic thinker would likely have grave concerns about igniting inflation. However, with the focus on avoiding recession, there were strong expectations in the financial community that another rate cut was coming, even before the Federal Reserve meets later this month (March 20).
   So, under such expectations, markets rallied last Monday in anticipation of Fed Chairman Greenpan’s pending testimony to the House Financial Services Committee last Wednesday. However, during that testimony, he was intentionally ambiguous, suggesting a cut may not be imminent, while reiterating his position that the central bank prefers to announce shifts at regularly scheduled meetings. In response, stocks plunged for 2 days, giving up most of Monday’s gains.
   Attempting to get into the Chairman’s head is, at best, pure speculation. However, considering that two weeks earlier he suggested that the economic weakness at the end of last year may have been weather related and “apparently did not continue in January,” it’s likely that he believes the immediate crisis is past. Furthermore, considering the January rise in prices at both the consumer and wholesale levels, he would likely think it premature to issue a potentially inflationary rate cut prior to looking at February’s price data, while no economic emergency is imminent.

Bonds continued rally anyway
   Despite Greenspan’s ambiguity, U.S. bonds rallied all week, until settling back Friday afternoon. By closing Tuesday, 10 year bond yields (a basis for most fixed rate mortgages) fell below 5% for the first time since winter ‘99, and stayed there through Friday’s close. And, although last week’s mortgages didn't’t get the full effect of the bond rally, rates on 30 year fixed loans fell to a 7.03% average.
   What’s interesting about the bond rally is that it came on the heels of the inflation reports, which usually frighten bond investors.

The Confidence Problem
   Although it hasn’t been evident that it’s materialized, the real threat to continued economic growth comes from reluctance of the American consumer to spend. In other words, if consumers withdraw to defensive postures in response to negative economic reports, their reaction will likely make their fears materialize.
   That's why the continued erosion of consumer confidence, evident in two respected measures (Conference Board and U-Michigan) is so troubling. Last month's consumer index plummeted to its lowest level since June '96 as the nation was entering a quarter that experienced 2% economic growth, ironically, the lowest level for 17 quarters until the last quarter of 2000.
   Back in 1996, the American consumer, responsible for 2/3 of the nation's economic activity, didn't allow his lack of confidence to interfere with spending decisions, and growth was back in the upper 4% range by the end of summer.
   In fact, frequently during the final half of the '90s, concerns of downturns, due to a myriad of issues form foreign crises to energy costs, were thwarted by consumer activity.
   What's interesting is, despite the lack of confidence evident in the survey, other indicators suggest Americans are continuing to spend. Furthermore, as the U-M survey notes, confidence was already on the upswing by the end of February.

Leading Indicators Surge
The index of leading economic indicators jumped 0.8% during January, the largest rise in two years. The monthly report by the Conference Board said 7 of the 10 indicators were up during the month, but noted that the rise "does not recover the losses incurred over the past 3 months."
The report, though merely a compilation of data releases during the month, reflects on Greenspan's statement early last month about the weakness of late '00 not continuing in '01.

Housing Industry Update

   Despite the lower mortgage interest rates, existing single family home sales dropped in January, “in tandem with the slowing economy and declining consumer confidence,” according to the National Association of Realtors. In it’s February 26 release, the Real Estate trade group said existing home sales fell 6.6%, to a seasonally adjusted rate of 4.65 million units, down from December’s 4.98 million. However, January’s activity was 2.4% above the 4.54 million unit pace of January ‘00.
   The NAR’s Chief Economist, David Lareah, noted that “for 2 consecutive months we’ve had big drops in existing home sales ... resulting from a decline in consumer confidence and the deteriorating economy.” However, he also said “we believe lower mortgage rates will keep the market from sinking into serious decline.” The median existing home price was $136,000 in January, up 2.7% from a year earlier.
   All regions of the nation experienced large declines in activity during the month, except for the Midwest, where sales were off just 1% from December (as we realize, both months were negatively affected by severe winter weather). The median Midwest price was $122,100 (10.2% below the national average).

   Although falling 11 percent in January, sales of new single family homes remained strong during the month at an annual rate of 921,000, a stronger pace than 1999’s record sales year, according to the Department of Commerce. The decline came on the heels of an exceptionally strong December, when homes sold at an adjusted 1.03 million unit rate, which was 15% above the previous month’s rate.

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