Veritas

   Whether real or perceptual, Genesee County is faced with a serious sewer capacity problem. At least two years ago, we focused on the dearth of taps owned by growing communities in the county and, in more recent times, the public focus has turned to overflows, back-ups, spills, and general flooding.
   From reports of spills in Fenton’s lakes; to last summer’s call for a county moratorium on new building by a local elected official; to threats from down stream Saginaw County communities to sue Genesee Co. for dumping sewage in the Flint River; to the Grand Blanc Twp. planning commission declaration that no permits will be authorized for lots not already approved until the sewer problem is alleviated; drainage problems have received more than their share of local media attention.
   In February, the week following flooding caused by heavy rain and melting snow, Drain Commissioner Jeff Wright appeared at the BAMF Land Development Council, discussing the importance of expanding capacity, including completion of the northeast connector and western trunk lines, along with upgrading the County’s treatment facility in Montrose Twp. He also talked about the need to upgrade capacity immediately with an upgrade of maintenance and an attempt to cut the flow of storm water into sanitary drains (which was authorized by the County Board with a $2.5 million allocation). However, the county’s looking at an additional $64 million for the physical upgrades.
   Last Thursday came the announcement that the county’s Water & Waste Advisory Committee approved Wright’s plan to bring municipalities together in a countywide system which would, among other items, distribute sewer taps and finance the improvements. A critical segment of the financing is the creation of County fees for new taps into the sewer and water system at $1,000 each.
   The new sewer and water fee will have an obvious impact on the cost of housing, and raises a number of questions relating to the validity of Municipal tap-in fee rates once the county’s fees go into affect.

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Home values soar; area prices recover

   Last year, for the first time since Proposal “A” brought property tax relief in ‘94, Michigan’s existing home values grew at a rate that was slower than the nation’s. Still, the state’s rate of growth was good enough to represent its third highest in the past six years, a period when it consistently ranked in the top 5 of the 50 states.
   The average home in the U.S. gained 8.1% in value, the strongest growth since we’ve been continuously monitoring the House Price Index of the Office of Federal Housing Enterprise Oversight. Michigan’s rate for the year, which was good enough to rank 16th, was higher than the 7.2% that earned it a #2 ranking back in ‘97.
   The reason the state’s ranking suffered was merely a reflection of incredible appreciation experienced along the Atlantic Coast, where every state from New Jersey to Maine saw home values rise in double digits.
   A couple of weeks following the release of OFHEO data, NAHB released its fourth quarter 2000 Housing Opportunity Index (HOI), designed to measure the percentage of sold homes in 180 metropolitan areas considered “affordable” for a family earning the median household income. What’s remained consistent throughout Southeast Michigan, through 2000, is that the region is heavily impacted by a strong upscale market. Flint, Detroit and Ann Arbor continue to rank at the bottom of the Midwest, and in the lower half of the nation despite narrower median price to household income ratios than average. “Detroit” ranked #113 nationally, and 34th out of 36 regionally; Flint was 97th and 32nd.
   According to the HOI, Metro-Flint experienced some recovery in its median price level, which previously fell from $107,000 in ‘99’s 3rd quarter to the upper $90s during the first half of 2000.
   Due to a big jump in sales activity in lower priced Flint area communities, particularly a surge in city of Flint sales in late ‘99 and the first half of ‘00, the median price plunged despite solidly rising property values throughout the period.
   There is a definite disparity between median prices and appreciation rates that developed early last year. A median priced home sold in the first quarter of ‘99 would have gained roughly 7.8% in value by the 2nd quarter of ‘00. However, the median price had barely risen during that period.
   The average existing home in Genesee County sold for $114,520 last year. However, the average suburban price was more than $143,000.

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The Equity Affect & America’s Economic Psyche

   It was roughly 20 years ago when Alan Greenspan, then a private sector economist in exile between White House and Federal Reserve jobs, recognized something unusual in Americans’ economic behavior during the worst recession since World War II. He wrote that in previous economic downturns consumers altered their spending patterns dramatically, with emphasis on frugality. However, in the early ‘80s, consumers continued their spending patterns despite the fact than unemployment was in double digits and there was no upturn in sight.
   Greenspan concluded that the reason so many Americans were willing to go on spending related to their enhanced sense of security due to the equity which had been built up in their home values. So, consequently, the perception of home equity wealth likely kept the nation’s economy from slipping even deeper.
   I’ve probably used Greenspan’s conclusion 100 times, usually to emphasize the importance of a growing and appreciating housing market on the economy as a whole. Now, I see it as an explanation as to what’s happened to consumer confidence at a time the economy is comparatively strong.
   In recent weeks I’ve talked with a number of builders, both locally and around the state, regarding the condition of their businesses in response to the continual media barrage of gloom. Most seem content with their current situation and optimistic for the year, which goes along with national surveys and forecasts. What seems to be evident, however, is that one segment of the industry seems to be affected negatively: and it’s the luxury market.
   The responses reminded me of Greenspan’s ‘80s conclusion because, during previous downturns, it was always the luxury market that was least affected. So, I had to consider the likelihood that we’re in an unusual downturn ... one with full employment where it’s the formerly irrationally exuberant that feel the pain. In other words, stock portfolios are the home equities of the 21st century, and those diminished “equities” make their owners less secure, and less likely to enter into expensive transactions.
   Despite all the negatives, the economy continues to create jobs and incomes continue to rise. The problem is that far too many Americans are not as wealthy (on paper) as they were a year ago, and that hurts our economic psyche. If left unchecked, it could damage our economy as well.

Barry

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Michigan Legislative Update State to adopt “Performance Guidelines?”

   For as long as anyone around can remember, “Workmanship” complaints acted upon by the state have been a major head-ache to builders, building officials, and even homeowners with justifiable concerns. Such complaints have been all too subjective, with no “approved” standards to measure the quality of a builder’s performance.
   During the past few years there seems to be rising frequency of abuse towards contractors charged with violations under the Occupational Code, usually related to coercion to plead and pay a fine.
   Also, building officials have noted concern about their situation on such matters since, by law, their job is to enforce the code, then they subsequently become they’re put in the position as enforcement officer on subjective, non-code items.
   Many of the deficiencies associated with the complaint process will likely be corrected if Senate Bill 351, which passed the Michigan Senate last week, becomes law.
   SB 351 would provide several remedies to the problems, including the following:
· Requires the state to presume innocence of the builder until facts prove otherwise
· Prohibits the state from initiating a proceeding when the contract provides for an alternative dispute resolution.
· Requires a homeowner to prove the licensee was given reasonable time and opportunity to fix the problem
· Requires the state to consider mutually agreed upon contractual performance guidelines in its evaluation of a complaint.

   SB 351 was a primary focus of MAHB’s “Capitol Day” activity last Tuesday, as association members from across the state came to the Capitol to discuss issues with their legislators.
   We haven’t received all the details about what took place in the Senate, but apparently the bill’s passage wasn’t as easy as its overwhelming vote would indicate. According to an MAHB official, there was some last minute maneuvering that would have had a negative impact on the results and, Flint area Senator John Cherry played a critical role in keeping it successfully on track.
   State Rep. Wayne Kuipers, (R-Holland) has introduced the latest version of relief on the Architects’ Seal, raising the exemption threshold to 5,000 feet, basement and attic areas are excluded ... Kuipers vows this version won’t die in committee ... so, updates in future issues.

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

   Had to feel for Carl McElrath, the Atlas Township resident who was featured in the Flint Journal’s (3-24) story about Atlas’ restrictions on recreational vehicle storage. The poor guy told the reporter that “we all moved out hear to get away from overbearing ordinances.” Most people who have dealt with the Atlas board would say moving to the township to avoid overbearing ordinances would be analogous to moving to Khomeini’s Iran in 1979 to find religious freedom.

   The news report on the death of David McTaggart, Canadian born founder of Greenpeace, contained a shocking item. According to the Associated Press McTaggart had moved from Canada to the U.S. in the 1960s and became a “successful contractor and developer.” So successful, he was able to retire in his 30s, and “sail the Pacific for pleasure.”
   We’re checking to see if he ever served on the Land Use Committee of NAHB.

   For those concerned about the merger mania engulfing corporate America in recent years, the worst may be over. The news on March 23rd that the World Wrestling Federation purchased its rival, World Championship Wrestling, creates such a complete monopoly in the “sports entertainment” industry that the Federal Regulators may be forced to get involved ... and, with Vince McMahon in control of Goldberg, Kevin Nash and Scott Steiner, along with Stone Cold Steve Austin, the “Rock” and the “Undertaker,” domestic security may even be at risk.
   This may take a collaborative effort by the FBI and FTC.

This came from a Free Press columnist? Regarding Sprawl and Detroit’s demise, evident by census numbers, Doron Levin wrote the following this past Sunday: “Want to know how the majority of people express despair over a badly run city? They vote with their feet. They move.” ... and, “The reasons for spectacular growth around the city are the same reasons explaining why immigrants flock to America.”
Levin went on to criticize many of his employer’s normal anti-sprawl arguments noting the term came from “politicians who would chain people to cities and exurbs by taxing open spaces until they're too expensive.

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Association News and Events: Meeting Takes on Greater Importance

   2 weeks ago we announced that Chuck Breidenstein, former MAHB Education Director, would be bringing his “brand of business information in an interesting and entertaining” format back to the association’s April 11 meeting.
   Well, Chuck will be at Walli’s East Wednesday to tell how to keep your business profitable, which takes on greater significance with the announcement last Thursday that Genesee County is looking at tap-in fees as part of the financing of sewer & water upgrades.
   This critical issue facing all area builders, raises a number of questions regarding the future cost of housing, and has been added to April’s agenda. We’ll also present an update on the upcoming Parade of Homes and, as promised, have parade participant rosters available.
   The evening begins at 6 p.m. with sponsored refreshments by Detroit Door & Hardware.

   MAHB’s “Capitol Day” last Tuesday in Lansing was, both, timely and successful. A record number of local association members (7), along with four local representatives and both Senators participated in the day long event which ran from 8 a.m. to early afternoon.

As of this morning, we’re still receiving classified listings for the 2001 Association Directory, as the deadline is approaching this afternoon. It looks like we’ll be going to print soon, and the new directory should be out in a few weeks. Remember, if you missed the deadline, you can still be included in the Web site classifieds ... call Tracey with any updates.

Now that the effective date of the new code is delayed until (at least) July 31st, the need for code training isn’t immediate. However, MAHB is busy putting together a course, and BAMF is still planning on participating in a joint training session with the Genesee County Building Officials’ Association. Look for announcements in future issues.

Economic Update: Consumers are spending; but business?

   The final revision of 4th quarter economic growth was released by the Commerce Department last Thursday, and the finding that Gross Domestic Product grew at a 1% rate, the lowest since 1995, was hardly a surprise. However, what may be surprising is the number of analysts that found reasons for optimism in the report.
   These analysts note that the data indicate that manufacturers are adjusting their inventory and production levels to in line with decreased demand. And, with inventories lower, many feel the economy, including manufacturing, is ready to rebound. In fact, even Alan Greenspan has indicated a belief that the inventory correction is nearly complete.
   Under such circumstances, one would expect that consumer spending continuing at current levels would bring about the need to replenish diminishing inventories. However, there seems to be a stronger concern that the slowdown is driven, not by a drop in consumer spending, but sagging investment and spending on capital goods. In other words, businesses are over capitalized, leaving more factory capacity than is necessary for meeting demand.
   Less than a year ago the Federal Reserve was concerned about the booming economy putting too much stress on price levels as many segments of the manufacturing sector were operating too near capacity. Recently it estimated that manufacturing was operating at 78.1% of its capacity in February.
   The problem is evident ... don’t expect any quick upturn in the demand for capital goods.

Economy’s “bulletproof vest”
   An article in the current issue of Businessweek opens, “the stock market is deep in bear territory, manufacturing is in a recession, capital spending has fallen off a cliff, and exports are falling sharply. Only housing seems to be escaping the weakness that's sapping overall economic activity.” It subsequently quoted Mark Zandi of economy.com who estimates the housing sector accounted for 25% of the nation’s growth in 1998 and ‘99, and 15% in 2000. In fact, some believe housing is all that’s keeping the nation out of recession. Or, as Zandi put it, “housing has acted as the economy’s bulletproof vest.”

Spending, Income, Confidence rise
   After 5 months of declining confidence, the American consumer displayed a surprising change of heart last month as the Conference Board’s index of Consumer Confidence rose a solid 7.8 points. As consumer spending is considered responsible for 2/3 of the nation’s economic activity, recent declines in confidence added to concerns about a coming recession. However, the confidence index report, which followed a surprising upturn on the University of Michigan’s sentiment gauge in late February, suggests the initial shock of negative media reports may have run their course.
   Shortly after the consumer confidence report came the news that consumer spending and personal income continued their upward trends in February, while the savings’ rate hit a negative 1.3 percent, hardly an example of Americans overly worried about their economic futures. What was most interesting about the growth in spending is that it was led by stronger buying activity relating to durable goods, primarily autos.
   Interestingly enough, during the first two months of the year, orders for durable goods were down dramatically. However, sales were much stronger than expected. The combined data add credence to the belief noted in the opening section of this update suggesting an upturn.

Housing Industry Update

   In another report that suggests the economy remains relatively solid, the National Association of Realtors said sales of existing homes, though dipping slightly in February, remain at “exceptionally high levels.” Although declining 0.4% for the month, sales continued above the 5 million unit rate which, quite simply, was considered a record level until 1999. In fact, the current 5.18 million rate is just 5% below the all-time record (and above the 5.07 million sales forecast for the year).
   The national median existing price of $138,800 was up 3.8% from $133,700 twelve months earlier.
   In the Midwest, homes were reselling at a 1.16 million unit rate, up nearly 2% from January but 1.7% below February 2000. The region’s median price was $122,300, up 5.2% from a year earlier.

   In an unusual situation, the Commerce Department’s release of new home sales data came on the same day as the NAR’s existing sales’ release ... and, the report was nearly identical. Though sales of new single family homes fell slightly (2.4%) during February, they also remained at an exceptionally high level, selling at an annual rate of 911,000 units. Although that’s below the revised January rate of 933000, it’s above the annual record of 906,000 set in 1999.
   The department also said that the median price for the month was $167,000, up 2.9% from February of last year.
   Interestingly enough for a period of “economic uncertainty,” sales for the first two months of ‘01 are running about 1,000 units higher than during January and February of ‘00, when confidence was at record levels.

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