Veritas

   In what the Wall Street Journal dubbed as “Bush Administration unsophisticated ‘South Park’ strategy of blaming our friends for our own lack of competitiveness,” the Commerce Department said it would impose a 19.3% “penalty tariff” on lumber imported from Canada to retaliate for, what the U.S. timber industry calls unfair subsidies given to the Canadian lumber industry. The tariffs are expected to be put into effect August 20th, and will likely cost the buyer of a typical new home $1,000, according to NAHB’s economics department.
   U.S. Lumber industry officials were lauding the decision last Friday, although they had called for far more severe penalties. In comments to the media, some expressed bewilderment that U.S. homebuilders and lumber dealers were taking such an anti U.S. industry stance in support of the Canadians.
   Representing America’s home builders, NAHB said the decision “represents free trade in reverse gear,” noting “it’s bad trade policy, bad economic policy, and would hurt housing consumers.” Speaking for NAHB, its President, Bruce Smith, also questioned the administration’s rationale, reminding all that the “housing sector is one of the few healthy sectors in the economy and enacting new trade barriers to protect the interests of a few large domestic lumber producers is counterproductive” to the revitalization of growth.
   The National Lumber & Building Material Dealers Association (NLBMDA) also attacked the decision, accusing Commerce of using ‘fuzzy math’ to justify its action. Referring to the Department’s contention that “critical circumstances” existed to pose a threat to the U.S. timber industry, NLBMDA’s President, Gary Donnelly, explained that, from a historic perspective, the declaration was out of line. A 15% rise in imports has always been the Department’s threshold for declaring critical circumstances, he said, but showed that imports were up just 11% from April ‘00 to April ‘01.
   Both NAHB and NLBMDA believe the preliminary ruling will be overturned. However, there won’t be any recapture of tariff dollars, by consumers, collected between Monday and that time.
   Perhaps the strongest attack on the administration’s action came from the “Bush friendly” editorial page of the Wall Street Journal which noted the international lumber interest “feud” had been “raging for generations.” “But instead of blaming Canada, the U.S. Lumber industry should be pressuring the administration to open more federal lands to logging.” In other words, rather than addressing the problem of domestic supply (as it has done in the energy sector), both the lumber industry and administration chose a “protectionist policy” as its remedy.
   The real problem, the Journal points to, is the fact that loggers “harvested just 3 billion board-feet of timber from federal lands in 1999, down sharply from a high of almost 13 billion in the late 1980s. As a result, roughly one-third of America’s lumber supply ($16 billion worth) comes from Canada.
   As with oil, we remain dependent on foreign sources of timber but apparently, the administration fails to see the symmetry.

Back To Top

Business News & Issues

   Some fascinating census data were released August 6, shedding new light on the intricacies of employment, financial status and the living style of America’s households. Overall, the census found a nation that’s more “educated” (at least by degree), wealthier, and multilingual. It also found that some of the great social plans of the nineties failed to take hold.
   For example, the emphasis placed on such concepts as mass transportation and carpooling were complete flops. In fact, the number of people carpooling actually fell during the decade as the percentage driving their own vehicle to work rose a full point, to 87.5%. And, with all the talk about technology making it easier for more Americans to work at home, we find the percent doing so barely increased (3.2% in 2000 compared to 3% in ‘90).
   The average commute time to work actually rose 8.5%, averaging 24.3 minutes last year.
   Perhaps the most significant change that took place over the decade, however, is what we spend on housing. Median rent payments are up a relatively significant 37%, from $447 in ‘90 to $612. But that’s nothing in comparison to the growth in the median monthly mortgage payment.
   In 1990, the median mortgage payment was $737. Last year, it was up a whopping 77%, to $1,307.
   It will be interesting to see how the professionals analyze this dramatic change, but it’s quite obvious from recent data regarding refinancing that Americans are using their homes as a primary lender. What we’ll find is that mortgage payments are financing everything from vehicles to credit card debt, as Americans continue to take advantage of rising home equity and the tax and interest rate benefits of a mortgage payment rather than consumer loan.
   Of course, this also means that the nation’s economy is more dependent on appreciating home values than ever before.

Back To Top

Biting the Hand that Feeds You

   Quite frankly, I was shocked when I caught the news late Friday (8/10) that the Commerce Department imposed a 19% tariff on Canadian timber. At this point in time, what could be more detrimental to an economy that’s lone bright sector has been housing?
   Since the Bush administration has been in office, growth has been anemic at best (many econo-mists believe revised 2nd quarter data will show an actual decline). And, it’s almost universally accepted that it’s housing that’s kept the nation out of recession. So, at a time when economic activity appears on the verge of submerging, this administration attacks the one sector providing a lifejacket.
   What’s most disturbing about the administration’s action is that it’s out of character considering its free trade philosophy and its supply oriented focus on energy scarcity. After all, if timber harvests on federal lands are less than a quarter of what they were just 12 years ago (see below) it’s clear as to why the U.S. lumber industry is no longer competitive.
   It’s quite obvious that Georgia Pacific has a better ear in the administration than the home building industry as a whole. But think of this: If the resulting $1,000 rise in home costs cuts single family starts by just 2%, the impact will equal the loss of 64,000 jobs. Can the economy handle that?
   Like many before it, Bush II fails to recognize housing’s impact in comparison to other industries.

Barry

Back To Top

Taxation and Finance ---- Assisted living residents’ monthly fee deductibility

   According to MetLife, the average cost of a year's stay in a nursing home in the United States has reached $55,000, and about 40% of people who have reached age 65 are likely to spend at least some time in a nursing home. In addition to nursing homes, assisted living facilities are the largest growing type of housing in the U.S. These facilities provide residential housing, personalized services and healthcare designed for the individual needs of residents who require help with daily living activities but do not need the skilled medical care provided in a nursing home. Still, some residents in assisted living facilities spend most of their money on their medical care while others are dependents of grown children who have taken financial responsibility for their parents.
   There is a way for residents to experience a reduction in their cost of residency while paying the same amount to the facility. You probably know that an individual taxpayer can deduct medical and dental expenses that exceed 7.5% of adjusted grow income. Senior citizens often spend more that 7.5% of their income on insurance premiums (including Medicare Part B), copayments, prescriptions, etc. Consequently, residents of assisted living facilities already take a deduction for medical expenses.
   What you may not know is that if the resident's reason for being in an assisted living facility or nursing home is to receive medical acre, the cost of meals and lodging are included in the definition of medical expenses.
   IRS Publication 502, Medical and Dental Expenses (2000), outlines these deductions. It states, "You can include in medical expenses the cost of medical care in a nursing home or home for the aged for yourself your spouse, or your dependents. This includes the cost of meals and lodging in the home if the main reason for being there is to get medical care." Further, the publication provides a description of a "chronically ill individual" that can be used to gauge whether the deduction is applicable to a resident. A "chronically ill individual" is someone who has been certified by a licensed health care practitioner within the previous 12 months as one of the following:
1. "...Unable for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual, due to loss of functional capacity. Activities of daily living, eating, toileting, transferring, bathing, dressing and continence," or,
2. "...Require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment
   A large number of individuals residing in assisted living facilities meet one or both of these criteria. If they do, they may be able to deduct the entire cost of their residency. This greater deduction can, in effect, lower the annual cost to a resident by 10% to 20% or more. Furthermore, if a resident qualifies as the dependent of a family member, that family member may be able to take advantage of the increased deduction.
   Having this knowledge can help stretch a fixed income budget substantially. Accordingly, as part of personal financial planning, it is very important that consideration be given to the possibility of residency in an assisted living facility or nursing home stay and the availability of adequate resources to fund the costs

R, P & T

Back to top

BAMF Truck for local events?

   For the past couple years, the National Association of Home Builders has been entering a float in the "Tournament of Roses" Parade on New Year's Day in Pasadena, California. After observing the [parade this past winter, former Bamf President Tom Staley thought it might be a great idea if we gave association members the opportunity to participate in local parades, in their own communities, using the concept of "The truck that helped build Michigan."
   The idea calls for the association purchasing a vintage pick-up (pre-1967 and hopefully older), decorating it as the truck that built Michigan, with the BAMF logo, and loaning it out to members for local events (we estimate there are at least 50 opportunities annually in Genesee County, with holidays, homecomings, and local celebrations).
   Purchasing such a vehicle and preparing it for events would require a substantial investment in time and dollars so, prior to embarking on such a venture, we need to know if the membership is behind the concept... let us know what you think!! Do you like the idea and more importantly, would you take advantage of the opportunity if it were presented?

Back to top

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

University Park tax drain v. “Sprawl” in suburbia
   Despite what its paid consultants said, when Flint’s “Univer-sity Park” project was first proposed, it had absolutely zero chance of success. And, that’s why the original projections of models ready by fall of 1996 never materialized.
   But by ‘98, the city received federal renaissance zone status, and the site for the potential development became viable due to the twelve years of tax breaks that went with the designation: No property tax; City Income tax; or even state income tax for residents. However, there was supposed to be an assessment fee, originally said to be in the $1,500 annual range, to offset the direct cost of the city’s services.
   Well, last week the Journal reported that a “proposed assessment” in the range of $450 per home, brought the wrath of U.P. homeowners. So, it appears that Flint is dipping into its already empty coffers to pay for the remaining work on the subdivision’s 63 site 1st phase.
   Now, what makes this item so fascinating is that it comes at a time when there’s so much focus on the alleged drain of public resources brought on by “Sprawl.” Our best estimates suggest that state and local government, along with Michigan’s school districts, are losing between $5,000 and $8,000 per home, each year, due to the zone’s tax incentives. Now, we find that Flint, which can’t meet its own fiscal responsibilities, is forced to spend additional dollars it doesn’t have.
   Buyers in suburban subdivisions, on the other hand, pay for everything from development costs, to old bonds, to future water and sewer needs ... and, they pay higher taxes due to the value of the infrastructure they’ve already paid for. Which is why we find it absolutely amazing there remain elements of government and academia that buy into the fabrication of suburban sprawl putting a strain on public resources. We could make a much stronger argument that University Park, and projects like it, are the real drain on the public sector.

“Survivor” out; Is “Big Brother” in?
Well, it looks like Senator Carl Levin can quit shaking in his boots. After mocking Michigan’s GOP for pushing “Survivor” series burnout Michael Skupin to oppose the 24 year incumbent, we were glad to see we were joined by some of the more traditional media entities. Then, last week, we read that Skupin bowed out, citing the usual “work and family” excuses, and leaving the GOP still searching for a sacrificial lamb ... which, could probably be found on CBS’ current reality series “Big Brother II.” But Big Brother to the U.S. Senate? Isn’t that cart before the horse?

Philly “Show’s” Over
“It was common knowledge among the entire NFL” that the “ability to peer into the cheerleaders’ locker room was a ‘special perk’ of being the visiting team of the Eagles.” That’s the contention in a lawsuit by two cheerleaders that, if nothing else, is ending the “perk.”

Back to top

Association News and Events -- 21 in Fall Parade; Golf Outing best ever

The fall Parade of Homes’ entry deadline passed on Monday and 21 homes are entered in the October 6th through 21st event, roughly the same number as in each of the past three years. Although we won’t have the actual locations of all the homes until next week, it looks like there are 3 in Linden, 7 in the Grand Blanc/Atlas area, 3 in “Swartz Creek/Mundy,” 3 in “Flushing,” and five in the Davison area.
We’ll list the participants and final location information in the September 4th Veritas.

The weather was virtually perfect and the day was fantastic for the 142 golfers who tee’d it up for the association’s annual golf outing at the Captain’s Club (Woodfield) this past Tuesday. There were contests on every hole, with better than ever prizes due to the support of the hole sponsors. And refreshments continued through the day and even the banquet thanks to Fifth Third, Republic & The State banks, along with the continued support of Hill Steel and Builders Supply.
We even had a hole in one on a par three, and a 3-way tie for first place (all at 58 {14 under}), requiring a coin flip for the trophies. And hole contest winners took home everything from full sets of irons (in matching golf bags), to Big Bertha drivers, to dinner certificates and tools. Because we had so many contests, we don’t have room in this issue to give everyone their due ... so look for the full report in the September 4th Veritas and find out who won the coin flip, who got the hole-in-one, and who made it all possible.

During the outing, there was a special incentive to pledge support to BAMFs Building Industry Development Political Action Committee (BID-PAC), and forty six participants made the pledge. We’ll begin publishing a BID-PAC page in the first issue of each month (12 page) listing those individuals as well.

We’ve set a regional meeting for the Fenton/Linden area on Thursday, September 6th, for lunch at Andrico’s family restaurant on Owen Rd. at U.S. 23. As with previous regional meetings, we’re primarily inviting local officials and members working in the area. However, all members are welcome to attend.

Reminder: Housing Quarterly advertising deadline is coming on Tuesday, September 4th.

Economic Update: Economy weakens and sentiment rises

The conflicting economic data over the past two weeks has analysts changing their forecasts on nearly a daily basis. The unemployment rate held steady in July, despite the massive layoffs that were announced on a seemingly daily basis and the fact that the number of private sector jobs declined by 73,000. As economists began to project that revisions in the government’s report of second quarter Gross Domestic Product will show that the economy experienced negative growth during the quarter, the National Association of Realtors announced record home sales, and consumer sentiment went on the rise.
And, while many “leading economists” were cutting back their second half forecasts for growth, others were maintaining that lower energy costs were about to spur the economy. The belief is that consumers spent an additional $50 billion on energy costs this year, and the lower costs of recent months are freeing up dollars for other expenditures.
So, where’s the economy going. Actually, there’s little to suggest anything but the slow growth it’s been experiencing for the past three quarters.

Inflation
Led by a big drop in energy costs, wholesale prices plunged 0.9% in July, while prices at the Consumer level experienced their biggest decline in fifteen years. The Consumer Price Index (CPI), the government’s primary gauge of inflation, fell 0.3% last month, its first decline in more than a year and the biggest since 1986. A 5.6% decline in energy prices, including an 11% drop in costs at the pump, were credited for the good inflation news. Gasoline prices at the wholesale level fell a full 17.7%.

Productivity Soared in Q2
Second quarter productivity of American workers rose dramatically while labor costs actually fell, according to the Department of Labor’s quarterly report on worker productivity. Actual productivity, the measure of worker output per hour, rose at a 2.5% annual rate, after a meager 0.1% rise during the first quarter. The department also said unit labor costs were up just 2.1%, compared with a rate of 5% during the 1st three months of the year, indicating that inflation pressures at the employment level remain in check.
The primary reason for the better productivity data probably relates to the reductions in employment during the first quarter, bringing employment back line with actual production.

White House says growth to double
Yesterday the White House said it estimates that economic growth will jump to 3.2% next year from its projected rate of 1.7% in 2001. The projection painted a brighter picture that most economists, the consensus of which projects, at best, 2.8% growth for 2002.

Housing Industry Update

Unbelievable Sales Pace
We seem to be writing about new reports of record, or near record, housing sales in the new or existing home market nearly every issue. Well, this issue’s no exception as the National Association of Realtors reported that sales of all types of existing homes (single family, condo, co-op) ran at a 6.06 million unit rate during the second quarter, just shy of the record pace of 6.07 million in this year’s first quarter. The rate was 3.2% above 2000’s 2nd quarter level of 5.87 million.
The data was called “nothing short of remarkable,” by NAR President Richard Mendenhall. The organization’s chief econo-mist, David Lereah credited low unemployment and mortgage rates for the strong showing, and noted his expectations that the market’s “momentum will push forward in months ahead, helping to keep the economy growing.”
The NAR also reported that median prices were up 6.4% for the quarter in comparison to last year, at $146,900. Its price data had an item we found quite significant, as Portland (OR), the “best place to live in America” according to Money magazine, was one of six U.S. cities to experience declining prices.
In response to Money’s ranking, this past spring we wrote “with its artificially high real estate prices, low appreciation, average household income and reliance on high tech, Portland’s hardly a city of opportunity.” We rest our case.

Price Slowdown Ahead?
The semiannual Home Price Forecast that the research firm Case Shiller Weiss does for the Wall Street Journal suggests that the “ceaseless drumbeat of glum economic news finally” is “catching up with home prices.” However, it still projects that, in most major cities, prices will rise 5.6% in the coming year.
The Cambridge (Mass) firm is expecting appreciation rates to be nearly cut in half in most of the 20 metro areas it studies. It says that prices in Detroit, the leader in appreciation through most of the ‘90s, will drop from 6.3% (April ‘00 to ‘01) to 3.3% between April ‘01 and ‘02.

Are Appraisals Skewing Home Values?
In an August 13th front page story, the Wall Street Journal questioned the home appraisal process, suggesting “industry observers” believe “overly generous appraisals are inflating home values.” The article presents examples of appraisers “under pressure to raise prices as high as possible so brokers and lenders can make more and bigger loans and thus collect more fees.”
The article says that dramatic changes in the mortgage industry are primarily responsible for the pressure, as “more people are getting loans from mortgage brokerage firms, relatively unregulated operations taking applications from consumers, then shopping them to lenders for the lowest interest rate.”
“Since brokers, at times, collect fees based on loan size and have little at stake if the mortgage defaults, they could be tempted to pressure appraisers to come up with bigger values.” I also notes that banks are increasingly selling loans to the secondary market, also giving them shelter from defaults.

Note: Legislation was introduced in the House that contains a provision to make coercion of appraisers illegal.

Look Here for Previous Issues of Veritas