Veritas

   Despite an obvious housing affordability crises in many of America’s largest metropolitan areas, both the Bush and Gore presidential campaigns have been noticeably, and surprisingly, silent on the issue. Such is the premise of a Wall Street Journal feature last Thursday which made the point, “when it comes to housing policy during the current campaign, it seems like nobody’s home.”
   The article explains that, although both major candidates do, in fact, have housing proposals, neither seems to want to talk about the subject, much to the chagrin of housing advocates in both parties. Former President Carter, now identified with Habitat for Humanity, calls the silence on housing “lamen- table,” noting how little attention is paid to “hard working families living in sub-standard housing.” Former HUD Secretary Kemp is “perplexed,” as he finds the issue “front and center” in every city in the U.S.
   Referring to NAHB’s Housing Opportunity Index, the article points to the problem of many metropolitan areas where only a fraction of homes sell at price levels affordable to median income families. Since development of new housing hasn’t kept up with the economy’s unprecedented growth, the article explains that “good times are likely exacerbating the problem.” The lack of housing availability in many areas “prompts newly affluent homebuyers to bid up prices on existing homes and price the middle class” out of the market. The middle class in turn, unable to buy a home, bids up the rental market, ultimately pricing out lower income families. To emphasize the far reaching aspect of the problem, a policy analyst for the National Coalition for the Homeless told the WSJ that housing affordability is an issue for “many, many of the economic tiers in America,” noting that it extends from homeless middle class families in Silicon Valley, to single people forced to move back home because they can’t afford rent, to young couples who expected to be homeowners but can’t afford to buy.
   As is evident in the page one chart, house prices have soared well beyond the affordable range in many of the cities shown. All of the cities selected (including Flint, which ranks as one of the least affordable in the Midwest) have experienced tremendous growth in their upscale market over the past decade.
   In conclusion, the article says that “both campaigns insist they consider housing a major issue.” However, it’s getting little attention at campaign stops and, quite frankly, the two candidates seem to refrain from calling attention to it.

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Job Creation study’s analysis ignores local economic reality

   According to a study on the nation’s labor market, Genesee County experienced “sluggish” job growth during the ‘90s, ranking 301st of 318 metropolitan areas. The report, by economy. com, said that employment in the area grew approximately 3% during the decade.
   Economy.com’s Chief Econo-mist, Mark Zandi, told the Flint Journal that the data by itself means very little, but in most cases, slower job growth suggests “slower growth in real incomes and living standards,” which mean a lot.
   However, median household income in the Flint area soared nearly 42% during the ‘90s, from $36,000 to $51,000, according to data from HUD, far beyond the national average. And living standards, at least as measured by growth in personal wealth, housing starts and values, along with retail sales, have also grown at rates well beyond the national average. But most critical is the fact that the jobless rate during the period fell from double digits to roughly 4.4%. Unfortunately, the economy. com study didn’t look at the actual affects the area’s supposedly slow job growth.
   The problem with studies that cover a national perspective, is the lack of knowledge about the individual areas they’re studying, particularly when related to overlapping. If an unemployed individual living in Montrose finds a job 50 minutes away in Grand Blanc, the metro area has another job. But, if a jobless Grand Blanc resident takes a new job in Auburn Hills, just 18 minutes away for example, the area’s unemployment rate may fall, but the new job doesn’t even show up as a Genesee County resident being employed.
   That’s the reason Flint area employment data have been so consistently distorted over the past few years.
   As we’ve noted in the past, according to the Department of Labor, the actual number of jobs in the Flint area fell by 10,100 from ‘98 to 2000, a reasonable assumption considering the loss of local GM jobs. However, the data also show a decline of 11,300 jobs held by area residents during the same period.
   Yet during those two years, the department’s data show the unemployment rate fell 16.7%, from 5.4% to 4.5%. Unless some 12,000 individuals either retired or moved away from the area, the data’s drastically distorted.
   It’s possible that the complete Census data will present a more realistic illustration of Genesee County employment. But, don’t be overly optimistic.

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Preserve America’s Sanity: End soft money

   Ten years ago I was forced to ask the Parade of Homes committee to move the Fall event’s opening to the first weekend in October, rather than the third. The reason was quite simple ... in each even year the middle October airwaves were inundated with political advertising. And, since FCC regulations prioritized “politi-cal,” several of our TV ads were subject to last minute preemption. But by moving the event to the early part of the month, we could avoid the conflict.
   Well, things have changed a lot since 1990. Had we opened the Parade in August ‘00, we would have been fighting an already endless barrage of political ads. In fact, as noted on page 9, the presidential candidates alone ran over 4,600 TV ads by July 31st.
   Now, its even tighter. Not only does the presidential race generate a continual barrage of political hyperbole, the same can be said for U.S. House and Senate races as well. The ads have become so pervasive that the local stations can’t even separate them (last night I saw an Abraham spot surrounded by two Stabenow spots). In fact, it’s not unusual to see as many as three or four political ads in a two or 2.5 minute break on any news show. And, we’re still 5 weeks away from election day.
   Part of the problem is that candidates have too much money to put into their election campaigns, as much as six to ten times the amounts spent a decade ago. But the bigger problem comes from the soft money ads ... those that don’t advocate a vote for a candidate. They’re usually purchased by political parties and appear in the form of an attack on the opposition’s candidate.    These are the ads paid for by contributions from corporations and wealthy individuals, which receive so much attention from Senator John McCain and Congressional Democrats. They are unrestricted in comparison to direct campaign funds as they’re exempt from the limits placed on actual campaign donations. And they’re frequently raised under pressure from powerful individuals who hold some semblance of regulatory control over their target. The result is an enormous amount of money to be frivolously spent in attempt to distort records and mislead the voter.
   Senator John McCain rightly says that his colleagues can't be bought for a $1,000 campaign donation. But party leadership may give a lot for $100,000, which is why his reform bill calls for an end to soft money.
   Frankly, I doubt even the soft money buys much. But its elimination sure would go a long way toward cutting the drudgery of election year gibberish and the voter turn off that results. And, most importantly, drastically cutting the dollars under control of party leadership, would remove some of the control those leaders hold over their legions and, perhaps, Congress could be independent enough to, once again, vote policy over politics.

Barry

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Taxation and Finance .. by Rachor, Purman & Tucker
Financial Parameters for Bonding

   The requirements are even more stringent for a subcontracting company because it is paid by a prime contractor instead of directly by an owner, which delay’s the cash flow of the business.
   Based on its business operations, every contractor has a unique set of financial ratios that are proper for it. Nonetheless, bon underwriters use standard ratios to compare a contractor's finances with an ideal bond candidate. Because of this, many company owners try to structure their financial parameters to fit the ratios used by surety companies. This can become a dangerous practice, however, since a contractor may unwittingly increase the danger of operating his or her business by overextending its financial resources. A better approach, however, would be to manage financial resources to those standard ratios, while being prepared to explain that deviations are merely the result of a planned approach.
   The reason many small contractors never become large is that they have grown their business too rapidly, proving the old adage that more work is not always better. Our experience in working with contractors is that their financial well-being can be matched to the correct bond underwriter.
   During its review, a surety company will utilize work-in-process schedules prepared by the contractor along with schedules prepared by the company’s CPA. In addition, it may examine the cost accounting system used by the contractor, paying particular attention to how costs are kept, utilizing Construction Specification Institute breakdowns for the building trades, or pay items for general engineering contractors. These are the figures that also become the accounting general ledger numbers. Furthermore, a bonding company may determine how indirect costs are allocated to construction projects, looking to see they’re not placed under general and administrative expenses.
   Generally, a larger contractor is better financed and has greater net worth, along with more projects. So, it is able to carry more work than a smaller contractor. Additionally, many surety companies believe that annual revenues for a contractor should not exceed more than ten-to-fifteen times its net worth. Some believe that the debt-to-work ratio should not exceed two-to-one while others thing that three-to-one is acceptable (usually for a contractor with fixed equipment debt). Finally, a surety company rarely will privide bonding for a contractor who is dependent on his or her financial institution for anything more than equipment financing or in and out working capital needs.

R, P, & T

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BS:* It’s still about "Nothing" in particular

It was hardly a surprise to find that Michigan’s TV viewers had seen $6.7 million worth of presidential ads from January 1 through September 13th. Nor were we shocked that a recent study found that the Flint media market was the #1 focus in the nation for Democrats from June 1st to Sept 13th ... in fact, it was hardly surprising to find the market was the eighth most targeted area for Republicans, and rose to fifth for September’s first two weeks. As any local viewer knows, the barrage of political advertising has been nothing short of relentless. So relentless, it almost makes one sympathize with citizens of Bagdad back in ‘91.
What was amazing about the report published in the Journal a couple of weeks back is that local TV stations aired 4,621 political ads during the January through July period, which is literally nothing in comparison to what’s already run since ... and it’s only October 3rd.
Maybe that McCain/Feingold ban on Soft Money isn’t such a bad idea after all.

Insurance Companies versus Child Molesters? Most interesting are the attack ads, paid for by Michigan’s political parties against the opposition’s candidates for State Supreme Court. According to the “Ds,” the incumbent Republican justices are proverbially “in the pocket” of corporations, particularly insurance companies.
The “Rs” counter that Democrat nominees support criminal behavior, particularly child molesters. And, the GOP hasn’t even dropped the big bomb; the one that will place Demo-crats in, of all evils, the pocket of Trial Lawyers ... Child molesters & trial lawyers? Markman, Taylor and Young (Oh yes!) cruise to victory.

*BS - Beyond Seinfeld

Association News and Events Parade/HQ ; BAMF Elections; NAHB/MAHB

The fall Parade of Homes is set to open at noon Saturday .. Billboards are up, radio and TV start Wednesday, and the large Flint Journal ads begin running Friday. This is a truly interesting Parade, focused almost entirely on smaller homes with upscale features. The size of the homes may be evident of a trend taking over nationally, as the baby boomers age. In fact, an article in the new issue of Housing Quarterly directly focuses on that issue.
The event runs through Sunday, October 22nd ... we urge everyone to go out and take a good look.

Housing Quarterly was sent out Monday, as the first 3,000 issues were mailed. The rest are either at Parade homes, or at various distribution points in the area. If you want extras, give us a call.

   The Association’s Past Presidents are meeting Thursday to select a slate of candidates for Officers and Directors in 2001. A final presentation of the slate will be made at the Wednesday’s meeting. However, if you would like to serve on the board, please give Barry a call.

   FINAL NOTICE!! The final day to assure good hotel accommodations at the NAHB convention (Oct. 16th) is fast approaching. Don’t get caught in the last minute scramble... register now.
   Wednesday’s meeting is the last one prior to the November election so its primary focus is on some of the candidates and issues that are important to the home building industry.
   Look for a couple of candidates along with an explanation of the Michigan Municipal League’s “minority rule” proposal. See you Wednesday!

Economic Update: Poverty low; Spending up; Slowdown?

   Two issues ago we wrote of the apparent jubilation of federal reserve policy makers regarding the signs that economic growth was clearly slowing toward the desired soft landing, noting many of the “signs” seemed quite premature. Well, a month later the signs of the slowdown still remain, as does our skepticism.    Late last month the Federal Reserve released its “Beige Book” summary for the period from July 31st to September 11th, and suggested it held fresh signs of slowing growth, despite an obviously healthy economy. It noted that most of its 12 district saw conditions as strong, with several maintaining that growth is “solid.” It also found that manufacturing remained “generally strong,” while competition and rising productivity were continuing to hold prices in check by preventing higher wage costs despite the ongoing worker scarcity.    Furthermore, the Fed remains concerned about higher oil prices adding pressure on producers as several districted indicated that oil, along with sharply increasing costs for health care “might eventually be passed on to consumers.”    What gave more credence to the Fed’s apparent “optimism” was the evidence that consumer spending was “flat to modestly higher,” as higher interest rates have made big ticket items like motor vehicles more costly.
   However, as most signs may point to a moderation of growth, or even an evident slowdown, there’s still reason to question if the American consumer is going to cooperate. Why? Once again, following the Fed report on “slower” spending, we found that during the period of its report, consumer spending and income were, both, much stronger than projected.

Personal Income/Consumer Spending

   Personal income rose at a much faster pace than expected in August; however, it still didn’t rise as fast as spending. The government’s primary measure of wages and benefits was up 0.4% during the month (higher than the expected 0.3%) while consumers spent their incomes faster than the previous month by 0.6%. The spending increase equaled the July rise, and also meant that the savings’ rate fell to its lowest level ever. Not wanting to sound like a broken record, we still have to look at the economy from the perspective that consumers make up 2/3 of all activity, and any slowdown without their cooperation is in serious jeopardy.
   Add to that the Conference Board report that Consumer Confidence rose again, and it seems highly unlikely that a significant slowdown in imminent. In fact, the consumer gage is less than three points short of its all time high level, which hit 144.7 in May ...it currently stands at 141.9.
   What was most surprising about the 1.1 point surge in confidence is that it came at a time Americans supposedly feel threatened by higher oil prices ... a fear that did not seem to materialize.

Additional Economic Notes:
   The budget surplus for fiscal 2000, which ended Sunday, looks to be $230 billion, almost double ‘99’s level ... The final report on economic growth for the second quarter found that Gross Domestic Product was up a revised 5.6%, meaning the economy has been growing faster than six percent level for the past 18 months, and the price deflator showed inflation at a 2.4% rate.

Housing Industry News’ Update

   Now it looks like the current stair geometry (8 1/4 by 9) will remain untouched once the first edition of the Michigan Building Code goes into effect sometime next year. Several weeks ago we noted that the State Construction Code Commission’s Building Code Review Committee originally voted to accept the International Residential Code’s standard of 7 3/4 by 10.
   However, following a hearing, in which more than 30 representatives of the housing (including modular) industry participated, a majority of the committee reversed their previous decision. Of course, until the final edition of the code receives total approval, the industry’s not “out of the woods” on the stair issue as another reversal, although remote, remains a possibility.
   MAHB now focuses its efforts on another critical issue in this code: egress windows in all basements. The Code Review committee, to this point, has rejected the industry’s attempts to remove this IRC provision, inspired Fire Marshals.
Note: We expect their will be a formal public hearing in November ... we’ll be notifying you in hopes of local participation.

As we expected, sales of existing homes rebounded in August, according to National Association of Realtors’ data, rising 9.3% from July, to a rate of 5.27 million. The rise represented the largest jump since June ‘99. Interestingly enough, August’s pace was nearly identical to August ‘99, when sales were well on their way to a new record level.
   Median existing home prices rose to $142,200, which is 3.5% above their level a year ago. Sales were even stronger in the Midwest, up 10.6% since July, as the median price grew 3.6% over the year to $128,200.
   The West, however, led the way as sales were up 16.3% from July, while the region’s median price hit $187,100, highest in the nation.
   NAHB’s Housing Market Index (HMI) was unchanged last month. However, the monthly survey of builder sentiment found that expectations regarding sales for the coming six months rose sharply, and is now up 10 points since the beginning of summer at a level of 72. The score indicates that a sig- nificantly higher number of builder participants believe the outlook remains strong, versus the number that feel we’re heading into a period of slower sales.
   The one component that continues to show negative numbers is the amount of traffic at models.

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