   As new housing construction data came in for August, it was obvious that the Southeastern Michigan trend that first showed itself in April, continued through the 8th month of the year. With permit activity down across the Metropolitan region, Genesee County’s permit activity continues to soar beyond 1999’s banner level, as the “Flint” sector of Metro-Detroit is showing, by far, the biggest upturn in the state in comparison to last year.
   When Clarkston based Housing Consultants released its August report on permit authorizations in the nine county region September 19th, it reported that Genesee County was up 19.9% in owner occupied units, and a whopping 52% in total units. Its data showed a year to year rise of 232 single family and condo units, with multi-family rental activity exploding 310%, from 144 units during the first eight months of ‘00, to 591 during the same period this year.
   Housing Consultants showed the nine county region’s total activity down 1.9% through August, while excluding rentals the decline was 5.4%.
A week later, the U.S. Department of Commerce posted permit activity on its website and, although it measures different categories by different venues, the trend was quite similar. As we show in the chart below, the “Flint” sector of Metro-Detroit’s single family activity is up 17%, by far the highest in the state, while the total “Detroit” area (including Flint and Ann Arbor) is down 9% from 2000.
   Michigan’s single family activity is off 3.2% for the year, while total starts are down 5.6%. What stands out regarding Michigan's single family data is that, outside of the traditional “Detroit” area of Wayne, Oakland and Macomb Counties, permits are up 4.2% in comparison to 2000. While total Michigan permits are off by just 935 units for the year, the Detroit sector is down just over 1,700.
   According to Housing Consultants’ report, Grand Blanc Township continues to lead Genesee County in non-rental units with 336. Davison Township (145) is next, followed by Fenton (129), Mundy (97) and Vienna (66) Townships. The cities of Fenton (65), Burton & Linden (53 each) all continue to show exceptional strength, with Linden already beating its best annual total in its history.
   As we’ve noted all year, the success of Genesee County relates directly to its becoming the “new frontier” for Detroit suburban expansion. Adding credence to that suggestion is the venue of owner occupied housing activity.
   When we view the 29% of the County with easy access and close proximity to Oakland Co. (5 Townships on the S.E. side and border lines of Burton), we find the sector is home to more than 66% of the total permits issued. And, when we look at the actual companies building in that sector, we also find that more than 43% of the permits in that sector were issued to builders that are based in Oakland or

Business News & Issues

   In the aftermath of September 11th’s attack, it was little surprise when the “Big 3” auto-makers announced substantial declines in sales for the month. The surprise came in the fact that General Motors’ sales were only off 3%, rebounding in the month’s final week, as buyers flocked to dealerships to take advantage of the company’s no interest loans.
   But, perhaps more interesting is that GM, and to a somewhat lesser extent Ford, both said sales for the first ten days of the month were very strong, and expectations were high as the month’s second ten days began that Tuesday morning.
   The other local automaker ... the one with World Headquarters just south of Grand Blanc .. didn’t fare as well as the American companies, as Chrysler experienced a decline of 28% in comparison to September ‘00. Through the year’s third quarter, total vehicle sales are down 5.7%, roughly 777,000 units below 2000’s level.
   If this year’s sales data has a bright spot from a local perspective, it’s because GM has lost very little market share during the first nine months. Last year, GM’s share was 28.4% through the third quarter; this year its 28.1%.
   During the same period, Ford saw its share slip from 24.4% to 23.0%, while Chrysler’s share plummeted from 15.7% to 14.5. Toyota gained a full percent to 10.1%, and Honda gained 1/2% to 7.2%.
   The “Big Three” experienced a drop in their collective market share from 66.1 to 63.1%, and Japanese nameplates’ share gained 1.6 points, now amounting to 26.7% of the U.S. market.

   In recent Veritas’ (and in an article in the Fall Housing Quarterly) we noted the impact that tapping home equity has had on the continuation of the economic expansion as consumers were paying for everything from cars to credit card debt with refinanced equity. That’s why we found it noteworthy that the Mortgage Bankers Association report that applications jumped 20% the last week in September, with the bulk of the increase coming from refinancings. The reason we note this is likelihood that people are freeing up money to return, en masse, to the marketplace.

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Most Important Parade: Ever!

  Over the past three weeks I’ve spent far too much time reflecting on the events of September 11th, because everything we’re involved with has been dramatically affected by the attacks’ collective impact. As noted on page 2, nearly every economist believes we’re in a recession because of them. And, the focus of the nation as a whole still seems directed toward the events of that day and the upcoming response, whenever it materializes.
   What’s been most trying, however, was preparing for the fall Parade of Homes. This is the first event in seventeen years when optimism is replaced by uncertainty. It may seem hard to believe considering we were only building around 500 homes countywide at the time, but during each parade since 1984 the local housing industry was on an upswing. And, quite frankly, that applied to this parade, at least prior to the second week of September.
   We also have to wonder how the public will respond to an event designed to promote the best in American lifestyles which, in reality, was the real target of the terrorists?
   Last night (Thursday) on the ABC News, Peter Jennings reported that more than 40% of Americans are still depressed from the attacks. But that’s down substantially from 70% a week earlier, which indicates the American psyche is healing quite rapidly.
   So, as we look forward to tomorrow’s parade opening, and the subsequent fifteen days, we may well be getting a good idea as to what we can expect in the near future.
   As is written throughout this issue, the housing industry was exceptionally strong at the local, state and national levels through the month of August. Furthermore, mortgage rates are down about 3/4 of a point since that time. So, there’s good reason to believe that reports of a soft market since September 11th could easily be of a temporary nature.
   That’s why we’ll be monitoring this Parade closely each weekend. It could well be an indicator as to how the market is responding to the shockof September 11.

Barry

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Taxation and Finance ---- When Your Teenagers Work

Parents encourage teenagers to work for a variety of reasons. Some parents encourage their teenagers to save for college or find employment that will help them with career choices. Others want their teens to build a resume, be exposed to work discipline or learn independence and gain maturity. Of course, parents also should be mindful of the financial consequences of having a teenager work. For example:

· In 2001, a teenager can have earned income up to $4,400 without incurring Federal income tax liability. If he or she opens a deductible IRA, an additional $2,000 in earnings can be sheltered from taxes.

· If the teenager is over age 13 and decides to invest some of his or her earnings, the investment income will be taxed at the teenager's tax rate which could be as low as 15%. However, if the teen-ager is younger than 13, the investment earnings would be taxed at the highest tax rate of the parents.

· If the family has a business in which the teenager works, wages paid to the child become a business expense that lowers the income and taxes of the parents, who are presumably in a higher tax bracket, and shifts them to the teen-ager, who is in a lower tax bracket. Social security taxes on the child's earnings may also be avoided if the business is unincorporated.

· If parents provide over half the support for a child, earnings of a child under age 19 (or under age 24 if a full-time student) do not result in loss of the parents' income tax exemption, regardless of the amount the child earns.

Money earned by a teenager that is saved may impact financial aid when he or she is ready to enter college. Under the Federal Needs Analysis Methodology, children are required to contribute a greater portion of their savings towards their education than parents, thus potentially lowering the financial aid provided by an institution.

R, P & T

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Thought there were no inflation worries?

  As price reports have continued to be released from the Department of Labor, inflation’s remained apparently under control. In early September we found that the Consumer Price Index was barely rising, and the core rate of inflation, minus the volatile food and energy sectors, was up a mild 2.6% over the prior twelve months.
   However, a short article in the current issue of BusinessWeek points to a “less optimistic” measure of core inflation that’s been calculated monthly by the Cleveland branch of the Federal Reserve called the “median consumer price index.”
   What the median CPI does is eliminate some of the distortions in the index by averaging out some of the big month to month changes in prices. For example, last month’s Labor Department report on the August CPI was brought down by sharp declines in prices for tobacco products and men's apparel. The median CPI gives less weight to those types of major fluctuations which present misleading representations of actual price levels.
   So, under the median CPI calculations, consumer prices rose at a 4.2% annual rate in August, and is up 3.8% over the previous twelve months, or 46% faster than the core rate reported by “Labor.”
   The “median CPI” was first developed in 1994. During the past seven years, both the median and conventional CPIs rose at roughly the same rate. However, since the median CPI is less affected by temporary price changes that don’t necessarily reflect the real inflationary trends at the time (like tobacco falling at a 37% annual rate in August), there’s a feeling that it may provide a more accurate reflection of price level movement in the short run.
   So, the implication is that conventional measures of inflation may soon rise as well, causing the Federal Reserve to temper its anti-recessionary actions, as it would focus on its pri

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

Condit’s in the News! Are we back to normal?
It’s been a very difficult process coming up with material for a column named after a comedian whose fame is almost synonymous with the Manhattan neighborhood featured in his 9 year run on NBC. We’ve been looking for signs of a return to normalcy, and found one Thursday as newspapers around the nation focused on Gary Condit’s opening of a reelection office in his California congressional district. Condit’s domination of the news came to an abrubt end on September 11th, and he’d been missing in action since ... at least until Thursday.
So, if Condit’s back to being newsworthy, and Rudy Giuliani is back on Saturday Night Live, perhaps Veritas can get back to normal too (if that’s a good thing).

Sprawl = Couch Potatoes
A year or so ago, Presidential candidate Al Gore was telling us that Sprawl was ruining the American family because parents are so stressed out from spending so much time on the road, they don’t have the time or energy to read to their kids. Now comes Richard Killings-worth, a health scientist at the Center for Disease control, who says sprawl is, at least, partially to blame for our “national crisis of obesity.”
Killingsworth addressed a public forum in Boise (ID) last week on “how urban sprawl is affecting the public’s health.” He attacked neighborhoods isolated from schools, jobs and stores which are all related to our “cardependant society.” Noting today’s life-styles are the primary factor in more than 200,000 deaths annually, he attacked obesity as the nation’s second greatest evil, next to smoking, and blames the “new suburban community” which is neither “safe or healthy.”

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Association News and Events -- Parade’s new importance; BAMF responds

By the time you receive this issue, the fall Parade will have concluded its first weekend and we will have some reports back from participating builders. In many ways, this is the most important Parade we’ve held in years. With all the talk about low levels of consumer confidence, recession, and the basic uncertainty created by the attacks on September 11th, we’ll be hoping to gain some sort of perspective on the housing market from the response to the event.
This is the first Parade in 17 years beset by economic uncertainty. So, we’ll be monitoring the activity more closely than usual, and report in the next issue of Veritas.

   The September 26th General Membership meeting focused on the attacks on New York and Washington, the likely U.S. response, and the Builders Care Victims Relief fund. We passed out NAHB’s contribution forms and reported that the Board of Directors supported the fund by donating $2,500 from the association’s “Critical Issues” fund reserves.
   In addition, we have also collected over $1,000 from individual members who were in attendance that evening, and checks keep coming in each day.
   On page 11 is the NAHB half page form for anyone wishing to contribute, along with an update from NAHB regarding the success of this venture. Rest assured that the home building industry does care, and the response has been overwhelming.

We’ll be scheduling the next General Membership meeting at this coming Tuesday’s board meeting ... look for a special announcement by fax or e-mail and, as always, look to the next issue of Veritas (October 18th) for full details.

Economic Update: a “recession” by any other name ?

   Regarding the condition of the economy in the aftermath of September 11th, this column noted that if “2nd quarter GDP data is revised downward, it’s likely that the nation will “technically” be in recession at the end of the 3rd quarter.” The reasoning was quite simple ... the immediate drain on an already weakened economy would likely result in negative growth in the third quarter. So, as the technical definition of a recession is two consecutive quarters of negative growth, we’d be in “recession.”
   Well, as it turned out, the if was, in reality, a pretty big question because when the Commerce Department issued its final report on Gross Domestic Product, growth was revised upward. So, despite all the negative comments, the economy was still expanding during the as we were entering the second quarter back in July, even if it was at a substantially slower pace.
   But as we entered the fourth quarter at the beginning of this week, there was little doubt among economists that the nation is clearly in recession. And, most believe that if there had been any chance to avoid recession, it disappeared on September 11th.
   Even Bank One’s Chief Economist, Diane Swonk, who’s provided one of the most optimistic outlooks on the economy all year, told the Detroit News “we’re in a recession that was event driven,” noting it didn’t start until “after the attacks.”
   The combination of slower growth in consumer spending and the year long decline in the manufacturing sector has cast a shadow on the immediate future. But most of all, the sharp drop in consumer sentiment, which fell to an eight year low, makes it highly unlikely an upturn is imminent ... or, so say most economists who, as a group, don’t expect much improvement until the 2nd quarter of ‘02.
   However, there are a couple of factors, including housing activity (it was so high prior to September 11th, and mortgage rates have dropped substantially since) and auto sales (which were stronger than expected last month) indicating that the turn-a-round could come sooner than most expect because, providing there’s no additional shocks like the 9/11 events. Following are a few critical reports that have recently been released:

GDP Brightened in 2nd quarter
While many were expecting the final revision of 2nd quarter Gross Domestic Product to go negative, its release by “Commerce” showed a slight improvement over the first revision, as GDP was up 0.3%. So, the economy was still, technically, expanding at the beginning of July, meaning that, with an upturn at any time in the fourth quarter, recession could conceivably be avoided.

Sept. Employment Holds Steady
Although U.S. employers cut nearly 200,000 last month, the unemployment rate remained steady at 4.9% according to this morning's report by the Department of Labor released Friday morning. However, the full effects of September 11’s tragedy won’t show up until the October report.
Still, the data was better than most economists had expected, which is a good sign from anyone’s perspective.

Consumer Confidence
The Conference Board’s index of consumer confidence experienced its sharpest decline in 11 years, as the September reading fell 16.4 points, hitting its lowest level in eight years. Furthermore, few of the responses were received after the attack, meaning the reading doesn’t reflect reaction to September 11.

Leading Indicators Fall
One reason we’ve felt that recession was still avoidable is that the Index of leading economic indicators, which suggest economic conditions six months down the road, had been on the rise since April. Well, it fell 0.3% in August, adding additional credence to those convinced a recession is inevitable ... and, that was also prior to September 11.

Housing Industry Update

August Existing Home Sales set new record
   Last Tuesday, the National Association of Realtors said that existing single family homes sold at a rate of 5.5 million units in August, 5.8% above July’s rate, setting an all time record. The previous record (5.45 million) was set in June ‘99. The August numbers, coupled with a slight upward revision of July’s sales, means that homes have been selling at an average rate of over 5.3 million through the first two-thirds of the year, which would be well above 1999’s all time year end high of 5.205 million.
   However, NAR chief econo-mist David Lereah expects sales to slow during the remainder of the year. “Like everything else, this bright spot in the American economy has been eclipsed by the events of Sept. 11,” Lereah said. He then noted that internal tracking “shows a downturn following the attack,” and he now expects sales to average below the 5 million rate through the 1st quarter of next year.
   The August median price of a home sold was up 8% from the previous August, to $154,700 ... and the NAR expects the 2001 median price to run at $147,100, up 5.8% from the ‘00 median.
   Lereah now expects sales for 2001 to hit 5.19 million, up from last year, but short of the record set in ‘99. However, he’s been underestimating sales all year, so don’t be surprised if a new record is set by year’s end.

New Home Sales Up
The Commerce Department, now in a joint release with HUD, said new home sales also rose in August, following a substantial downward revision of July’s numbers. New homes sold at an annual rate of 898,000 units during the month, an approximate 1% rise from revised July sales which numbered 893,000, well below the initial estimate of 950,000. Furthermore, the August sales’ estimate was 7% above the August ‘00 level.
Still, despite two consecutive months with sales below the 900,000 level, the sales rate for the year has been running at 916,000, which is 3.5% above the all time record of 885,000. (Note: the record was set in ‘98. Previously the department had listed 1999 as the record year, however, a revision in the way data is collected altered history in accordance with the Federal Government).

Housing Starts Decline
   On the surface, the 6.9% decline in housing starts registered in August seems quite significant. However, the decline was mostly confined to multi family activity sector, as single family starts were off just 2.4%.
   Still, the 1.527 million unit rate for the month was the lowest of the year, while the 1.247 million single family rate was the lowest since March, suggesting the industry was beginning to cool prior to the September 11th attack However, the one region that did experience a rise in activity was the Midwest, which chalked up a 6.6% gain.
   While single family starts were off the mild 2.4%, multi family starts plummeted 23%, to their lowest rate since November ‘98.

HMI Slipped five points last month
NAHB’s Housing Market Index (HMI) fell five points in September, according to the monthly survey that was conducted near the beginning of the month, before the 11th. In its report of the September survey, NAHB said the decline is “indicative of two things: the likelihood that the strong August survey (60) was essentially a ‘blip’ on the radar screen and the fact that there had been some retrenchment in buyer demand to the ‘still solid’ levels seen earlier this year.”
As we frequently report, any rating above 50 suggests more builders see conditions as good than poor. The September responses show that sentiment on current sales and expected sales over the next six months remained strong, despite falling from an exceptionally high level of 61 to 56. The index gauging traffic of prospective buyers fell four points to 40. This particular index has been lagging well behind the others for more than 2 years.

Mortgage Rates Plummet
For the first eight months of the year, fixed mortgage rates barely moved, despite the Federal Reserve’s continual cuts of the Federal Funds’ rate. However, beginning in September, long term bond yields began to plummet, and by the end of the month the average rate reported by Freddie Mac was down to 6.72%, and falling, with local lenders quoting around 6.25% with as little a 1 point this week. So, basically the cost of financing a $100,000 loan had fallen by $50 per month over the past 30 days, and the slower housing activity since 9/11 gives lenders reason to lower further ... which is why forecasts for a slower 4th quarter may be premature.

Look Here for Previous Issues of Veritas

‘Flint’ area activity still leads the state Owner occupied permits up nearly 20%; Rentals out of sight

Most Important Parade: Ever!

Taxation and Finance ---- When Your Teenagers Work

Thought there were no inflation worries?

Association News and Events -- Parade’s new importance; BAMF responds