November 13, 2002

Inside Veritas -
Article 1 -Guess who’s under attack from California’s environmentalists?
Article 2 - Business/Housing News Notes
Article 3 - 2002 Elections’ Anecdotes
Article 4 - Taxation and Finance - Planning 2002 Educational Expenses
Article 5 - Pretty Quiet for an Election Year
Association News Update From Laura
Economic Update - Housing impact even more dramatic
BS: Still about Nothing in particular
Housing Industry Update

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Guess who’s under attack from California’s environmentalists?
  
   The Wall Street Journal wrote: “Alleging (they’re) wasting precious resources and despoiling the landscape with sprawl, conservationists are trying to rein in the industry and have scored some notable victories.” And, it continued, “so many activists protested the trend of expanding over scenic hills that County officials enacted an ordinance restricting such growth.”
   Now this may sound like the normal anti-growth rhetoric that always seems aimed at “urban sprawl,” but in Northern California, it’s aimed at a surprising target. What seems to be driving the Golden State’s environmental community “to drink” are those “Sprawling Vineyards” of the Napa Valley.
   Yes, in the state where venturous lawyers had builders running to Nevada like they were Taliban fleeing Afghanistan, the environmental community had to find a new target. And, it was the wine industry that won their referendum, targeted for everything from cutting down “native oaks” and gobbling up green space, to creating environmental hazards. So, the industry’s now looking at self regulatory options to offset the “bad publicity” in hopes of pacifying detractors in much the way the NAHB has embraced a friendly version of “smart growth.”
   We used to note that environmentalists like everything that’s green, unless it has 18 holes. Apparently we were wrong.

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Business News and Issues

   Perhaps the “real” story behind October’s anemic auto sales’ rate was the American producers’ market share loss. While the rate of sales fell to 15.5 million units, the lowest level over four years, the Big 3 experienced a market share decline of 5% from October ‘01, as Japan’s “Big 3” gobbled up 68% of the American’s decline. Furthermore, Toyota was only 2.6 points below Chrysler, or just 33,800 vehicles short of becoming the third highest selling auto company in the U.S.
   For the first ten months of the year, American sales have lost 1.8% of the market, in comparison to 2001. However, GM (at 28.5%) and Chrysler (at 14.4%) are holding at the same levels of last year. Ford continues to see its market share erode, as Toyota, Nissan and Honda are each up 0.4% year to date, as Korean based Hyundai sales are up 0.3%.
   Of all the U.S. companies, only GM could find good news in the October sales’ data. First, its market share was approaching the 30% mark, at 29.5%. Furthermore, the company announced that it was raising North American production by 10,000 units to meet demand for strong selling models.

“Realtors Pressured to Cut Commissions?”
   As we note on page 8, homes are selling at record levels for 2002, and near record sales are forecast for 2003. So, it came as quite a surprise to see the preceding headline in Tuesday’s Wall Street Journal.
   The article states that the “sluggish economy is already putting growing pressure on Realtors’ commissions.” It continued to explain how the realtors at the NAR convention pressured the National Association to “clear the way for internet-based real estate brokers to provide more home listings and services at a discount.”
   It appears that “a handful of low-cost internet competitors have begun tapping into Realtor databases, and putting the listings on their web sites,” after obtaining the information from local realtors they’ve “hired.”
   Now, what appeared to be a majority of the realtors at the convention appeared to believe it “makes more sense to embrace the internet rather the “hoard” MLS listings.
   To give examples of the savings, the WSJ noted that ERealty.com and ZipRealty.com charge commissions of 4.5%, and offer rebates to buyers of up to 1%.

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2002 Elections’ Anecdotes

   Campaigning got hot, heavy, and to some extent, outright deceitful in the local media market during the final ten days of election 2002, creating some rather interesting stories. We saw a “drunk driving mother on welfare” beat a “tax evading funeral home operator;” a winning Democrat “not endorsed” by his own party; and a gubernatorial candidate who beat the labels of “extreme, liberal and risky.” We were also treated to a Judicial race of revenge, not against the incumbent, but the Governor who appointed him, and we saw how hard work and perseverance pay off as a former state representative fulfilled a pledge to return to the House. These are just a few of the stories that deserve attention:

Jennifer Elkins (D-Bay City) ... “Drunk driving ‘Welfare Mom’ beats tax evading mortician!”
   “Do we want a representative to make the laws and reform welfare, or break the laws and collect welfare?” The radio said to “ask her why she endangered law abiding citizens by driving 90 miles an hour while drunk? And, why’s she campaigning for office while collecting welfare? Subsequent TV ads raised the same issues.
   I had no idea where she was running, or who she was running against until early Wednesday morning when she was declared the winner in the 97th district (Bay & Clare counties).
   It turns out her GOP opponent, David Coker, is a funeral home owner, who was accused in radio ads of having “14 past tax liens” totaling nearly $77,000. And, her drunk driving episode, we find, took place eight years ago in Battle Creek, which most would call a “youthful indiscretion” when the rep elect was just 21 years old.

Dave Robertson ... perseverance, commitment, pay off!
   After losing an attempt to return to the “House” in ‘94, Dave Robertson boldly proclaimed he will be “back voting under the dome.” Well, 8 years later, the former & future state representative made good on his proclamation with a 500 vote victory over incumbent Democrat Pat Lockwood in a marginally GOP district.
   There’s little question that the district was in play, but Lockwood’s been quite popular with “GOP” voters. Furthermore, the State GOP deluged the district with the kind of negative mailings that traditionally turn-off its likely voters.
   In reality, Robertson won this race through his own, tireless, campaign effort, showing that, even in politics, hard work and commitment pay dividends.

John Gleason ... winning without a party?
   In a July 30 column, we lauded Gleason for his historical support for the housing industry, while noting he had “stepped on some toes of elected officials, most of whom support his (primary) opponent.” Well, the Flushing “Democrat” won easily (both in August and fall), but apparently rankled his party’s leadership.
   In an election handout promoting the Democrat’s ticket in mid-Michigan, and “paid for by the Democratic State Central Committee,” there was “no endorsement” in (Gleason’s) 48th district.

John Engler can kiss what?
   Gleason played a major role in another race. David Goggins upset incumbent 67th District Judge Don Rockwell, with Gleason featured in TV ads. But in this race, Rockwell was only the secondary target. The governor who appointed him was the primary one.
   Because of his uncle’s (Jack Goggins) support for State Republicans, Goggins was the odds on favorite for appointment to the District Court vacancy. But after the surprise appointment of Rockwell, Goggins was determined to make the Governor eat proverbial “crow.” In victory, Goggins’ words were clear: “You can kiss my ass, John Engler."

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Taxation and Finance ---- Planning 2002 Educational Expenses

   As you are probably aware, Congress has provided taxpayers with multiple tax incentives to help offset the increasing costs of higher education such as Coverdell Education Savings Accounts, the Hope Scholarship Credit, the Lifetime Learning Credit, education savings bonds, a limited student loan interest deduction, and the new above-the-line deduction for qualified educational expenses.
   While the various education tax incentives offer numerous ways to achieve tax savings, limitations exist that affect the amount of education expenses allowed as a deduction or credit for a given tax year, including income phase outs, effective dates, the number of students, and their enrollment status. Depending on your current situation as well as your plans for future educational expenses, it may be advantageous to accelerate some of your planned educational expenses into 2002 or defer these expenses to future years in order to maximize the tax benefits offered by these incentives.
   Please contact your tax professional to discuss the education tax incentives available to you and developing a plan to help you achieve the maximum tax benefits from these incentives for 2002 as well as future years.

R, P & T

Pretty Quiet for an Election Year

  Believe it or not, there’s more on the November 5th ballot than the Granholm-Posthumus race. Two years ago the air waves were dominated by political advertising. This year, one would think the only contest going is for Governor of Michigan.
   In 2000, the heaviest political advertising in the nation took place right here in the Flint area market. Along with hundreds of thousands spent locally on the Bush-Gore race, we had two of the most highly contested congressional races (Stabenow v Abraham and Rogers v Byrum), along with millions of Business dollars fighting millions of Trial Lawyer & Labor dollars for control of the Supreme Court. This year, you wouldn’t have known there’s a Senate race until Carl Levin began running commercials this week about Canadian versus U.S. drug prices. And, at most, there’s only one contested U.S. House race in the state. Of course, that shouldn't come as a surprise. This past weekend nationally recognized political consultant (and former NAHB employee) Charlie Clarke said there were only 18 (of 435) U.S. House districts that were actually competitive.
   You see, this is the first election after reapportionment, and Legislatures around the nation seemed to agree to safe districts for one and all (save Gary Condit and a few others). So, except for roughly eight senate seats, it’s pretty quiet all across the country.
   However, there are a few contested races you’ll be voting on next month, that are critical to the future of housing and economic growth in Michigan, with the Governors’ race being most notable. Following are the candidates with MAHB’s B-PAC endorsements:
Governor Dick Posthumus (R)
State Senate - 26th District Deborah Cherry (D)
State Rep. - 51st District Dave Robertson (R)
*Michigan Supreme Court* Elizabeth Weaver & Robert Young

   In the other contested race with impact the housing industry, B-PAC chose Cox over Peters for Attorney General.

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

It’s Liberal; It’s Extreme; it just didn’t get it!

   Dick Posthumus tried to campaign on “Michigan Values,” but the primary theme to his campaign was to paint his opponent as “liberal and extreme.” Yet Michigan’s been electing a liberal to the U.S. Senate by big margins since 1978 (including a 61% to 38% landslide last week). And, two years ago the state voted for Al Gore. So, “liberal” and “Michigan Values” may not be mutually exclusive terms.
   However, it was quite clear during the past year that Governor elect Granholm was somewhat confused, frequently taking contradictory positions while speaking to groups with differing views.
   Now, we’ve noted over the years that such confusion is endemic in the state she called “home” during her “formative” years, and can’t help but think the outcome would have been different if the notable line from Posthumus ads would have hit the fact that “She’s Californian; She’s blond; She’s Granholm!”

Federal Deficits thru ‘12, and no one seems to care

   What ever happened to the issue of fiscal responsibility? As the nation’s budget went from showing a $200 billion surplus in ‘00, to a $160 billion deficit in ‘02, hardly a word was mentioned on the issue during the recent congressional and senate elections. In fact, the Republicans continued to talk about tax cuts, while the Democrats continued to stress education and health care spending. Then, they (Democrats) ended the period on the verge of promoting an “extreme California liberal” to its leadership. So, with the nation’s deficit continuing to grow, what’s on tap for the next ten years?
   Well, start with $550 billion in permanent tax cuts; an additional $300 to $450 billion in prescription drug benefits; another $150 billion for war with Iraq; and a change in the alternative minimum tax at $400 billion. And, don’t forget, Farmers may need just a little bit more by 2112.

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Association News and Events by Laura

  

BAMF HOLIDAY OPEN HOUSE As stated in the last issue, the Builders Association will be holding a “Holiday Open House” on Wednesday, December 4, 2002. Hors d’oeuvres, desserts and drinks will be available from 4:00 p.m. to 7:00 p.m. and there is absolutely no charge to members. We hope all members will be able to stop by the Association Office that day and kick off the season with the Directors and Staff. The building will be decorated in the most festive way and the hors d’oeuvres (catered by Elegant Catering), desserts (catered by Laura & Tracey) and cocktails (tended by Mrs. Tucker) add to this enjoyable holiday affair. Please look for your invitation in the mail in the next few days and RSVP by November 29th if you will be attending (810) 603-2200.

HABITAT HOUSE Monetary donations are slowly coming in for the Association sponsored Habitat House. Everyone should have received a letter from Treasurer Larry Corbett with a formal request for contributions. If you have pushed it aside, please take a little time out, and send in your donation (if you haven’t already donated in one way or another) to: Special Habitat Account c/o Builders Association of Metropolitan Flint P.O. Box 940 Grand Blanc MI 48439

2003 Membership Meeting Schedule The following dates have been set for the 2003 General Membership Meetings. (Please put these in your calendars....details on each meeting will be in all future issues of Veritas). January 29, 2003 (5th Wednesday) February 26, 2003 (4th Wednesday) March 26, 2003 (4th Wednesday) April 30, 2002 (5th Wednesday) Sept. 10, 2003 (2nd Wednesday) October 22, 2003 (4th Wednesday) Nov. 12, 2003 (2nd Wednesday) ALL MEETINGS WILL BE HELD AT BONAPARTE’S.

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Economic Update: GDP up in Q3; but employment’s weak
  

   It could have been considered good Halloween news when the Commerce Department said the economy probably grew at a 3.1% rate in the third quarter, up dramatically from the 1.3% second quarter rate. And, the same report said that prices were up at a 1.4% rate in the same period, down from 2.3% the previous three months.
   The report went on to say that real personal consumption led the way to the stronger rate of growth, rising 4.2% during the quarter, with durable goods (those expected to last at least three years) rising 22.7%. So, as has been the custom for the past three years, the American consumer kept the economy rolling to growth.
   However, the following day came the government report on income and outlays for September, presenting reason for concern. While personal income rose $37 billion for the month, personal consumption fell $29.6 billion, or 0.4%. Add to that the dismal October vehicle sales data (see page 1), along with the severely declining levels of consumer confidence reported, and the question remains as to whether the “consumer” will continue consuming.
   The income and spending report was followed by the employment report and the concerns continued. While U.S. employers shed 5,000 jobs in October, the second consecutive month of decline, the unemployment rate rose to 5.7%. But more telling is the fact that the manufacturing sector shed another 49,000 jobs, after losing 91,000 during the previous two months.
   Although the employment report was slightly better than most economists had expected, it shows that the recovery’s strength has yet to bring about any upturn in employment. Yet, we’re continually surprised that no one in the government seems to recognize that that the costs associated with employment, particularly health care, may be prohibitive to employment growth.

Manufacturing Activity declines
   And, continuing with the same theme, manufacturing sector activity shrunk for the second consecutive month, according to the Institute of Supply Management’s index remained under 50, falling from 49.5 in September to 48.5 in October. Any reading under 50 means the sector is contracting.
   What’s unfortunate is that the sector began to show signs of life early in the year, and it continued through summer. After contracting for eighteen consecutive months, it turned upward from January through August.
   However, even during the upswing, the Institute’s manufacturing employment index continued to show contraction. Currently it remains at 45, well below a level that would likely see employment pick up.
   However, the institute’s “non-manufacturing index continued to show solid growth in the service sector. Still, its reading of 53.1 was below its September reading od 53.9.

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Housing Industry Update

   New housing permits in the state are continuing their three year mild downturn, according to data released by the U.S. Department of Commerce. As September’s data showed the rate of permits falling 7.6% from August, the year to date data show Michigan’s total activity is down 2% from ‘01, while single family activity is off 0.5% (166 units). Authorizations have experienced modest declines in each year of the new millenium, after peaking at the end of the 1990’s above 54,000 total and 45,000 single family.
   As we can see in the graph to the left, this year’s decline is smaller than during the same period in the 2 previous years, and the industry remains in an historically healthy era. Still, it is somewhat of a concern when we compare the State’s activity with that of the rest of the nation, which will set a new single family record this year.
   Locally, the “traditional” metro Detroit area’s single family activity is up from ‘01, but down by 2,000 units from 1999. Flint is down 150 units from ‘01, but only 98 units from ‘99.

   Although they don’t expect existing home sales to set a new record, the National Association of Realtors is forecasting “historically strong housing activity” for 2003. At its annual conference in New Orleans last week, NAR Chief Economist, David Lereah, told the group that sales should finish this year at a record of 5.47 million, 3.3% above the last year’s record. He then expects sales to slip to the 5.27 million level next year, which will make 2003 the third best year in real estate history.
   Lereah, who’s been more accurate in forecasting new sales than existing over the past few years, also said that new homes will end the year selling at a “record” 945,000 units, then fall back to 921,000 in ‘03 (which is still 1.4% above the record level set in 2001).
   Regarding mortgage rates, Lereah expects 30 year fixed rates to rise slowly next year, but to remain below the 7% threshold, averaging 6.5% for all of next year.
   Lower interest rates have had a positive impact on housing affordability according to the Realtors. Its “affordability index,” measuring the comparative house buying power of the median income household jumped 1.7% over the past year, to 135.3. In other words, the household with a median income ($52,689) has 35.3% more than necessary to purchase a median priced home on $161,800.

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