Veritas

   The trend that began last fall is apparently continuing in the local real estate market as average home prices continue to fall while lower priced communities are increasing their share of the county’s sales activity. Though we haven’t received the national data that we normally compare with local sales statistics, it’s obvious from looking at the Flint Area Association of Realtors’ third quarter sales figures that countywide price levels remain frozen as higher priced suburbs continue to experience a declining share of Genesee County’s market. At the same time, lower priced suburbs, along with the city of Flint, are experiencing a greater share of sales activity.
   The number of homes sold in the County’s 21 school districts was up slightly through the first three quarters of ‘00, to 3,920, just 18 units above ‘99’s level, as the average price fell 0.6% to $114,473 during the 12 month period. However, that only tells part of the story because, as we’ve been noting throughout the year, values of individual homes continue to rise faster than the national average in nearly all the county’s communities (while average and median prices fell from June ‘99 to June ‘00, actual home values gained 5.8% according to federal data). What’s been evident is the trend toward purchasing less expensive houses, in lower priced communities.
   For example, in Grand Blanc, the average home sold for more than $164,000 so far this year. However, the suburb’s share of sales activity fell from 16.2% to 12.9% over the past year as its existing home sales plummeted 19.8%. And in Flushing, where prices average $144,430, sales fell 11.6%.
   Offsetting the Grand Blanc and Flushing declines were Flint and Clio. Flint, where the average price is below $58,000, experienced a rise in sales of 15.8%, as its market share soared from 22.9 to 26.4%. And sales in the Clio district, where prices average $114,600, rose 20%, as it’s now responsible for 4% of all county activity.
   Note: The frozen price level is nearly identical to ‘98, when the city’s share also rose from its traditional 23% to over 26%.

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Vehicle sales showing softness

   After experiencing booming sales data for most of the year, auto industry officials are expecting softer demand ahead according to reports that accompanied the release of October sales figures.
   Despite a 6.9% rise by General Motors (buoyed by massive discounts), October’s seasonally adjusted industrywide sales rate was the slowest for any month of 2000, as Ford, Daimler/Chrysler, Honda and Toyota all experienced significant declines. And, many economists and car dealers believe the U.S. market is signaling a slowdown through the end of ‘00 and well in to 2001.
   According to a Wall Street Journal report, “some auto makers are already opting to cut back production, temporarily idling workers or reducing overtime.” Chrysler idled 7 plants last week and GM shut down 2 factories for a week.
   Still, despite a 3.5% projected decline in fourth quarter production, it looks like the industry will sell 17.2 million units by the end of the year. But, for next year, a decline of roughly 4%, to 16.5 million, is forecast.

   Much of the problem noted above stems from a significant downturn in light truck sales, as huge inventories of pick-ups, minivans and SUVs are piling up on dealer lots across the country (Full size pick-up inventories are 50% above Oct. 1999’s level).
   Now, it’s likely that the Big 3 will offer even deeper incentives to “woo customers,” which is expected to dramatically damage auto maker profits. According to some estimates, American trucks are responsible for as much as 120% of Big Three profits, making up for losses in the car and overseas’ markets.

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Perhaps election results were definitive

   Well, it’s noon Tuesday, and I still don’t know the make-up of the U.S. Senate, let alone who’s president. But one point that is pretty clear is that the “divide & conquer” theory worked, at least if listening to political pundits and stock market analysts means anything.
   What we do know is that both houses of Congress will have razor thin majorities, and that neither presidential candidate can claim a mandate for his budget busting platform. In fact, I can’t help but be buoyed by the financial mavens who tell of the calming effect on Wall Street of knowing that no gigantic tax cuts or big spending programs will likely come from the new congress. And it was great to hear from Liberal Democrat Paul Wellstone and Conservative Republican Lindsey Graham that the compromise between “Ds and Rs” will most likely result in a deficit pay down (and campaign finance reform).
   So, whether Bush or Gore become the eventual winner, I don’t expect to lose too much sleep ... at least until fall, 2002.
   But, while we wait for absentee ballots and recounts, there are a number of items already learned from this election. For example, we find that 65% of the voters believe the country’s “generally going in the right direction.” And, 68% give the Clinton administration credit for the state of the economy ... both provide a clear message to “stay on the current course.”
   We also find that voters, as a rule, are truly independent, and not overly susceptible to political hyperbole. In fact, we find that voters seem to block out campaign advertising, and vote their perceptions of individuals.
   But most of all, we’ve learned about the waste of heavy political spending ... evident right here in Michigan. Look at the Supreme Court race where an estimated $16 million was spent. The result: Landslide victories for the 3 incumbents who would have won anyway. And, look at the U.S. Senate race ... the numbers ended up about where they were prior to the multi-million dollar TV ads beginning.
   To paraphrase the old NRA slogan, the definitive message of campaign 2000 was simple: Money doesn’t elect people; people elect people.

Barry

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Exit polls give surprising MI data

   Despite the Florida fiasco, exit polling in last Tuesday’s election was, in reality, quite accurate. In fact, even in Florida, the poll that showed more voters supporting Gore than Bush was correct (of course, thousands found properly filling out a ballot was a bit beyond their capabilities).
   Perhaps more important than forecasting election results, the exit polls presented an illustration of voter demographics for each state, and the nation as a whole. And, a look at that data gave us a somewhat surprising image of the Michigan electorate in comparison with most of the nation.
   Following are some of the more notable differences between Michigan and the rest of the U.S.

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Beyond Seinfeld: It’s still about "Nothing" in particular
It takes how many Floridians to put in a light bulb? (T plus 604,800 seconds & counting)

   If we didn’t understand those Seinfeld episodes about Jerry’s parents in their Florida condominium community, we do now!

   Although many believe last Tuesday’s results are muddled, a number of points were clearly made. For example, there’s that “class warfare” issue.
   Throughout the campaign, Al Gore kept pointing out that most of Dubya’s $1.6 trillion tax cut was going to the “richest 1%.” Republicans countered that he (Gore) was playing a “class warfare” game. Well, interestingly enough, Americans who claim to be in the “upper class,” voted for Gore by a 56% to 39% margin. “Middle Class” voters, targeted by Gore, voted 49% to 48% for Bush.

   And, regarding the historic Democrat posture of being for the “working men and women,” how about Jon Corzine, Mark Dayton and Maria Cantwell?
   As candidates for the Senate they spent millions out of their own pockets to acquire a job that pays $144,000. Corzine is the new Senator from New Jersey, who spent $60 million of his hard earned dollars to buy a primary and general election. Dayton, of the Minneapolis Department store family, spent $11 million of his inheritance to win a Minnesota seat. While Cantwell is still waiting for the Washington absentee ballots to see if her $10 million investment will prove fruitful.
   We truly look for fiscally responsible voting from all three.

   Who becomes the most important person in Washington (D.C.)? Well, if Cantwell wins, it’s likely the doctor for 97 year old Strom Thurmond, who’s been ailing the past couple of years. Cantwell’s victory (with a Bush win) would make the senate equally divided among Ds and Rs. If Thurmond has to leave the senate, his replacement would be appointed by Jim Hodges, South Carolina’s Democrat Governor. (If Gore wins, Lieberman’s seat will go to an “R”, giving the GOP a 51 to 49 majority.)

   Deservedly so, Florida’s become the butt of many jokes, including a shot taken by Lou Holtz, who had the misfortune of taking his South Carolina “Gamecocks” into Gainesville to play the University of Florida on Saturday. When a reporter asked Holtz about playing in Florida four days after the election, the coach note that “It’ll take a miracle to beat them; but I believe in miracles!”
   “Maybe when they score,” he continued, “they’ll put it up on our side of the score board.”

   Which brings us to Florida’s most famous resident, who was off in Spain on election day.
   Poor Tiger Woods. He only made $10 million playing golf, hundreds of millions in endorsements, and we find he’s being abused by the PGA who uses his image for promotional purposes without paying him. And, to make matters worse, Tim Finchem, the PGA’s Commissioner, only talks to Tiger when he wants him to participate in a particular event.
   Enter Earl Woods, Tigers dad, stating that his son “holds all the cards” in the confrontation, and warning the PGA better “step aside.” Of his son, the elder Woods said, “he’s an independent entrepreneur who could thrive without the tour.”
   Well, he could afford to run for the Senate as a Democrat!

Association News and Events Dates; Venue of meetings move in 2001
   With elections out of the way, it’s time to turn attention toward 2001, when we begin a new schedule, along with new format for General Membership meetings. However, although these announced changes will commence in January, there’s an unannounced change that will also take place.
   After more than thirty years of hosting Association meetings, originally at the Country Squire and more recently at the Beech-tree, Doug Bosley will be taking a break, and the association will be exploring other venues. So, 2001 presents some changes we hadn’t even contemplated until late last month.
   As announced in early October, the 2001 meeting schedule will begin on Wednesday, January 24th. However, it will be held at the Holiday Inn (Gate-way Center), with a new format, and different menu.
   Next year’s meetings will take on many of the characteristics of events. There will be themes for each evening, with the possibility of sponsors related to the theme.
   Expect details on the January meeting in the December Veritas (we only print 1 in the final month of the year), or in the first January issue at the latest.
   We’re currently setting up the second meeting of ‘01 for late February (perhaps the 27th) for exhibitors’ night. Then, the final meeting before summer will be moved to mid April (no evening meetings during the months of May through August).
   During late spring and early summer we’ll be holding a series of regional lunch meetings in six sections of the county. Of course, the Golf Outing will continue to be held in mid summer.
   Fall will include late September and October meetings, and the 2001 Christmas Party.
   The association’s Land Development Council will begin a series of meetings with county officials, beginning the second week of January, with Road Commission Executive Director John Daly, followed by an early February meeting with newly elected Drain Commissioner Jeff Wright ... look to Veritas for updates, or call to see about joining the council and receiving direct notification.

   At the November meeting, the following officers and directors were formally elected:

Economic Update: Economy strong amid “modest” slowdown

   Although the signs of an economy cooling remain, economic conditions remain strong across the country. Furthermore, the report at the end of last month regarding personal income and spending gives credence to our recent columns suggesting that claims of “victory” over economic growth may well be premature.
   Still, the best news over the past two weeks is that, despite rising energy prices and labor costs, inflation has continued to rise at a somewhat moderate rate, remaining at a thirty year low. As the Federal Reserve noted in its latest Beige Book survey of business conditions around the nation, “intense competitive pressures are keeping many companies from raising prices to offset extra costs,” and some retailers have even cut prices in attempt to revive demand.
   Of course, that presents another problem for the economy as a whole: declining corporate profits. And, those lower profits are having an affect on the stock market, particularly the NASDAQ exchange, which has fallen dramatically all year. That problem, more than anything else, appears to be damaging consumer confidence, which showed signs of weakening for the first time in months ... and, as we’ve written so often, it’s consumer spending that’s been keeping the economy soaring despite the continual signs of slowing.

Income/Spending Rise
   Personal incomes rose 1.1% in September, the largest monthly gain in 11 months, according to the Commerce Department report at the end of October. And, at the same time, consumer spending continued its upward swing, rising 0.8%.
   Although it appears that Americans may have slowed spending in comparison to income, the appearance is somewhat deceiving since much of the rising income is attributed to a surge in government subsidies paid to farmers (without the subsidies, income was up a modest 0.4%).
   So, Americans remained willing to spend as the unemployment rate held at a thirty year low. And, when we look at the rising durable goods’ spending in September, along with soaring new home sales, it’s hard to believe that 3rd quarter growth won’t be revised upward, above the 2.7% initially reported last month.

Job Creation Slows but stays strong
   The economy generated 137,000 new jobs last month, slower than in September, but enough to keep the unemployment rate at 3.9%. The October data show that, after the lull during summer (layoffs of census workers and the Verizon strike) when jobs declined by 130,000, more than 330,000 have been created during the past two months.
   October marked the 13th consecutive month the unemployment rate remained at 4.1% or below. Amazingly, Vice President Gore seldom reminded the nation that the rate was 7.5% in 1992.

Price Growth Remains Modest
   Although the Consumer Price Index for October won’t be released until Thursday, the price data released last week shows that inflation hasn’t become a problem to this point. And, with recent falling stabilization of oil prices, it’s hard to imagine that it will become a serious problem in the near future.

   The Labor Department, first, reported that Import Prices fell 0.5% for the month as oil prices were down 3.2% (however, oil imports were up 43% over last October). The following day, the report on Wholesale Prices was released, showing a rise of 0.4% of the Producer Price index, on rising energy prices, up 1.4% on higher natural gas and electricity costs. The core rate of wholesale inflation (less food & energy) actually fell 0.1%, led by a 1.8% drop in car prices.

Consumer Confidence
   The report that may actually indicate a slowdown coming is the announcement by the Conference Board that Consumer Confidence plunged more than seven points in September, to its lowest reading since October of ‘99. Still, if confidence was down during the month, it sure wasn’t evident by the rises in home sales, durable goods purchases and total consumer spending, as noted earlier.

Productivity Gains Slow
   “Labor” also reported worker productivity, the primary factor that kept prices in check during the record expansion, rose 3.8% in the third quarter, slower than the 2nd quarter’s 6.1%, but well above expectations. For the 12 months since ‘99’s third quarter, productivity has now risen at a 5% rate.

Housing Industry News’ Update

   Americans bought up new homes at their fastest pace in six months during September, as Commerce Department figures show the number of new single family home sales rising at a 9.2% rate for the month, the highest since March. As would be expected, analysts attribute the rise to lower interest rates, as 30 year fixed rate mortgages averaged 7.91% for the month, the first time they were below 8% since fall of ‘99.
   The Midwest posted a 17.3% rise, by far the biggest of any section of the nation. The West and South reported increases in the 9% range, while sales fell 4.5% in the Northeast.
   The “good news” Wednesday morning was the massive defeat of the two anti-growth ballot initiatives in Arizona and Colorado, where reason won out over the fears and distortions perpetuated by the Sierra Club and its environmental allies. As we reported in the 10/ 17 issue, the referendums were written to create growth boundaries and provide extreme measures to allow any “interested parties” to challenge development approvals (and even required a public referendum to approve a development outside growth boundaries).
   The “bad news” is that the victories were costly to the real estate and building industries, and that the Sierra Club seems anxious to continue to drain resources in future proposals.

   On a related note with local implications, a recent study for the Fannie Mae foundation says the Detroit area ranks as the “third-worst region” of the nation for “building sprawl.” Using U.S. census data, researchers compared the number of houses per square mile with undeveloped urban land parcels, while also measuring how close homes were located to business districts (along with eight other factors), according to an Associated Press report. Detroit rated poorly on residence-to-business “connections” and its failure to “cluster” development.
   The four authors of the study found only areas ranking lower than “Detroit” were Miami and Atlanta. Of course, not wanting to question their credibility, we find it fascinating that Los Angeles, considered the “mother of sprawl,” was in the “good” half of the 13 cities studied.
   Of course, we’ll be hit with a barrage of quotes from this report during the next round of anti-sprawl conferences around the state.

   There’s a new industry association that was formed recently and, despite having only 11 members, it’s a rather powerful housing group. Known as the Public Home Building Council of America, the group was formed by publicly traded home builders (Pulte, Toll Brothers; Lennar; etc.) to improve their collective image on Wall Street, where, despite solid earnings’ reports, their stocks have plummeted to their lowest levels in two decades.
   According to an article in this past Sunday’s Detroit News, the council “recently spent around a half million to tout their earnings growth in national financial publication ads.” Their intent? To “attract money that investors are pulling out of technology stocks” says the News.
   This “partnership” comes on the heels of a recent report that Pulte is about to launch a national marketing campaign in an attempt to develop demand for its “brand” of home. Armed with a new logo, Pulte will be kicking off its campaign with a Thanksgiving Day advertising splash, complete with a “3 Little Pigs” themed float in the Macy’s New York parade, along “with a contest in which parade viewers can win a free house,” promoted in two national TV ads during the event, according to a Wall Street Journal report last week. Jim Linsinski, Pulte’s V.P. of Marketing, told the Journal that building “familiarity translates into likability.”
   Perhaps, but what happens if the big bad wolf huffs and puffs? Might make for an interesting Thanksgiving.

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