Veritas

   During last year’s third quarter, housing affordability fell to its lowest level in eight years according to NAHB’s Housing Opportunity Index (HOI), the association’s quarterly measure of the percentage of houses sold that were affordable to a family earning the median household income. Across the nation, a family earning $50,200, the national median income, could afford to purchase 58.1% of all homes sold during the period.
   The HOI is based on price data collected by First American Real Estate Solutions, household income calculated by the Department of Housing and Urban Development, and average mortgage rates during the quarter. The national median price in the quarter was $151,000, up 7.1% from $141,000 in ‘99’s 3rd quarter, while median income was up 5% over the 12 months. However, a year earlier, the median income household could afford 63.4% of all homes sold. The primary difference? The “weighted” interest rate on fixed and adjustable mortgages used to calculate the HOI was up to 8.01% this year, nearly 0.6% higher than in ‘99’s 3rd quarter.
   The Flint area’s HOI ranking remained in the lower half of the nation, and near the bottom of the Midwest, despite maintaining a higher than average “median” household income and substantially lower than average median price.
   Flint’s HOI ranked 94th out of 177 Metro-areas nationally, and 29th of 35 in the region. Median household income ($51,900) is up $1,000 from a year earlier, while the median house price is $107,000, the same as during ‘99’s third quarter.
   Above all else, the area’s median price tells the real story about the local housing market since, despite the fact that 1st American shows median prices up 8.1% in the quarter, while Federal Government data suggests home values rose 6.7% over the past year, the median price is identical to the median price for ‘99’s third quarter.
   What’s continuing is the trend we’ve been reporting since late last winter, when fourth quarter sales data for ‘99 became available: That existing home sales are surging in lower priced area communities and declining in a few higher priced areas.
   In November 14th’s issue we reported that, although sales for the first three quarters of 2000 were up in Genesee County, it was totally due to a 15.8% rise in activity in the city of Flint, with an average selling price below $58,000. The higher activity in Flint, combined with significantly slower sales in Grand Blanc and Flushing, helped bring the average price of a Flint area home down 0.6% as compared to the same 9 months during the previous year. And, in the following issue, we reported that actual home values in the “Flint” area rose 6.7% from ‘99’s 3rd quarter to the same period in 2000, according to the Office of Federal Housing Enterprise Oversight’s “House Price Index” (HPI), a survey that actually charts the growth in value of individual homes from transaction to transaction.
   Each index, as published during the year, has consistently shown that the Flint area’s market is unique, as compared to the rest of the nation, because such a high percentage of its sales are on low priced homes, yet 35% of all sales are made beyond the range of the median income household.
   To illustrate how unusual the Flint situation is, with a substantial rise in home values and no increase in median price, we have only to look at the other regions of the Metro-Detroit area. “Detroit’s” median price grew 6.6% over the 12 months, while its values measured by the HPI were up 7.4%. And, Ann Arbor experienced an 8.3% rise in median price, equal to its rise in actual value.
   What’s becoming increasingly clear is that Genesee County hasn’t been totally absorbed by “Detroit,” but is now based on two metro-areas with based on distinctly different economies.

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Building Officials’ 2 Day Training Builders Association Members Welcome

   The Genesee County Building Officials Association (GCBOA) is offering two days of professional training on Wednesday, January 17th and Thursday, January 18th, at the Holiday Inn Gateway Center. They’ll be having two classes each day, running from 9:00 a.m. to 4:00 p.m., with a noon to 1 p.m. group lunch included in the price of $90 per day ($65 for GCBOA members). Workbooks are also included in the price.
   Each class is limited to the first 60 registrants on a first come, first served, basis.
   Perhaps the class which would be of most interest to association members is the Wednesday session on the International Residential Code (IRC). Although there will be a few minor differences, the Michigan Residential Code is being taken directly from the IRC. So, learning that code will basically give a builder nearly a complete understanding of the next code in the state.
   The IRC class will be taught by Mike Westfall, service coordinator at BOCA’s Midwest Regional Office. On Thursday, Westfall will be teaching a class on the International Building Code.
   The other two classes will be taught by Dennis Smith, Building and Zoning Administrator for the City of Grand Blanc. On the 17th, Dennis will present a course titled “Building Construction and its Pitfalls.” The following day he’ll be conducting a “Residential Plan Review” course.
   Both days will begin with registration and a continental breakfast beginning at 8:30 a.m.
   The registration deadline is January 4th. If you’re interested, Barry has registration forms at the BAMF Office, or call Jan Walling at the Flushing Building Department, 810-659-5665.

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Will surging economic fears be self fulfilling?

   As we’ve been reporting continuously in Veritas, the nation’s economy remains strong from an historical perspective as we near the tenth year of economic expansion. Most indicative of the continued strength is the housing industry, which historically begins a downturn well before the rest of the economy, and with the recent plunge in mortgage rates, is showing no signs of weakening.
   However, our real economic strength depends substantially on the American consumer who, prior to late November, showed little intent to participate in an economic slowdown. Then, the news began to take affect and confidence began to wane.
   In recent weeks there’s been a myriad of negative stories in the media, many which merely reflect a slight downturn in economic growth. However, to listen to news reporters talk, we’re already in some sort of recession.
   However, as we report on page 2, not only is the record setting expansion continuing at the moment, each of the 54 economists surveyed forecast its continuation through 2001.
   In reality, we have an unemployment rate that remains well below any estimate of full employment levels. And, even the decline in growth during the 3rd quarter shows GDP advancing at a rate that’s nearly identical to the Federal Reserve’s target. So, where’s the problem?
   The problem appears to be in the “New Economy,” particularly the “dot.com” sector. What’s disturbing about the effect it seems to be having on public sentiment is that it should not even be a surprise. Traditional experts have been warning about a “dot.com bust,” and years ago, Alan Greenspan warned “Investing in internet stocks is like investing in lottery tickets.”
   The real clear and present danger in today’s economy relates to perception. If the negative perception continues, we could be subject to policy changes that will, in fact, bring an abrupt end to the expansion.
   As we highlighted a few months ago, expansions don’t end on there own, they end because of badly thought out policy changes.
   Unfortunately, economic fears can lead to poor policy changes. The Federal reserve has indicated its intent to fight recession. We can only hope fiscal policymakers give Greenspan the opportunity to work his magic, and refrain from doing anything that will make recession reality.

Barry

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Homes beat other investments

   Last Wednesday’s front page of USA Today shouted “Housing Market beat stock in 2000,” subsequently noting that “2000 will go down as one of those rare years in which Americans count their houses, not stocks, as their best performing assets.”
   The article went on to say that home values grew at a roughly 7% rate for the year according to Freddie Mac (also noting that the National Association of Realtors “pegs growth at a more modest 4.4% [clearly explaining why Americans reading regular news papers don’t understand the difference between growth in values and growth in prices]), trouncing the Standard & Poors 500 stock index which “appears ready to finish in negative territory ‘this year’ for the first time since 1990.”
   What USA Today didn’t say was that the 7.3% rise in home values (Freddie Mac, OFHEO House Price Index) from the fourth quarter of ‘99 through the third quarter of 2000 was the largest, 12 month, nominal increase since 1987, and the biggest in real (adjusted for inflation) terms since 1978. Most fascinating about this scenario is the fact that it took place at a time when Mortgage rates were mostly on the rise, a situation the would normally be expected to retard house prices by raising the cost of purchase.
   But the fact that home sales continued at a 5 million unit rate and home values rose 7.3% while median prices were up substantially less, suggests that the national market, much like the Flint area’s, has shifted to lower priced homes, but values continue to appreciate.

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Beyond Seinfeld: It’s still about "Nothing" in particular
876 hours later, election day is over, lending credence to Darrow’s cross X

   In a display of its fondness for political correctness, NAHB applauded the appointment of Mel Martinez as HUD Secretary stating it (the appointment) sends “a clear message that President elect Bush is committed to pursuing a housing policy that will promote affordable homeownership and rental opportunities.”
   In reality, if the appointment told us anything, it was that the President elect wasn’t sure who he appointed to what. His announcement of the appointment began, “I’ve also chosen a Secretary of Housing and Human Development."
   Instead questioning him about foreign leaders, perhaps interviewers should have asked Bush to name the departments that make up the cabinet.

   If there’s a Bush appointment we should be particularly optimistic about, it’s Gale Norton at Interior. We don’t know much about the former Colorado Attorney General, but we know she spent time working with James Watt, the Reagan Administration’s Interior chief who was, literally, despised by the environmental community. And, we know that, regarding Norton, the Detroit Free Press editorialized: “Look for her to advance the GOP agenda on” such matters as “Endangered Species” and place emphasis on “private property rights.” Continuing its attack on Ms. Norton, it wrote, “Public land is plainly seen as a resource — not for endangered animals, but for drillers, cattle-grazers, tree-fellers, and miners.”

   The suburban building boom was listed as one of the top 10 local “stories” of 2000 by the Flint Journal in its final edition of the year. The following day, the Journal editorialized that “robust home-building and other construction has buoyed our economy.” Although it went on to show concern about “haphazard development” and loss of open space, the section concluded with “growth is good, but so is green space.”
   There are very few venues where the media puts the value of growth’s economic benefits on an equal basis with the detrimental symptoms of “sprawl.” Fortunately, the Flint area is one of those few.

   Last week we found that, as has been the case after the last four census’, Michigan will lose another seat in the U.S. House. This creates a fascinating situation when it comes to reapportionment of legislative districts.
   With the GOP in control of the state House, Senate, Executive and Judicial branches, the party will have carte blanche when it comes to reapportionment and, conventional wisdom suggests they’ll attempt to target a current Democrat for elimination. However, Mike Rogers’ narrow victory in the 8th district may complicate the process, since, as they attempt to preserve his reelection, they could put Oakland County’s Joe Knollenberg in jeopardy.

   Here’s one for the “equal pay for equal work” crowd. There was a lot of attention focused on governmental pay raises, particularly on the State Legislature’s rise from the the mid $50,000 range to the mid $70s. But what about Governor Engler’s raise to $175,000? Not that he doesn’t deserve it, but when Federal Reserve Chair Greenspan gets a raise to $157,000, after running the U.S. economy for 13 years, one has to wonder.

Association News and Events Dates; Road Commission; Parade; Exhibitors’ Night

   The Association’s Land Development Council (LDC) will hold its first meeting of 2001 on Tuesday, January 9th, in the Association office at 3:00 p.m. Our primary focus for the afternoon will be the Genesee Co. Road Commission, with John Daly, the General Manager, as our primary guest.
   We may also want to get an update on the status of Grand Blanc’s zoning moratorium, as some Township officials would like to see it extended beyond early February.
Furthermore, by the 9th, we’ll likely have a meeting set for the following month with new Drain Commissioner Jeff Wright.
   All association members are invited.

   The annual Parade of Homes organizational meeting is set for Thursday, January 11th, also in the BAMF office at 3:00 p.m. This is an extremely important meeting, as we set the dates, hours and parameters for the Spring and Fall events ... and those in attendance are those who set the rules.
   Previous participants will receive a direct invitation, but any builder who intends to enter either (or both) Parades in 2001 should make it a point to attend.

   BAMF’s annual “Exhibitors” Night will return to Bonaparte’s restaurant in the Great Lakes (Genesee) Technology Center for 2001, as the venue worked out so well last year. The night will take the form of a “Mardi Gras” event, held on Tuesday evening, February 27th.
   We’ve already mailed a layout to last year’s participants, who have first choice of table locations.
   However, beginning in mid January, tables will be open to all association members.
   The evening begins at 5:00 p.m. with light hors d’oeuvres, the burger, hot dog and pizza buffet will be out at 6:30 (until 8:00) and, of course, complementary beer, wine and soft drinks throughout the evening.
   Six foot tables rent for $200; eight footers for $250. Call the association for more information.
Note: Last year more than 200 were in attendance, and we anticipate more in 2001.

Economic Update: The big question: soft landing, or recession?

   For the past two months, nearly all economic data released has been pointing to the Federal Reserve engineered slowdown, designed to result in the desired “soft landing” mild expansion and no recession. The only data that went against any slowdown theory related to consumers’ growth in spending and confidence, which remained at historically high levels.
   However, in the past month, there’s been so much attention focussed on a declining economy, that even spending and confidence began to deteriorate as, even the President elect, fired off a preemptive strike, using the “R” word to absolve himself of all blame if recession were to occur.
   So, there was little surprise last Thursday when the Conference Board said its index of consumer sentiment fell to its lowest level in two years. And, with the American consumer being responsible for two-thirds of the nation’s economic activity, a disturbed market can make for a self fulfilling prophecy.
   Should we be overly concerned? Well, probably not, because as consumers were apparently becoming less confident during November, they were confident enough to be purchasing existing homes at an annual rate of 5.2 million.
   However, more indicative of the likelihood of a soft landing, rather than recession, comes from “Business Week’s” economic forecast for 2001, where 54 economists predict the quarterly rates of economic growth, consumer prices and the unemployment rate for the year. Of the 216 quarterly forecasts, not one was projected for negative growth. In fact, only seven were forecasted at under 2% growth.
   For all of 2001, the consensus was for economic growth of 3.1%, with only one forecaster predicting growth below 2.4% which, in reality, is the Federal Reserve target.
   Regarding unemployment for the 4th quarter of ‘01, the consensus forecast was 4.3% with a range of 3.8% to 4.9%. And, the consensus for inflation, measured by the Consumer Price Index, was a rise of 2.5%, with no one forecasting a rise greater than 3.0%. (And to think, five years ago there was a belief that we couldn’t sustain an unemployment rate of less than 6% without inflation becoming a serious problem).
   One of the most optimistic forecasters is the usually accurate David Littmann, of Detroit’s Comerica Bank. Littmann expects growth for the year in the 3.9% range, with inflation at a mild 2.1%.

Employment growth
   Some 94,000 jobs were added to the economy in November as the unemployment rate rose 0.1% to 4%, as private payrolls grew by 148,000, partially offset by a reduction in government jobs of 54,000 (construction employment fell by 6,000 after growing by 22,000 in October). At the same time, wages rose 6 cents per hour, taking them up 4% on a

Housing Industry News’ Update

   With a 13% gain in the multi family sector, housing starts were up 2.2% in November, to an annual rate of 1.56 million units, according to the Department of Commerce. The single family sector was down slightly, 0.4% below October’s level. All regions were down, except for the West. The Midwest experienced a 2% decline.

   Just prior to Christmas, the NAHB reported that its Housing Market Index (HMI) fell 8 points in December to 57, matching its level in June as the lowest since November of 1997. The association’s monthly survey of member builder sentiment found that more continue to see the market as good than bad, but the index has now fallen 22 points from its peak two years ago.

   November sales of existing single family homes were up 4.4%, to an annual rate of 5.22 million units, “on the strength of lower interest rates” according to the National Association of Realtors. November’s data was 1.4% above the pace of twelve months earlier, when the real estate industry was ending its strongest sales year in history. The median price of $139,900 was up 5% from November ‘99.

   Mortgage rates ended the year at their lowest level in nineteen months, according to Freddie Mac’s weekly survey for December 29th. The 30 year fixed rate mortgage averaged 7.13% (with one point) nationally, the lowest rate since 7.1% in the middle of May, 1999. A year ago the average rate was 0.9% higher at 8.06%.
   The one year adjustable rate mortgage was 6.93%, just 0.2% below the fixed rate, making ARMs all but obsolete.

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