Veritas

This Thursday, NAHB will release its Housing Opportunity Index (HOI) for the third quarter, with rather fascinating data regarding local area housing. For the first time, “Flint” fell into the lower half of the nation under the association’s ranking system, dropping to number 100 of the 186 communities in the quarterly survey of affordability, as existing home prices soared by 7% from the beginning of July through September’s end.
According to data from First American Real Estate Solutions, after reaching the hundred thousand dollar plateau in the second quarter, the median price of an existing home rose to $107,000, which also represents a 16% rise over the end of 1998. What’s most fascinating about the phenomenal rise in 1999 is that median prices barely moved the previous year, as they closed ‘98 at $92,200.
The First American data appear to be in line with Flint Area Association of Realtors’ data, as a preliminary review of their third quarter sales figures shows a continuation of strong average prices which have been evident since the beginning of the year.
The area’s median household income remained in the $51,000 range. Although that makes for a relatively small variance between median price and median income, the Flint area’s below average ranking relates to the large number of higher price homes sold in the market as nearly half of all sales in Genesee County took place in the Fenton, Grand Blanc, Flushing and Davison areas, with average prices near $150,000.
However, 67.7% of all homes in the Flint area were considered affordable by families with the median income, making it the highest ranking region of Metro Detroit. The “Detroit” region’s national ranking came in at 124, while Ann Arbor ranked 151, retaining its position as the least affordable region in the Midwest.
Although the Flint area’s ranking was in the lower 50% of the nation’s metropolitan areas, its HOI was higher than America’s average, as households earning the national median income of $47,800 could afford 63.4% of the homes sold during the three month period.

Ten Year Rise
As is visible on the page one graph, the median sales price of Flint area homes rose from $55,000 in 1990, to $107,000 in last year’s third quarter, a rise of 94.5%. To put that in perspective, the Consumer Price Index was up 28.8% during the same period.

Local Housing Permits
November’s report by Housing Consultants finds Genesee County activity up 51.6% from 1998, while single family and condo permits (1855) were up 20.3%. However, Southeast Michigan, as a whole, is down by 404 units (-1.7%).

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State Code Brings Immediate Changes

If you don’t like the 7 3/4” riser/ 10” tread stair geometry that’s currently enforced in many Genesee County communities, take note: It’s no longer enforceable anywhere in the state, according to an analysis of Public Act 245 of ‘99 by the Michigan Association of Home Builders. That’s right: Public Act 245! Governor Engler signed the bill creating a single state code prior to year’s end, and certain provisions that are immediately in effect create changes in the regulatory process governing home construction.
Last week we received a copy of the new act, along with an analysis of what it means to the industry, from Lee Schwartz, MAHB’s VP for Policy and Legislation. Following are the highlights:
· “a governmental subdivision cannot enforce a requirement for stairwell geometry in occupancies in use group R-2 and R-3 structures that differs from a maximum riser height of 8 1/4 inches and a minimum tread depth of 9 inches and a 1 inch nosing on stairwells with solid risers. This provision is NOT retroactive and only applies to permits pulled from this date forward.”
· “As of today, the 1999 State Electrical Code applies in every jurisdiction in the state. The state building, mechanical and plumbing codes will apply statewide only as each new update becomes effective (likely near the end of 2000).”
· “Governmental Subdivisions shall only use the fees they charge for acts and services performed by the enforcing agency and/or construction board of appeals. These fees may no longer be used for any other purpose.”
· “All builders and remodelers may appeal the decision of a local construction board of appeals to, both, the State Construction Code Commission and the Courts.”
Editor’s Note: The concept of PA 245 has been a major priority of this association and initiated a resolution to MAHB in 1994. Its importance to the industry became obvious during the Model Energy Code fight of ‘95. But it was MAHB that masterfully led the effort to make it a reality under heavy opposition of some powerful forces and a Green House of Representatives that was unbelievably erratic during the process.

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New challenges for a totally different era

Ten years ago the association’s challenges for the new decade seemed quite simple: keep expanding the local market by drawing attention to the quality, convenience and value of Flint area housing to an expanding regional market.
At the time, members of the association had just opened the first three new subdivisions in six years, a few additional developments were on the drawing board, and the local industry was primarily dominated by small, custom, builders who combined for roughly 600 housing starts each year.
Now we’re coming off a period when area builders constructed 1,800 homes annually, active subdivisions permeate the landscape and the Free Press calls Genesee County the “region’s newest bedroom community.” So, it looks like things are going extremely well for the home building industry.
But looks can deceive. There have been changes in the market which dramatically impact the small builder. Everything from marketing (where do we reach tomorrow’s new home buyer, today?), to lot availability (subdivisions are no longer developed with the primary intent of selling lots to multiple builders), to the ongoing labor shortage, are issues that weren’t on the radar screen ten years ago.
These are critical issues that builders must collectively deal with in the immediate future, which is why the BAMF Board voted to reactivate the Builders’ Council in December. But to be effective, strong builder participation is the key. (See Association Update)

Barry

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Critical Industry “00” Forecast Agriculture will remain in serious trouble

Now that Y2K is apparently behind us, the press in Southeast Michigan can, refocus on “SPRAWL” as the major problem affecting the region. And, as we’ve noted since last winter, Al Gore’s livability agenda will receive considerable focus as the 2000 presidential campaign heats up.
So, with so much of the anti sprawl discussion focusing on farmland preservation, regionally, statewide and nationally, the real question of the early part of the century may reflect on the value of preserving the nation’s farms. However, until the nation as a whole is willing to question the romantic vision of the family farmer, it’s doubtful rational thought will prevail.
Frequently during the past year we reported agricultural data on farm failures, excessive harvests of food products, and farm income totally dependant on federal subsidies. We referred to more than $15 billion in special payments by congress over the past two years as depressed markets caused farm welfare to soar, even before 1996’s Freedom to Farm act, which was to phase out subsidies by 2002, became fully functional. And we noted how farmers in the “Farm Belt” wish they had the opportunity to sell their land to developers.
Well, as we enter the 21st Century, we find the following
· without another round of subsidies, farm income is expected to fall $2 billion.
· large inventories of crops, after 4 years of growing harvests, will hold prices down.
· farm output will likely grow for the fifth consecutive year
· consumer concern about genetically engineered crops is hurting exports.
So, it looks like another year of more grain than the market absorbs, low prices, and continued draining of the federal budget from an industry that’s sole reason for preservation is to limit Americans’ choices of where to live.

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The Seinfeld Section (it’s still about Nothing ; in particular)

Seinfeld’s been off the air for nineteen months, so it’s time to go on with our lives...Of course, for 2000 we have another ongoing series that many believe is equally “about nothing”... called election year politics.
So, at least until November, this column will be dedicated to the brain dead blunders, pandering promises and the ultimate irony of election year politics...just remember, those featured on this page will ultimately be responsible for decisions dramatically affecting your economic future.

Here’s one from the “My ‘Friends’ are Idiots” column: In mid December, Presidential candidates John McCain and Bill Bradley held a joint “town” meeting on Campaign Finance Reform. Their primary target was “soft money” and the political ads it pays for, normally by corporate contributions that are unlimited under the guise of “free speech.”
As would be expected, their historical meeting became fodder for that evening’s Nightline. Well, during the show there was, of all things, an ad lauding U.S. Rep Dave Camp’s (R-Midland) voting on Nursing Home issues, paid for with soft money from Nursing Home owners.

Then there’s Princeton grad and Rhodes’ scholar Bill Bradley who, when asked what his proudest accomplishment in politics was, again responded “the 1986 Tax-reform act”.....the act which was responsible for the collapse of commercial and residential rental real estate, the collapse of hundreds of financial institutions, and a $50 billion burden on the Federal Government. Unfortunately, both McCain and Gore voted for it.
Then again, the damaging provisions in Bradley’s ‘86 bill were repealed in the Clinton/Gore Tax bill of ‘93.

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Association News Update Parade Meeting; Exhibitors’ Night; and more

Calling all builders who plan to participate in either Parade of Homes during the year 2000. The meeting that will set the dates, hours and length of the Spring and Fall events will be held on Thursday, January 20th, in the Association Office at 3:00 p.m. Although we’re currently targeting a traditional “Mothers’ Day” opening for the Spring event, as was learned in ‘99, those dates are not written in stone.
Last year several builders were surprised by the change in dates, so, it’s extremely important that a large number of participants are there because, to those in attendance go the spoils.

As we’ve previously announced, Exhibitors’ Night (table top exhibits) has been moved to Bonaparte’s, in the Great Lakes’ Tech Center on February 9th, so we can accommodate a larger number of participants. We’ve also extended the hours to offer a
greater opportunity for more builders with tight schedules to attend. The event begins at 5:00, with complimentary refreshments (includes beer and wine) and hors d’oeuvres.
The special (burger, pizza, hot dog, etc.) buffet table will open around 6:30, and the full service bar will be hosted during that period. The festivities will continue until around 8.
Due to the new location, we can accommodate a mix of 50 tables, so if you were too late in previous years, we should have room. A six foot table goes for $150; and eight footer for $200..and, with each table, exhibitors get two additional dinners for employees. Call the BAMF office if interested.

The Home Builders Council was reactivated at the Directors’ meeting in December. The decision to do so resulted from a number of discussions regarding the challenges of a dramatically changing, local, home building industry (see related commentary) and will focus on everything from marketing to site availability. It’s anticipated that the council will meet on a quarterly basis, and the first meeting will likely be set during the parade meeting on the 20th

We’ve set our annual evening with the Flint Generals for Wednesday, February 23rd. Pre-game party w/hors d’oeuvres begins at 6:30 in the Blue Line Club...total cost including prize drawings and a drink ticket; $25 (Children for $20)..Call Tracey at 603-2200.

With the surprise copy of PA 245 and partial analysis on December 31st, we’re going to focus on the changes to code enforcement that have immediately taken affect at the January meeting. Also, as with each January, we’ll highlight upcoming events.

Like they had to tell us? NAHB’s convention site has the following address: Buildersshow.com/whoreg.shtml.

Economic Update: Forecasts suggest a strong 2000; but!

A year ago in this column we joked about economists’ expectations of slower growth for the third consecutive year, despite the fact the economy grew significantly faster than projected from 1996 through ‘98. So, we didn’t put much faith in the consensus estimates of roughly 2.1% growth for 1999. And, since it looks like gross domestic product probably grew around 4% for the year, our lack of faith was well warranted.
Now, as we enter 2000, the Y2K bug’s been exterminated, resurgent foreign economies are buying American goods, consumer confidence is near all time high levels and, despite a scare last summer, inflation continues to appear under control. So, what do economists say? Well, they are cutting the difference between last year’s projections and the likely result, with consensus forecasts in the 3.1% growth range. They’re also forecasting inflation of 2.4%; and an unemployment rate at year’s end of 4.2%.
Actually, these daring and resourceful disciples of Ivy League tradition may have it right this time; not because of economic conditions, but due instead to financial caution at the Federal Reserve and the bond markets’ response. Of course, the consensus forecast for 30 year bond yields at the end of the year is 6.2%, nearly half a point below this morning’s opening rate.

Consumer Confidence
With consumer spending, responsible for 2/3 of U.S. economic activity, driving the nation’ nearly nine year expansion, measure’s of consumer attitudes are critical to the continuation of prosperity. Well, near the end of December came the Conference Board’s index of consumer sentiment rose to a 31-year high and the second highest rating ever.
However, there were two critical items in the survey that fell. The number of consumers planning on buying a home fell from 3.5% to 3.2%; and, the number planning to purchase a vehicle fell from 7.7% to 7.6%.

Leading Indicators Strong
More data suggesting the continuation of strong economic growth came when the index of leading indicators rose faster than anticipated in November. Its rise of 0.3% was bolstered by orders for consumer goods, which should drive the expansion well into the middle of 2000.
Six of the ten indicators rose during the month, including stock prices, building permits and consumer confidence.

3rd Quarter Red-Hot
The economy grew at a 5.7% clip in the third quarter, well above the reported 4.8% rate initially, and higher than the 5.5% first revision. The upgrade reflected on consumer and commercial spending, up 4.9% during the quarter, both of which appeared to be picking up during the fourth quarter, suggesting that growth in gross domestic product for the final three months will be in the 4% to 4.5% range.
As would be expected, the “red-hot” economy has analysts believing that the Federal reserve will engage in, at least early this year, another round of higher interest rates. That likelihood had a dramatic impact on the bond market during the past couple of weeks, as long term interest rates soared to 30 months highs, before receding slightly this (Tuesday) morning. Of course, that also meant higher 30 year fixed rate mortgages, which went over 8% last week and are heading higher by week's end.

Wages and Spending
And, adding to the likelihood that the hot economy will continue, personal income rose 0.4% in November, on the heels of a 1.3% jump the previous month, while consumer spending grew at a 0.5% rate. The spending report followed the announcement that retail sales soared 0.9% during the month, that only accounts for the first leg of holiday shopping.

Housing Industry/Mortgage Market Update

Housing starts fell 2.3% in November, hitting their lowest level in 7 months according to the Department of Commerce’s report on December 17th. The rate of 1.6 million units, which was due to a 3.5% decline in the single family sector, was the lowest since a 1.577 million rate in April.
The report couldn’t have come at a better time as it was the final release of economic data prior to the final Federal Reserve meeting of ‘99, and presented some evidence that higher interest rates were slowing the economy. However, one has to question just how much of a slowing the report actually represents?
First of all, the 1.6 million was just 1% below the level of starts for all of ‘98. Secondly, the most rate sensitive sector, single family, ran at 1.7% above 1998’s level. Furthermore, starts for the year will likely end up in the 1.67 million range, the highest since 1986. And finally, permits were up 1.6% for November, indicating a slight upturn in activity coming.

Despite the lower housing starts and higher interest rates, NAHB’s Housing Market Index (HMI) was virtually unchanged last month, reflecting continued strength in the single family new home market, along with continued optimism for the next six months. Still, the index, though the second highest of any December on record, is well below December ‘98’s level.
Interestingly enough, the one sector of the HMI that was up strongly last month was traffic at models, suggesting that some potential buyers may be jumping in anticipation higher rates. However, with consumer optimism near an all time high, it may just be that more people are thinking about starting the new millenium with a new home.
The responses on current sales (79) and expected sales (81) were well above the 50 level, meaning that far more builders felt positively than negatively about market conditions.

Consumer optimism was also evident in November’s existing home sales’ figures which were released by the National Association of Realtors last Thursday. The rate of sales for the month was up 6% from October, to 5.09 million units, keeping ‘99 well on the way to a new record for real estate sales, as the association is forecasting a year end figure of 5.18 million, up 4.4% from last year’s record level of 4.97 million.
The realtors also reported that the median sales price in November was $133,700, up 3.3% from a year earlier. (Although not noted by the realtors, it’s likely that higher interest rates may well have made sellers more agreeable to lower offers than they may have been had rates appeared to head in the other direction).
The Midwest was stronger than the nation as a whole for November, with sales rising 12.5%, to a rate of 1.17 million units, while the median resale price ($120,900) was up 4.6% from a year earlier.

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