   It’s beginning to look like local new housing activity was up modestly last year, at least as it pertains to owner occupied housing. With Housing Consultants'’ year end report coming out last Friday, along with some preliminary results of the Flint Journal’s survey of local building departments on Monday, it appears that permits for single family and condominium homes were in the 1,950 unit range last year, approximately 2% above 2000’s level. However, when apartment units are included, we’ll probably see a 20% rise over 2000’s total permits.
   The relatively small rise over the previous year, if these preliminary figures hold, comes as a big surprise, because federal government data has been signifying a much larger increase through most of the year. For example, at the end of November, U.S. Census bureau data had the “Flint” section of Metro-Detroit authorizing 1,868 single family permits since January, 122 more than for all twelve months of the previous year. Also, the Census numbers showed an additional 1,022 multi-family units which, when compared with Housing Consultants'’ data, suggested that roughly 240 were condos, meaning there were more than 2,100 owner occupied homes authorized in 2001, with a month to go. But the preliminary numbers of the Journal survey, which is closely in line with the numbers provided by Housing Consultants'’ year end report, suggests the Census’ data are severely inflated.
   Still, ‘01 was an exceptionally strong year for Genesee County, particularly since the Southeast Michigan region experienced a dramatic decline in activity in comparison to the past several years. Housing Consultants'’ data has the region’s owner occupied activity off 7.4% for the year, approximately the same as the Census Bureau’s eleven month report. In reality, the area experienced its second strongest year in modern history, which began following the upturn in activity generated by ‘94’s reduction in property taxes.
   Genesee County’s growth was pretty much limited to Grand Blanc, Davison, Mundy and Vienna Townships. In ‘00, the four townships combined for 619 single family and condo units. In 2001 the number rose to approximately 844, a 36.4% increase. The remainder of the county was roughly 180 units below 2000’s level.
   Fenton Township, historically the 2nd leading municipality in authorizations, seems to have issued around 170 last year, 26% below the previous year and 37% below 1999’s level, and may have fallen to fourth place, behind Davison and Mundy. Grand Blanc Township’s 405 units kept it in the top spot.
   Although it’s unlikely that the preliminary data will change by much, the association will look for any major discrepancies when preliminary year end census data is released, hopefully by the end of this week.

Business News & Issues

Baby Boomers are Most productive
   For the past few years we noted the importance of productivity in keeping inflation at a minimal risk during the 10 year expansion. Now, a new report suggests productivity’s growth may be on the decline.
   Why? Despite what their parents say, baby boomers were responsible for quality labor improvements, and with their generation reaching retirement age, that quality may be on the verge of decline.
   Two economists from the Chicago Federal Reserve discovered that improvements in labor quality from 1987 to ‘94 contributed nearly 0.4% to annual productivity. Since ‘95, quality “rose more slowly” according to the report, and the authors predict “it will slow even more this decade.”
   The economists found that, during the late ‘70s and early ‘80s, labor quality began to rise as boomers entered the workforce (we thought they entered in the mid ‘60s), and were “better educated than the workers they replaced.” As they gained experience, the improvement accelerated.
   The economists expect that when retiring baby boomers are replaced by “Gen Xers,” labor quality growth will drop to less than 0.1%.

Michigan’s Budget problem's not unique
We read about Michigan’s budget problems all the time, but a Wall Street Journal item suggests the state’s not the only one that struggles. After cutting taxes throughout the ‘90s, the nation now has 42 states with “large gaps in the budgets,” and many count on tobacco settlement funds for immediate salvation.

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Local affordability slips in Housing Opportunity Index

   Last week the NAHB published its Housing Opportunity Index (HOI) for the 3rd quarter of 2001 and, like the nation as a whole, Flint area affordability slipped slightly. The HOI, which measures the percentage of homes, sold during a given period, that could have been considered “affordable” to households earning the median income, is published quarterly.
   Nationally, the median income household, $52,500, could purchase 61.5% of the homes sold from July to October, off from the 2nd quarter’s 63.4%.
   In the Flint area, the median income of $52,700 could afford 66.3% of the homes sold in the area, down from 67.6% the previous quarter. However, “Flint’s” national ranking improved from the 109th most affordable market to the 104th during the period.
   More notable, however, is that the jump in median prices during the 2nd quarter appeared to hold in the third, as shown in the graph below. Prices had been extremely volatile since the 3rd quarter of ‘99.

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Taxation and Finance ---- ‘02 Rates for Mileage; FICA threshold

   While inflation remains low, and has for several years, many tax and FICA provisions nevertheless are indexed for any change. This is supposed to prevent taxpayers from going into a higher tax bracket just because of inflation, while at the same time, protecting social security by providing for automatic increases.
   The maximum amount of an employee's wages subject to the Social Security portion of the FICA tax will increase to $84,900 from $80,400 currently. The maximum yearly social security tax paid by employees and their employers will increase by $279 each (from $4,984.80 to $5,263.80.)
   Primarily due to higher gasoline prices, the Internal Revenue Service has raised the standard mileage rate for business usage of an automobile. For deductible costs incurred after January 1, 2002, the rate will be 36.5 cents per mile. This is an increase from the 34.5 cents per mile that was in effect for 2001.
   The optional rate is used instead of actual expenses. Parking fees and tolls attributable to the use of an automobile for business purposes may be deductible as separate items. Interest related to the purchase of an automobile, as well as state and local taxes, may be deducted as separate items, but only to the extent the interest or taxes are otherwise deductible. This rate may be used for either leased or owned cars.
   Depreciation will be treated as having been allowed at 12 cents per mile for 1996 through 1999, 14 cents per mile for 2000, and 15 cents per mile for 2001 and 2002. The rate for mileage incurred in obtaining medical care or as part of a move increases to 13 cents per mile from 12 cents per mile in 2001. For charitable purposes, the deduction remains at 14 cents per mile The reimbursement has fluctuated wildly over the last few years. Since 1999, the rates have been determined based on an independent study conducted on the cost of operating a car. Unfortunately, the rate for charitable purposes is set by statute and cannot be changed by the IRS.

R, P & T

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‘02 Meetings Kick-off with great turnout for Installation/Blanchard

The 2002 series of General Membership meetings was off to a great start last Wednesday evening, when 128 BAMF members and guests braved the elements to attend the first combined business meeting and Installation of Officers.
The evening began with an open bar and hors d’oeuvres, sponsored by the following lenders and title companies:

Cislo Title Company
Citizens Bank/Terry Lukas
Fifth Third Bank
First American Title Co.
Greco Title Company
Guaranty Title Company
Metropolitan Title Co.
Republic Bank
The State Bank

   The meeting also introduced the members to BAMF’s new home for 2002, Bonapartes’ in the Great Lakes Tech Center, a venue that previously was only used for special events.
   Immediately after dinner and recognition of the 2001 leadership, Steve Edwards and his team for 2002 were installed. Then came the featured guest for the evening, former Governor and Ambassador James J. Blanchard, who told of his experiences in public office, and related those experiences to a number of issues facing the home building industry, and the local economy as a whole.
   Blanchard recalled his close relationship to the Housing industry as a Congressman serving on the House Banking Committee, where he first began to understand its importance to the economy, and the community as a whole. Noting its importance, he relayed a conversation with his friend, Genesee County Treasurer Dan Kildee, who explained how housing’s growth more than made up for General Motors’ local demise, as it relates to the County’s fiscal condition. It was Kildee who introduced Blanchard at Wednesday’s meeting.

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

NLRB says “NO” to Exotic Dancers
The Wall Street Journal recently reported a seemingly unique situation, where the National Labor Relations’ Board said that exotic dancers can’t include tips as part of an establishment’s total revenue. In the case of two strippers claiming they were wrongfully fired due to their activities with a group that works for better conditions in their industry, the NLRB refused to hear their complaint. Why? The board’s jurisdiction in retail businesses begins when it (the business) has annual revenue of $500,000. However, the dancers’ tips, of $162,000, can’t be included in the total revenue. So, the business only had $352,200 in total receipts, and therefore was exempt from NLRB enforcement.

No wonder companies hire these guys!
Messing with your books and financial statements may not be a laughing matter, but we used to joke about being more afraid of the accountants, who want everything in order, than we are of the IRS. Well, with the Arthur Andersen situation coming to light, we now understand.

On another note, we wonder how much damage was done to the junk food industry with the infamous January 9th pretzel ... actually, it was more likely the play of the Dolphins that caused the choking.

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Association News and Events

   Exhibitors’ Night Wednesday February 20 at Bonapartes Great Lakes Tech Center - By its second year, it became the association’s most popular annual event and has continued to grow each year since it moved to its current site.
   We’re referring to the annual Exhibitors’ Night, which was so successful in 1998 and ‘99 that we moved it to Bonapartes the following year to accommodate the demand for tables, along with the larger than expected crowd. Well, the 5th annual event is set for this coming month, February 20th, at what’s now the “home” of all of our 2002 meetings. And, as we’ve been able to do for the past couple of years, all members wanting a table can be accommodated.
   The evening begins at 5 p.m. when exhibits open and serving of refreshments begins, continuing throughout the evening (beer, wine, soft drinks are free, cash bar for mixed drinks). At approximately 6:30, the special buffet (burgers, brats, pizza) opens. Also, the exhibitors normally bring prizes for drawings, which take place during the final half of the event, which winds up around 8:30.
   More than 200 members and guests have attended recent Exhibitors Nights, and the association always makes a special effort to see that active home builders and remodelers (inclu-ding potential new members) attend.
   Exhibitors’ costs are: $250 for an 8’ table; $200 for a 6 footer. Space can be reserved by calling BAMF at 810- 603-2200.
   Furthermore, as with all meetings, we need to make a minimum commitment of the number in attendance. So, we urge members to RSVP at the same number. And, as with all General Membership meetings, member meals are free, guests are $20.

   Two important meetings of the Land Development Council are scheduled for the two coming months. On Thursday, February 7th, we’ll be meeting with John Daly, manager/director of Genesee County’s Road Commission, along with key members of his staff.
   The following month, on Tuesday, March 5th, County Drain Commissioner Jeff Wright will be our guest.
   There are a myriad of issues involving these two agencies that involve builders, as well as developers, so if you’re not normally in attendance at our LDC meetings, you may wish to put these on you calendar.
   Both meetings begin at 2:30 in the afternoon, and should be over by 4:00 p.m.

Parade of Homes contracts were mailed on January 9, for the Spring event scheduled to open on Saturday, May 11 and run through Sunday, May 26. The first entry deadline is set for February 18. At that time, the entry fee rises from $2,500 to $2,700. The final entry deadline is Friday, March 8.
   The 2002 Parade, with its traditional “Mothers’ Day” weekend opening, will be open on Saturdays and Sundays from noon to six; Wednesdays — Fridays from 5 p.m. to 8 p.m.; closed on Mondays and Tuesdays.
   For the past three Parades, we’ve had an average of four builders who have asked to enter after the final deadline. In each case, we put them on a waiting list, under the premise that, if anyone drops out before Housing Quarterly is finalized, they may be able to replace that builder. That’s never materialized.
   So, if you want to be in this event that truly has become a Genesee County tradition, it’s critical that you enter by the deadline. If you don’t have a copy of the Parade Contract, call the association office immediately (603-2200).

   Regarding Housing Quarterly: HQ advertising contracts were mailed to previous advertisers and new members on January 14th. Although the 1st deadline doesn’t fall until March 11th, we urge anyone planning to advertise to act as soon as possible, particularly if they want a full color page. It’s becoming evident already that the demand for full color is stronger than usual, meaning we’ll likely need to extend the number of full color pages, which ultimately complicates the layout process. So, it becomes important that we know before we begin laying out the magazine.
   If you haven’t received an advertising contract and would like one, please call the office. Also, we’re willing to accept industry oriented articles submitted by any member.

Economic Update: As signs point up; why the uneasiness?

   For the third consecutive month, the index of leading economic indicators, those meant to forecast economic activity months ahead, rose according to yesterday’s report from the Conference Board. But for December, the index didn’t just rise .... it soared 1.2%, its biggest jump in seven years. And that came on the heels of another strong rise of 0.8% in November.
   So, with the news of the previous month, does this mean recovery’s on its way?
   Well, a week earlier the Federal Reserve’s “beige book” survey of regional economic conditions was as cautious as one of its chairman’s speeches, as it noted that “despite lingering signs of caution, there are also scattered signs of improvement.”
   Regarding those “signs of improvement,” the fed pointed to strong auto sales, rebounding travel and tourism, and more optimism among America’s manufacturers (noted in the purchasing managers’ report in this column two weeks ago).
   So, with all that said, and leading indicators pointing upward, why the caution? Well, auto sales data may have been fantastic at the end of last year, but it was based on incentives and could well take away from anticipated sales in 2002. Furthermore, two of the nation’s automakers are in extremely weak condition, and losing market share as well as money. Furthermore, manufacturing’s slump has now lasted more than a year, and even the improved data continues to show a decline.
   Add to that the number of layoffs of 2001, and those anticipated in ‘02, and there are still too many negatives to remove the feelings of caution.
   Furthermore, the fed Chairman himself, while speaking in San Francisco, said despite the positive signs of reduced inventories and slower pace of job loss, it was “still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold.” Mr. Greenspan also noted that the jump in mortgage rates in late ‘01 would have a negative impact on consumer spending, as fewer consumers will be paying off debt with refinanced home equity.

Inflation Numbers Remain Great
   Of course, one area that hasn’t been much of a concern lately are prices, at either the wholesale or retail level.
   Consumer prices fell 0.2% last month and helped drive annual inflation to its lowest level since 1998. Led by falling energy prices (- 3.2%), December’s data brought inflation down to 1.6% for the calendar year, less than half the 3.4% rate in 2000. And, when the food and energy sectors were removed, the core rate of inflation was 0.1% for the month, 2.7% for the year.
   At the wholesale level, prices fell at a sharper (0.7%) rate for the month, as even the core rate fell 0.1%. And, for the year, producer prices actually fell 1.6%, the biggest drop in 15 years.
   The ‘01 inflation figures clearly illustrate the volatility of energy prices. As noted, actual rate of consumer inflation in 2001 was less than half the rate in 2000. However, last year’s core rate of 2.7% was actually higher than the ‘00 core rate of 2.6%.

Retail Sales Stabilized last month
The nation’s retail sales posted less of a decline than expected in December, falling just 0.1% on a seasonally adjusted rate. Most economists had expected the decline to be in the 1.2% range, based on reports of lackluster Christmas sales. ‘01’s retail sales were up 3.4%, compared to 7.6% in 2000, which causes the question; how will growth rebound as consumer spending makes up 2/3 of all activity?

Housing Industry Update

Year end housing data’s been coming in since the middle of last week and, there’s little question that 2001 reached the heights we had been speculating on since mid summer. However, sales data won’t start filtering in until Friday, so, we won’t have a complete recap of ‘01 until the next issue.

Single Family Starts 2nd Best in 23 Years
Neither recession nor terrorists could deter the U.S. homebuyer in ‘01, so America’s builders responded by starting construction on approximately 1.275 million single family homes during the year, according to a preliminary report issued last week by the U.S. Department of Commerce, a 3.6% increase over 2000. The number represents the second strongest year for single family building in modern times (1.303 million in ‘99 is the record). And, the industry’s strength held up through the end of the year, as starts came in at an annual rate of 1.3 million in December, up slightly from November’s level.
The headlines on the data’s release said housing starts fell during the month. However, the decline was totally related to a large drop in apartment activity. More importantly, the December data said permits rose “across the board” with gains of 3.1% for single family and 5.2% for multi-family. For the year, single family permits were up marginally.

Housing Market Index
“Indicating that builders once again view the market for single family homes as optimistically as they did prior to 9/11, NAHB’s Housing Market Index (HMI) was up four points to 61 in January,” according to an association release last week. The HMI’s rise took it a point above its level in August

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