February 5, 2002

Inside Veritas -
Article 1 - More than thirty exhibits set for fifth annual “exhibitors’ night”
Article 2 - Business News & Issues
Article 3 - Need a different type of economic thinking
Article 4 - Taxation and Finance - Benefit: Group - Term Life Insurance
Article 5 - Reality: area activity fell in ‘01
Association News Update
Economic Update - Q4 growth shouldn’t have shocked you
BS: Still about Nothing in particular

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   It’s time for, what’s become, the the most popular regular General Membership meeting of each year, as the Asso- ciation’s 5th annual “Exhibitors Night” is set to open at 5:00 p.m. on Wednesday, February 20th, at Bonaparte’s in Flint’s Great Lakes Technology Center (Atherton Rd. and S. Saginaw). The evening begins with refreshments and light hors’ d’oeuvres at the opening (beer and wine are complementary throughout the evening), followed by the special (Burgers, pizza, brats) buffet, opening around 6:30.
   More than thirty exhibitors were registered at the time this issue went to press, and more are expected in the next few days. Many of these exhibitors bring items for a drawing, held during the evening’s final hour, which usually makes for another special highlight.
   When the BAMF moved the event to Bonapartes in 2000 (it quickly outgrew the Beechtree in its 2nd year), it had no idea that the new venue would become the primary home for its general meetings as well. But after several events at the facility, we’re fortunate to have the opportunity. Following are exhibitors registered as of this morning:

Remember: Please call the office to RSVP (603-2200).

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Business News & Issues

Auto sales stronger than anticipated; but

   With 0% financing a gadget of the past, U.S. customers bought 1.11 million vehicles last month, down just 5.1% from January ‘01, a relatively strong performance. In fact, the annualized rate of 16 million vehicles would represent another strong year.
   However, U.S. companies experienced a sales decline of 11.8% as their collective share of the market continued to plummet, while many foreign nameplates had actual sales increases.
   GM and Ford were both off 12.7%, while Chrysler was off 8.9%. Interestingly enough, their retail sales were basically flat, but total numbers were dragged downward by a falloff in orders from rental car companies. Their combined market shares fell to 59.2%, from 63.7% a year earlier.
   Foreign companies fared far better. Toyota (+7.1), Nissan (+8.0), VW (+5), BMW (+16), and even Chrysler’s “Mercedes” division (+19) improved their standings. And Korea’s Hyundai (+22) posted its 22nd consecutive month of record U.S. sales.
   Perhaps most significant is Toyota’s rise with Chrysler’s fall. The Japanese company is now just 3.1 points behind the U.S. Company.

Hyundai Motors on America?

   Just weeks after Ford announced it was shutting five North American auto plants, an announcement from Korea’s Hyundai said it wants to build an assembly plant in the U.S. to support the booming sales of the past 2 years. Unfortunately, Michigan’s not on its agenda, as it’s apparently focusing on sites in Alabama, Kentucky, Mississippi, and Ohio. Hyundai’s market share has climbed 26% over the past year, from 1.9 to 2.4% and seems to have more momentum than any other automaker. In fact, Koreans combined for 4.4% of the total U.S. market, up 29.4% since 1/01.

Tax Burden's not the major consideration

   In years past, Michigan’s lack of competitiveness in attracting fledging auto companies related, in great part, to its tax burden in comparison to other states. Well, that’s apparently not the case today. A recent report shows our state & local tax burden ranks 16th (10.6%) while Ohio and Mississippi are at 10.8%, and Kentucky’s tied with us. Only Alabama ranks better (44th) at 9.1%.

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Need a different type of economic thinking

  The nation’s economic community has egg all over its collective face. The recession it proclaimed in November, supposedly in its 9th month at the time, appears to have fizzled out before it registered.
   Now, those same economists are maintaining that the “worst is over.” But it’s hard to take any solace in their new proclamation because they don’t appear to understand what motivates the American consumer, or what keeps the economy running strong.
   What’s been obvious about the past year is that the lowest short term interest rates in memory failed to stimulate business investment, while a big hit on the federal budget’s integrity kept the Federal Reserve’s cutting from impacting market driven interest rates.
   Now, we’re in a precarious situation. Instead of pulling the nation out of recession, the housing industry has kept the recession from happening. Housing’s at a peak with the rest of the economy barely hanging on.
   With mortgage rates likely to rise this year, and starts and sales likely to fall from their peak, what sector will keep, or pull, the U.S. out of recession in ‘02?

Barry

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Taxation and Finance ---- Benefit: Group - Term Life Insurance

   Many employers offer group-term life insurance as part of the standard benefit package that they provide to employees. Since in today's tight labor market most employees will not accept a job without the provision of this benefit, it is quite important that we provide you with some of the rules concerning provision of this benefit.
   Although, in general, group-term life insurance is subject to the same tax rules as regular life insurance, a very attractive aspect of group-term life insurance to your employees is the fact that they can receive the first $50,000 in coverage tax-free. In addition to this tax advantage, other economic benefits that your employees will receive from this coverage are lower premium costs and the ability to get life insurance coverage that in some cases they would be unable to get on their own.
   There are a number of rules that must be followed in order to qualify for the tax-free treatment afforded to group-term life insurance. Generally, in order to be treated as group-term life insurance, the benefit must be provided to 10 employees. Although the 10-employee threshold will not be a problem for your company at this time, it is important to note that there are exceptions to the 10-employee rule. In addition, to be treated as group-term life insurance, the provision of the benefit must comply with certain nondiscrimination rules since benefits cannot be unfairly skewed toward owners of the company and other highly compensated employees.
   Since getting the desired tax treatment is important and the rules involved can be complicated, you should always consult your tax advisor before deciding to implement a group-term life insurance program for your employees.

R, P & T

Reality: area activity fell in ‘01

   Now that December’s data on new housing is in from every source, it’s obvious that the Flint area had another banner year in ‘01. However, discrepancies in boundaries continue to distort the local housing picture and, what looks like an upturn in condominium and single family activity, was actually a slight decline.
   Data from the three sources of permit activity, the Census Bureau, Housing Consultants, and Flint Journal's annual survey, were all relatively close in their final data. And, there’s no question that Genesee County had bigger numbers than it had in 2000. However, the local community stretches beyond the county line, particularly on the southern border. What we found is that 2000’s distortions, which cut “Flint” area numbers, were reversed last year. In 2000, Holly Township had the biggest increase in the area, based solely on the extension of the Woodfield Subdivision into Oakland County. Roughly 125 permits were issued in the development, which all showed up in the “Detroit” sector.
   In ‘01, Holly was down approximately 95 units as the builder of its biggest development moved across the county line, resulting soaring permits in Grand Blanc Twp.
   Our final numbers for 2001 suggest we had 1,935 permits for owner occupied homes in Genesee County. In reality, that number was more like 2,000 when Holly and the Fenton area of Tyrone Townships are included.
   However, last year, in addition to the 1,905 units in Genesee, there were another 150 units that reflected on the actual Flint area. So, in reality, while we show an increase, we’re talking about Genesee County only. Over all, single family and condo activity was down by 50 some units, or 2.5%. However, the surge in rental housing continued all year, and total housing figures were up approximately 33% over ‘00, and at their highest level since 1973.

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

What fun in laying out "Newsweek"

   Couldn’t help but double take in looking at the the “News-maker” page in Newsweek’s February 4th issue. First there was a note regarding Chelsea Clinton’s new “cork-screw free hairdo,” followed by a brief on Mike Tyson’s highly publicized “tussle at his press conference with (Heavyweight Champ) Lennox Lewis.” But what was eye catching was the layout of the page’s photographs, which ran together as somewhat of a collage.
   There was Chelsea with her outstretched hand appearing to be on Mike’s arm, with the caption, “Stylin’ Clinton and beau.”

Other purveyors of evil hurt by Bush snub

   Making rounds on the internet is a mock press release from SatireWire.com, from nations feeling snubbed by the president for not being included in his “Axis of Evil” section of the State of the Union. Coming from “Beijing,” the release is titled “Angered by snubbing, Libya, China, Syria form axis of just as evil.” Promising to be “way eviler than that stupid Iran-Iraq-North Korea axis” that the President warned of in the State of the Union, the 3 countries announced the forming of their own alliance, due to bitterness over being rejected for membership in the original Axis. Although the nations denied jealousy, Syria admitted they had asked to join, but were told it was already full. As Iraqi President Saddam Hussein said, noting World War II’s axis of Germany, Italy and Japan, “It’s tradition, you can only have 3.”

Obviously this wasn't a U-M graduate

   A feature in the Wall Street Journal discussed the tightest vacation-home market in years, noting that from “East Hampton to Lake Michigan, demand for summer homes is already up 10% to 50% from a year ago, with prices to match.” In one section it told of a person from “nearby Ann Arbor” renting a home in Traverse City. Well, Ann Arbor’s 239 miles from Traverse City, identical to the distance between New York and Washington. How many New Yorkers are vacationing in “nearby D.C.” this summer?

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Association News and Events

  The first deadline for the Spring Parade of Homes is fast approaching. On February 18th the first installment is due for the May 11th (Mothers’ Day weekend) through May 26 event. After the 18th, the entry fee rises to $2,700.
   Contracts were mailed to association “builder” members at the beginning of the year ... so, if you don’t have a contract and wish to participate, call the office immediately.
   In recent years, the Spring parade’s been the biggest annual public promotion, averaging 45 participants since ‘97. The size of the event makes it necessary that more time be spent in its planning, so we ask that you let us know if you plan to participate immediately.

   Another reminder on Housing Quarterly magazine: The run on full color advertising is continuing, so it’s important to let us know if you want a full olor ad, please let us know by February 18th, so we’ll at least be able to set the number of pages in the magazine. Also, if you need an HQ contract, let us know immediately.

   This coming weekend, several association members will be at the NAHB convention and exposition in Atlanta. Although the convention always has an allure, the event’s special this year because of the candidacy of Bob Jones for the organization’s Secretary/Vice President position. With a heavy turnout from Michigan, and the hard work Bob’s put toward his campaign, things are looking favorable. And, since it’s been half a century since NAHB’s had a president from Michigan, we’re looking forward to reporting a victory in the February 19th Veritas.

   Finally, a reminder that the 2nd Land Development Council meeting of the year is set for Tuesday, March 5th, featuring Genesee County Drain Commissioner Jeff Wright. Further details coming in the next issue.

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Economic Update: Q4 growth shouldn’t have shocked you

   Six weeks ago, regarding the recession that was created by proclamation in November, we noted how strange it was to sell homes and cars at record and near record levels in such hard economic times. Then said that what was “more unusual” is that “it may be over before it registers.” So, there was no reason to be all that surprised at the “shocking” news last Wednesday that the economy likely grew in the fourth quarter, despite the proclamation that the nation is in recession, and has been since March.
   When the Commerce Department announced that its first estimate of 4th quarter growth showed Gross Domestic Product rising 0.2%, the proverbial egg yolks were evident on the collective faces of an “economic community” that had estimated a 1.1% to 1.3% decline; a decline that would have justified November’s proclamation by the National Bureau of Economic Research that the economy was in recession. But one quarter, particularly in light of the impact of September 11, does not a recession make (the definition is two straight quarters of negative growth). And with record and near record sales activity in big ticket items, a recession in 2001 seemed somewhat illogical, if not inconceivable.
   So, if the fourth quarter growth holds up through the two coming revisions, are we out of the woods? The answer is not necessarily. What seems to be ignored is the problem that the activities which may have kept the economy out of recession in 2001, could well lead to a more severe downturn in the immediate future.
   The data in the GDP report suggest stronger than expected consumer and government spending were responsible for the positive growth. Well, that government spending that soared after the September attacks, along with the tax rebates that likely helped spur consumer spending, have already wiped out the budget surplus, and played a major role in keeping market driven interest rates (like bonds and mortgages) from following the direction of the Federal Reserve. This year, without the Fed cutting rates and with the government borrowing to make up a $100 billion deficit, one could easily expect market driven interest rates to soar.
   Since much of housing’s value is related to the real cost of house payments, and with those costs potentially rising, the rapid appreciation experienced over the past few years is likely to subside, impacting not only the actual wealth of homeowners, but also their ability to finance major purchases with home equity. And, the reprecussions would have a drastic affect on consumer spending.
   So, it's conceivable that the proclamation of recession was not out of line, but merely several months premature.

Employment
   Another “BIG” surprise hit the wires on Friday, when the Labor Department released the January jobs’ report. Rather than rising to 5.9%, as most economists anticipated, the unemployment rate fell to 5.6%. Despite the improvement however, the signs weren’t particularly heartening. First of all, employers cut 89,000 jobs from their payrolls during the month. Secondly, manufacturing jobs fell by another 89,000. And, more troubling, construction jobs fell by 54,000, despite the unseasonably mild weather.
   Analysts now expect the jobless rate to top off at roughly 6.5%.

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Housing Industry Update

It's official! New home sales set record in '01 

   Although we’ve been claiming that sales of new single family homes would set a record since early summer, the actual numbers for the final quarter of the year were still surprising, as the fallout from 9/11 appeared to be all but non-existent. In fact, 4th quarter sales were up 3.5% from the third quarter, as sales shot up 5.7% in December to an annual rate of 946,000 units, the strongest numbers since March.
   In all, preliminary data suggest that 900,000 homes were sold in ‘01, roughly 1.7% higher than the previous record set back in 1998, and up more than 2.6% from 2000.

And, existing homes follow suit

   Unlike new homes, sales of existing single family homes fell during the final month of 2001. However, the historically strong pace of 5.19 million units was more than enough to ensure a record year for the pre-owned market as well.
Although the National Association of Realtors were reluctant to say so, existing homes were selling at a record pace throughout most of last year. And December’s sales merely put an exclamation mark on what was apparent since summer, that realtors sold 5.25 million units last year, beating the record of 5.21 million, set in 1999, by a little more than 3/4%.
   The median sales price for the month was at $151,400, up a whopping 8.4% from the same month in ‘00. And, for the year, the median price hit $147,500, 6.1% greater than 2000’s median of $139,000.
   Prices for the year were up even more in the Midwest, as the $129,200 median was 6.7 percent higher than the prior year.

Homeownership rate falls in fourth quarter

Despite the strong rate of home sales, the nation’s rate of homeownership fell, from its new record of 68.1% in the third, quarter to 68% during the last three months of 2001. However, before we look for any significance in the Census bureau data, keep the following in mind: Homeownership declined in each year’s fourth quarter since ‘96.
What’s more significant is the data showing that owner occupied housing units rose by 1,309,000 from 2000’s 4th quarter, a dramatic increase of nearly 1.8%. And, during the same period, there were 169,000 fewer units that were occupied by renters.
Over all, there were nearly 122 million housing units in the nation during the fourth quarter, an increase of 1.5% over the previous 12 months. 14.33 million of those units, approximately 12%, were vacant, including 1.35 million that are for sale.

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