Veritas

   With preliminary data reported by the bureau of the census late last month, it appears that the state of Michigan experienced a 3.1% decline in new housing activity last year, in comparison to 1999. The January through December figures reported on the Commerce Department’s website January 26th showed a total of 50,940 housing permits issued, down from ‘99’s preliminary figure of 52,560 (Note: the data are historically revised upward by approximately 2%).
   Comparing the “preliminary” data for the past two years, we find that single family activity is responsible for the downturn as it declined 5.3% (2,316 units) in the 12 month period. What’s not as clear is the reason for the downturn.
   When we look at all the data, we find that the final two months of the year were responsible for half the single family drop, and 71% of the total decline. At the same time, mortgage rates fell into the low 7% range, which would have been expected to spur housing activity. On the negative side, the nation’s economic data were suggesting a severe slowdown. However, what doesn’t seem to be playing into professional analysis of housing or the economy is the affect of severe weather during the final two months of 2000.
   As is evident in the chart below, housing activity in Michigan began the year at an incredibly strong rate (61,000 units in the 1st quarter), moderated during spring and summer, then took a dramatic dive in late fall. December’s permits for single family homes were down 39.5% from the 2,591 units authorized a year earlier, while total permits fell to an annual rate of 44,383, representing an 11.9% decline since October. Of course, after a much colder than usual month of November, much of the state was literally buried under the heaviest snowfall in decades during the final month of 2000, throwing off any sense of normalcy its first week.
   Furthermore, Michigan wasn’t alone. The rest of the Midwest experienced similarly severe weather, while the south, from Texas to Florida, was hit with comparative cold, along with snow and ice, all impacting economic activity in the respective venues, as permits across the nation fell to their lowest level in five months.
   During the same month, a barrage of monthly reports found the U.S. Economy slowing dramatically. Holiday retail sales were well below expectations, technology stock prices tumbled, and manufacturing continued its decline, resulting in the lowest level of consumer confidence in more than two years. The problem, however, is that despite being able to adjust for seasonal factors, there’s little ability to adjust for severity. So, we really don’t know how much of a factor the weather was in the anemic fourth quarter data that are still being reported.
   Last month, Michigan authorized just 1,568 single family permits, 900 fewer than the average over the previous five years. The fact that single family permits plunged so dramatically in December, at a time 30 year fixed rate mortgages fell to the low 7% range, suggests the weather played a significant role. So, there’s reason to expect a strong rebound in January.
   When the Commerce Department finalizes its report, we anticipate Michigan’s permits will hit approximately 52,300 for the year, the lowest level since ‘97, with single family around 43,000, also the lowest in three years.

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Local; Regional permit decline in line with state & nation

   Now that we have about as much data as possible, it seems that Genesee County’s permits for owner occupied housing fell around 7.5% last year to 1,905 units, but was still the second highest figure since the early ‘70s. However, from a housing market perspective, the County data is somewhat deceiving because an additional 110 or more units were built in Grand Blanc’s Woodfield subdivision, but just across the county line in Holly Township.
   The inclusion of those units would bring the total to 2,015, just 2.1% below the previous year’s level.
   Each year the BAMF examines data from the U.S. Department of Commerce, Housing Consultants and the Flint Journal, and attempts to eliminate discrepancies with direct calls to building departments. What we historically have found is that each survey is statistically accurate, as the discrepancies are usually related to their timing, or the data sought.
   Although the local survey’s are usually more numerically accurate than the Federal Government’s, the Commerce Department figures are critical because they present the opportunity to gauge the local industry with the rest of the state and the nation. What we found was that Michigan was down less than the nation as a whole, but the Metro-Detroit area, including “Flint” and “Ann Arbor” experienced a more substantial decline (7.6% v. 4%).
   Still, last year’s housing activity suggests that, unlike during previous slowdowns, the state and regional housing industries pretty much kept pace with the nation as a whole. This is particularly significant because, in the years leading up to 2000, Michigan dramatically outpaced the rest of the nation in the growth of housing activity. And, equally as important, is the fact that most of 2000’s decline appears to be related to the unusually severe weather of late fall, rather than economic factors. So, there’s little evidence to suggest a severe downturn in the market.
   Local Market Variations
   There were some rather substantial changes evident in the venue of Genesee County’s housing activity, as the regions of the county with the easiest access to the Metro-Detroit area lost a significant share of the market. The five townships in the county’s southeast and south central areas, along with the south and east sections of Burton were home to 65% of the single family and condo permits issued in ‘99, but supported only 57.4% last year’s. Also, Fenton and Grand Blanc Townships (along with the cities within their boundaries), which were responsible for 42% of the county activity in ‘99, saw their collective share fall to 34%, the same as in 1998.
   Interestingly enough, the local numbers were buoyed by the City of Flint, where the University Park development north of downtown finally became a reality with more than sixty permits issued. In ‘99, the city recorded eight single family units.

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“Chrysler” situation brings bad memories

   Last week’s headlines about the Chrysler cutbacks made me think about the irony of the nation’s economic situation more than two decades ago, when the Congress voted to bail-out the number three American auto-maker in to preserve thousands of jobs. The irony reflects more on the actual impact of the number of jobs saved, then the obvious: that federal dollars saved a company that subsequently became foreign owned.
   What’s troubling about Chrys-ler’s plight is the media attention it continues to receive, versus the lack of attention paid to the impact of declines in the home building industry.
   Back in the late ‘70s, the government was so concerned about the roughly 100,000 jobs at Chrysler, they it spent billions to preserve the company. However, shortly thereafter, the home building industry experienced a drop in housing starts from the 2 million range to approximately 1.1 million, costing the nation more than 20 times the number of Chrysler jobs that Congress preserved.
   Now, it’s 2001, and its deja vous. Chrysler’s new owners are cutting 26,000 jobs and its a big story. Yet, the home building industry experiences a mild downturn, and it’s no big deal.
   But look at the actual impact of the two incidents. The 72,000 fewer single family starts in 2000 as compared to 1999 (Commerce Dept. data) mean there will likely be 176,000 fewer construction and construction related jobs than in the previous 12 months. And in Michigan, where Chrysler has its vacation home (Stuttgart being primary home), it looks like the impact of the downturn in the housing industry will match the loss of Chrysler jobs state wide.
   The point is simple: Housing’s impact on the economy never receives its due. While the media and public officials wine about the loss of auto jobs, they take positions that minimize construction jobs.
   Currently legislative leaders of both political parties in Michigan seem to be leading the state toward an anti-development posture under the guise of reducing urban “sprawl.” Unfortunately, they lack understanding of the potential consequences of their action.

Barry

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Single State Code Coming May 30th?

   According to sources, both public and private, in Lansing, we should expect the first, state wide, Michigan Residential Construction Code to be in print by May 1st, and in effect on May 30th. Those dates, which were announced at the winter MAHB Convention were reiterated by Bureau of Construction Codes’ Executive Director, Henry Green, at the January 31st association meeting.
   When the new code goes into effect, it will be the culmination of a six year effort by builders and state regulators in an attempt to raise the consistency of building code enforcement throughout the state, and eliminate problems faced by members building in multiple venues.
   During last Wednesday’s meeting, there was also an announcement that there would be a joint effort between the Builders Association and the Genesee County Building Officials’ Association to provide training in the new code for members of both organizations. Look for an announcement in Veritas early this spring.

Meeting Reservation Policy

   Unfortunately, 2001 brought the end of a special relationship that’s served the association for more than 3 decades. With last month’s closing of the Beechtree, Doug Bosley is no longer able to host the association, forcing a dramatic change in the cost and mechanics of General Membership meeting operations.
   Now, we can no longer estimate attendance, but must give an accurate count. Also, we’re charged for all reservations, whether the individual shows up, or not. Furthermore, the cost of meals has risen between 35% and 100%, dependant on the restaurant we choose for a given meeting.
   At last week’s meeting, for example, of the 161 reservations, a dozen were “no-shows,” costing us over $300. This could have been avoided because we also had a waiting list of individuals who attempted to make reservations after the deadline, and were hoping for cancellations.
   Therefore, we’ve developed the following policy regarding General Membership meeting reservations:

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Beyond Seinfeld: It’s still about "Nothing" in particular
It’s those damn Judges that keep shoving “construction down our throats”

   The “public official quote of the millenium” may already have been published just days into the 1,000 year period. Dale Smith, Holly Township Supervisor, responding to a Flint Journal interview regarding its quadrupling of housing activity last year said, “Unless the economy slows down, I don’t see an end in sight ... it’s a constant battle to keep what we have with a rural atmosphere without more construction being shoved down our throats by judges.”
   That’s local politics in a nutshell. Elected officials knowingly violate the law as they pander to constituents’ threats. The courts force them to follow the law. The officials reluctantly abide, blame the courts, receive absolution from their verbally active constituents, and are ultimately reelected as the “man” (woman) of the people. Is this a great country or what?
   Then there’s that Minnesota public servant who’s catching a lot of flak from his legislature due to his weekend job as the lead “color commentator” for the XFL broadcasts on NBC. Several legislators have voiced objections to Governor Ventura’s moonlighting opportunity under the premise that it takes him away from his duties as Chief Executive. What they should be objecting to is actual commentary ... the Gov sounds like he prepared himself for the opportunity at the John Madden Institute of how to be a commentator. What really concerns us is; where will he study if he decides to make a run for president?
   After the Clinton pardons, we couldn’t help but look forward four (or eight) years when George W. leaves office. One would think that, if he owes pardons to anyone, it’s the seven escapees from Texas, who had the decency to wait until after the election to draw more attention to the state’s penal system.

Association News and Events:LDC; “Exhibitors’ Night;” Parade and more

   On Thursday, February 15, the County’s Drain Commissioner, Jeff Wright, will make his first appearance at the association’s Land Development Council meeting, beginning at 3:00 p.m. in the BAMF office.
   Perhaps the most critical issue threatening the future of development in the Flint area is the lack of sewer capacity in a number of fast growing municipalities. Quite frankly, the numbers, as reported in previous publications, are frightening.
   The issues to be discussed on February 15th will be extremely important to builders and developers alike. As always, all association members are welcome.

   The 4th annual “Exhibitors’ Night” is set for February 27th, Mardi Gras Tuesday.
   Since last year’s event was so successful, we’re returning to Bonaparte’s in the Technology Center for what’s become the most heavily attended meeting or event over the past couple of years (Bonaparte’s/Mardi Gras? There seems to be a little symmetry to it all).
   The exhibits will be open at 5 p.m., and complementary beer, wine and light hors d’oeuvres will be available. The evening’s special buffet (burgers, pizza, hot dogs, etc.) will open at 6:30, and prize drawings will begin around seven. And, it should all wrap up by 8:30.
   As always, there will be a special effort to attract builders to the event, including some nonmembers who have recently become active in the Flint area.
   Last Thursday, there were still a dozen tables available for display: eight feet @ $250; six feet @ $200. If interested in exhibiting, call Tracey or Laura at the association office (603-2200). Reservations required by Feb. 20. (reservation policy)

   The first Parade of Homes deadline, February 20th, is fast approaching. After the 20th, the cost of entry for the May 12th through 27th event increases to $2,700, with the final deadline set for March 9th.
   Parade contracts were mailed to likely participants in late January ... if you didn’t receive one and are interested in participating, call the association office right away.
   Judging by early responses to the original Parade announcement, it looks like another exceptional event this spring ... look for updates in coming issues.

   A request regarding Housing Quarterly magazine: We’re receiving a larger than usual number of inquiries regarding full color ads. Though we always attempt to accommodate everyone, we could ultimately have a problem because of the unless we know how many full color pages we need well in advance. So, although the first reservation date remains several weeks away .... Please, if you’re planning on taking a full color add, let us know as soon as possible.

Economic Update: “Jobs” report sends blurred message

   As the news media continues to focus on the economic slowdown, it’s no surprise that last Friday’s headlines featured the rise in the unemployment rate to 4.2%, the “highest level in 16 months.” After all, the rise in unemployment lends credence to the portrayal of an economy in trouble, and the Labor Department’s data showing a decline of 65,000 jobs in the manufacturing sector suggests the slowdown is intensifying. But a complete look at January’s employment report isn’t nearly so clear.
   According to the Labor Department employment data, the economy also created 268,000 jobs during the month, 190,000 more than analysts expected, despite the substantial loss of manufacturing jobs. In fact, a strong rebound in the construction more than doubled manufacturing’s loss, while the services sector added an additional 81,000, suggesting weakened employment may be confined to the manufacturing sector, and not spilled over to the rest of the economy.
   The truth is, while consumer confidence continues its decline and the auto industry experiences weaker sales, consumer outlays for services in the fourth quarter of last year grew at one of the fastest rates during the ten year expansion. So, it’s no great surprise that employment in the services sector is offsetting the manufacturing decline.
   Furthermore, even last month’s loss of manufacturing jobs may not be all that damaging to the whole economy. The January data show more than 58% of the loss (38,000) were due to temporary shutdowns of auto plants. And, as is understood in Michigan, laid-off autoworkers continue to receive 95% of their normal weekly pay.
   The strength of the job creation data halted a three day bond rally that had brought 10 year treasuries down to their lowest level since winter of ‘99, and fixed mortgage rates to their lowest level since December of ‘98.

4th Quarter GDP up just 1.4%
   The first estimate of economic growth during last year’s fourth quarter suggests that U.S. Gross Domestic Product grew at its slowest rate in more than 5 years, further hyping the “recession” commentaries that have dominated economic news stories since last fall. The 1.4% growth, which will be undergo two revisions in coming months, was the lowest since the 2nd quarter of 1995, when the economy was in a similar condition to its current one, following several preemptive strikes against inflation by the Federal Reserve. And, much like today, the media was continuously hyping the end of the economic expansion.
   Of course, there were two major differences between ‘95 and today: First, the jobless rate was in the 5.5% range, not the 4% range; and secondly, the budget surpluses hadn’t materialized, meaning stimulative fiscal policy was not a real option. So, it was only the Federal Reserve’s move to an expansive monetary policy that guided growth into, and above, the 3% range for the remainder of the year ...... sound familiar?
   The 4th quarter GDP report shows that growth in consumer spending (which had been the backbone of the expansion in the past five years) slowed to a 2.9% pace, which was anticipated since reports of lackluster holiday shopping receipts. However, the one variable that isn’t accounted for is the severity of the weather, along with its impact on, not only consumer spending, but the over all sentiment of the consuming public, both of which are dramatically affected such conditions.

Confidence Plunges
   Another sign that the continuous barrage of negative economic reporting is having a profound impact on the American consumer was evident with the Conference Board’s release of its January report on consumer sentiment, as its “Confidence Index” plummeted 14.2 points in January, an 11% decline.
   The gauge, which reflects the feelings Americans have about current economic conditions, is down 30.3 points, or 21% from January ‘00, and is at its lowest level since December ‘96.

Employment Costs
   The Labor Department’s index on employment costs rose 0.8% in the 4th quarter. For the year, costs for Americans benefits and wages were up 4.1%, the most since 4.3% in 1991.

Housing Industry News’ Update

   Blaming the severity of December’s weather, the National Association of Realtors (NAR) reported a decline of 7.4% in the rate of existing home sales during the month. With sales at a rate of 4.87 million units, activity was also off 5.3% from the previous December.
   However, despite December, 2000 “tallied the second highest sales total on record - 5.03 million units, down 3.2% from the 5.2 million celebrated in 1999.” And, with the weather related slump at year’s end, coupled with the sharp decline in home financing rates, the Realtors expect January to start 2001 out on a high note.
   The median price of an existing home was at $140,000 in December, up 4.7% from ‘99.
   The Realtors also reported their affordability index rose in the fourth quarter, due to lower mortgage rates, higher incomes and the “seasonal decline” in the median price. The NAR’s composite affordability index was up 8.2% from the 3rd quarter, as the nation’s median income household had 132.9% of the income needed to purchase an existing home at the median price of $139,400. In fact, the median household income of $51,282 could afford a home at $185,300, 33% above the median home price.

   Although housing starts experienced a mild rise (0.3%) in December, their rate of 1.575 million, was roughly 12% below the December levels of the two previous years. The marginal rise at the year’s end came from a jump in single family starts above November’s level. However, for the year, single family starts were off 5.4% from 1999, at 1.26 million units. Still, that was the third strongest showing for the single family sector in the past two decades, below only the past two years.
   According to the Commerce Department data, December’s starts were held down because of the “unusually” severe winter weather in the Midwest. While all other sections of the nation were up, the Midwest posted a 21% decline.
   Permits fell across the board in December, to an annual rate of 1.5 million units, and were off 5.6% for 2000, at 1.57 million.
   NAHB’s Housing Market Index (HMI) fell four points in January. It was the second consecutive month the index fell, due primarily to builders’ concerns about the effect of economic conditions on the single family market. January’s reading of 54 was the lowest since February of 1997.
   Still, the HMI remains above 50, meaning that more builders see conditions as “good” than “poor.” And, the component regarding expected sales over the next six months remains at an historically solid “61.”

   A three day bond rally during the middle of last week had average fixed rate mortgages down to 6.69% on Friday, near their lowest levels since winter of ‘98-’99. Though the rally was cut short by the stronger than expected job creation report on Friday (see page 2), local rates closed the week at an average of 6.64% with 1.34 points.

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