August 1, 2001

Inside Veritas -
Article 1 -State Housing activity may be sliding
Article 2 - Business News & Issues
Article 3 - The industry that defies gravity
Article 4 - Taxation and Finance - Coming trends in information technology
Article 5 - BAMF Truck for local events?
Association News Update
Economic Update - GDP falls, but corporate profits could rise
BS: Still about Nothing in particular

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State housing activity may be sliding; But "Flint" area's running well ahead of 2000; up nearly 40%

   While national housing activity continues at a record pace, Michigan appears to be showing signs of a slowdown. That is, with the exception of the Metropolitan Flint area.
On July 19th, Housing Consultants released the report on its survey of Southeast Michigan building departments for the first half of '01, and the results show a continuation of the trend that's been evident since winter ..... Genesee County is the one and only bright spot in the region.
While permits for owner occupied housing are down 11.3% in the rest of the region (in comparison to 2000), they are up 20.4% in Genesee (39.4% when rentals are included), which authorized the construction of 1,025 single family condo units between January 1st and June 30th. For the same period, Macomb, Livingston and Oakland counties were down 18.7, 16.2 and 12.1 percent respectively.
The following week came the release of U.S. Department of Commerce data and Michigan and most of the state's Metropolitan areas. Although it measures different data in different venues, the trends it illustrated were nearly identical to Housing Consultants'. As year to date single family activity was down 17.9% in the "traditional" Detroit area, it was up 19.3% in Metro Detroit's "Flint" section.
The federal data show Michigan's single family building permits are down 6.34% from their level through the first half of '00, while most "Statistical Metropolitan Areas" have shown a decline in comparison to recent years. Grand Rapids and Kalamazoo are showing slight improvements this year, but only Flint's 2001 numbers are up from both '99 and '00.
The Flint area's continued rise at a time the rest of the Metropolitan Detroit area experiences a relatively sharp decline, suggests that Genesee County's growth is more strongly related to the regional market than previously suggested. It's becoming more evident, each month, that local communities are, in reality, the New Frontier of Detroit's Metropolitan expansion.

Sewer & Water affect?
When Genesee County's permit activity took a giant leap in April (it was down for the first quarter then up 18% by the end of the month) there was speculation that a large number of permits were pulled by builders seeking to avoid extra fees associated with sewer and water hookups. However, many of us thought it was primarily a result of the winter's severity.
Well, it now appears likely the latter was correct. Not only are year to date numbers stronger through June than they were through April, but actual single family permits were higher for the months in 2001 than in '00. Furthermore, prior to the original announcement regarding the new fees, Genesee County activity was running at a substantially stronger pace than the rest of the region.

Grand Blanc Twp. Leads
While Grand Blanc Township (204) continues to be the leader in single family and condo development, Fenton Township (103) fell from its traditional position of second, replaced by Davison Township's 122 units according to Housing Consultants. Mundy Township (73) is running in fourth position, with Burton (63) fifth. The firm's data suggests that more than 65% of building for sale activity is taking place in the 31 percent of the county with easy access to Oakland County.

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Business News & Issues

   This could be considers an update from the July 2 Veritas commentary regarding the importance of the majority on the Michigan Supreme Court. Last month the Flint Journal told of another ruling where the court used solid judgment regarding responsible outcomes in suits.
In deciding if a woman could sue Ameritech after stepping in a pothole and falling in the company's parking lot, the majority said that plaintiffs are obligated to show there was a "special aspect" in the dangerous condition. "Potholes in pavement are an everyday occurrence that should be observed by a reasonably prudent person," Justice Taylor wrote in the majority opinion. He also noted that "there must be something out of the ordinary about a particular open and obvious danger in order for a premises possessor to be expected to anticipate harm from that condition."
"The ruling raised the standard by requiring plaintiffs to show unique circumstances," the report stated.
Of course, personal injury attorneys condemned the ruling.... which is why they spent such big dollars to try to oust Markman, Taylor and Young.

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The industry that defies gravity

   The strength of the nations housing industry has received a lot of attention all year. And, it's obviously continuing as is evident in this issue. In fact, with the economy slipping, this year's record home sales seem to defy natural law.
The truth is, at least from a historical perspective, housing's been defying gravity for years. To emphasize the importance of our industry, we often point out that we're given credit for leading the nation out out of every economic downturn since World War II. However, housing normally begins to decline well before the expansion period comes to an end. Yet today, more than 10 years into the current expansion, housing's the only sector of the economy that's expanding.
Housing's always had a strong impact on the economy. The single family sector alone created roughly 3 million jobs annually during the '90s in construction and construction related activity. As a rule, housing is responsible for roughly 5% of the nation's economic activity. But during economic recovery periods it generates as much as one-third of the upward shift in Gross Domestic Product.
Well, as we often noted this spring, several economists have given the industry credit for 25% of GDP growth since 1998.
Since spring, the economy hasn't gotten any better, but homes continued to sell faster than their record pace of 1999. Then, early last month, came the report that economy.com ran some new data on growth through the year's first half, and housing was being credited for 3/4 of total growth in GDP.
My reflection on housing's importance stems from the data in this year's 2nd quarter GDP report. Capital investment experienced its biggest decline since 1982, but the economy, primarily due to housing, has avoided recession, In '82, with mortgage rates in the 16% range, home building activity all but ceased to exist. Total starts were cut in half from late '70s levels, and the impact on the employment was disastrous.
Today, manufacturing has been in a recession for nearly a year, but unlike the early '80s, the nation isn't suffering as a result, in great part because the single family sector is still responsible for creating jobs in the 3 million range. And, that's why we make such an issue of threats to the continued growth of the housing industry.

Barry

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Taxation and Finance ---- Coming Trends in Information Technology

   What are the major trends today in information technology (IT)? Knowledge of the direction of technological change is important for management decision making because it helps you determine the kinds of equipment to purchase and the process to embrace in order to keep your company competitive. Here is the direction in which we are heading:

R, P & T

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BAMF Truck for local events?

   For the past couple years, the National Association of Home Builders has been entering a float in the "Tournament of Roses" Parade on New Year's Day in Pasadena, California. After observing the [parade this past winter, former Bamf President Tom Staley thought it might be a great idea if we gave association members the opportunity to participate in local parades, in their own communities, using the concept of "The truck that helped build Michigan."
The idea calls for the association purchasing a vintage pick-up (pre-1967 and hopefully older), decorating it as the truck that built Michigan, with the BAMF logo, and loaning it out to members for local events (we estimate there are at least 50 opportunities annually in Genesee County, with holidays, homecomings, and local celebrations).
Purchasing such a vehicle and preparing it for events would require a substantial investment in time and dollars so, prior to embarking on such a venture, we need to know if the membership is behind the concept... let us know what you think!! Do you like the idea and more importantly, would you take advantage of the opportunity if it were presented?

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

Time for Can/Am War II?
   Back on July 4th, 1999, the U.S. went to war with Canada because two obnoxious Canadian comedians, "Terence & Phillip," were a bad influence on American second graders. So was the theme of the classic movie, "South Park; bigger, longer, uncut." Well, perhaps it's time for another attack on our northern "neighbor" who now sends us an entertainer even more obnoxious than Terrance & Phillip combined. His name's Rick Mercer, and he was featured on ABC's Nightline on July 31st.
Mercer, according to ABC, "is onf of Canada's leading comedy producers and is a highly respected writer/actor (and 'communist' Ted Koppel adds). His segment, 'Talking to Americans' ran on a CBC program, and was turned into and hour special that ran on April Fools' day this year," drawing more viewers than any comedy special in CBC history.
His format is taken directly from Jay Leno's "Jay-Walk All Stars," but he attempts to make American's look like idiots by getting them to comment on issues that make no sense (like stopping U.S. bombing of Saskatchewan; the Canadian rhinoceros hunt; or visiting Canada's national igloo, modeled after the U.S. Capitol.) And, he doesn't just take people off the street. He's interviewd on the Harvard, Princeton, and U-C Berkeley campuses, successfully getting professors and students to corroborate his theme.
So, why are Mercer's antics successful? The answer's obvious (and his host network last night is to blame). After all, more American's "get their news from ABC than any other source." And, of course, it's the Canadian, Peter Jennings, who's been working to keep Americans ignorant for more than three decades.
In reality, have Canadians contributed anything of value to the U.S. since supplying us with liquor during prohibition? Perhaps Shania Twain, but that's as far as it goes.

Detroit is too close to Flint
   A couple of weeks ago, a woman called a Motor City based television station complaining about a $45 addition to her property tax bill. After some investigation, the station's news department found the dollars represented a levy to pay off a lawsuit the Detroit Public School district lost.
It turns out that the Schools actually lost two suits, and a 2 mill levy to pay odd the loss was instituted without public notification. If this sounds unconstitutional under the 1970's Headlee amendment, it isn't. One of the few exceptions of its limitations is if money is needed to pay off a court case.
And, what was the suit all about? Apparently there was criminal activity relating to a milk contract back in the early '80s.

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Association News and Events -- Rajala Prez at MAHB; Parade Deadline

For the first time in a quarter century, a local builder will hold the office of  Michigan Association of Home Builders' (MAHB) President. Last week, Rodney Rajala (1995 BAMF President) was unanimously designated "President Elect" by the MAHB Board of Directors at its annual convention. Rajala, who'll take office on December 1st, is the first Flint area builder to serve in that capacity since Billy Pittman in 1976 (current association members Mike Tobin and Don Pratt held the office since, but were elected as S.E. Michigan members).
Rodney's currently 1st Vice-president and Legislative Chair of the 12,000 member organization which serves as the legislative advocate for the state's home building industry ... look for more in November, just prior to his 11/8/01 inauguration.  

The Fall Parade of Homes' final deadline is coming August 13th (a week from Monday). As of this writing, there are 17 entered, which is a few more than at this point in recent years (we have been averaging 22 models since '98 for the fall event). The Parade opens Saturday, October 6th, and runs through the 21st. The fee is now at $2,700 for the first entry, additional entries remain at $1,750. (Final deadline is August 13th).If you don't have your rules and contract information, and wish to participate, call 810-603-2200.

Housing Quarterly reminder! Although we're a month away from the final deadline for advertising contracts, we are running short on full color ads ... so, if you want color, please let us know prior to August 15th when we'll be setting up the parade and color pages. Also, if you want to submit an article for publication, please let us know by the 15th so we can put aside the space.

The August 14th golf outing, at the Captains’ Club in Grand Blanc's Woodfield development is shaping up as the most exciting ever, with even more contests and prizes than in recent years ... as noted before, golf is sold out, but banquet seats are available at $35.
  

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Economic Update: GDP falls, but corporate profits could rise

   Perhaps the bigegst news regarding economic data during the past couple of weeks was the report that the growth in Gross Domestic Product (GDP) fell to an anemic 0.7% during the second quarter. However, there were a couple of reports that may suggets an upturn in activity and confidence is on the way.
With the exception of housing activity, which continued at record levels, nearly all economic data released during July was negative, and it had an impact on consumer confidence which slipped for the first time since April. At the same time, stock prices were falling in response to negative profit reports, which merely added to the gloom which began early in the month with the employment report.
At the end of the month, however, all markets appeared more upbeat, and a primary reason may be the belief that profits are recovering as the hundreds of thousands of job cuts earlier in the year colud be "breaking the fall" of corporat profits. That was the basci theory of a study published in Mid-July by Henry Willmore, Chief Wconomist for Barclays Capital.
Willmore looked at economic data and concluded that the lower costs of labor will result in higher profits, as sales and non-labor costs were roughly the same as in the first quarter.
Although Willmore overestimated the growth in the GDP for the second quarter, his premise is conceivably accurate in relationship to corporate profits. And, if he is correct, it will likely eliminate the drag of pessimism on the American consumer.

2nd quarter Gross Domestic Product
The economy grew at a slower rate than most economists expected as the Commerce Department's first estimate of 2nd quarter GDP resulted in a rise of 0.7% the lowest in eight years. That's well below the first quarter's already anemic 1.3%, and consensus expectations of 0.9%. In what sounds like a broken record, consumer spending (particularly housing) kept the economy afloat during the quarter, as business spending continued to decline. Most evident was a 13.6% drop in capital spending, the biggest decline since spring of '82 when the nation was in its worst recession since WW II, and the "rust belt" got its name from being in the midst of an actual depression.

Consumer Spending/Income
After a 0.3% rise the previous month, consumer spending rose 0.4% in June according to "Commerce's" report released Tuesday. Led by demand for durable goods (those with a 3 year or longer life expectancy), consumers laid out money at a rate of $7.1 trillion per year, while personal income grew 0.3% at an $8.75 trillion rate.
However, the most notable item in the spending/income report may have related to savings. Recently, the nation's experienced a negative savings rate, which was also the case reported for May. However, the savings' rate was revised upward for that month, from -1.1% to +1.2%. For June, the savings' rate also in positive figures at 1.1%. Once again, the sharp revision makes one wonder just how much faith we can place in government reports. However, there's also the question regarding the apparently sudden decision of Americans to save. Will it reflect on future expenditures if confidence continues to fall?

Employment Costs
   Another positive sign for the economy came with the smaller than expected gain in employment costs, qhich rose 0.9% in the 2nd quarter after a 1.1% rise in the first. Most notable was the slower growth in the cost of benefits, which rose 1% compared with 1.3% during the previous three months.

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Housing Industry Update

Housing Starts Rise
   As we've continuously noted the strength of the housing sector in this column, it's hardly a surprise that housing starts rode at a 3% rate in June, to a seasonally adjusted rate of 1.666 million units. What may be surprising is that single family starts for the first half of the year are running at an average of just 1.15% below the all time record year of '99 when 1.303 million units were built.
There was a downside to the Commerce Department report however. Building permits fell to their lowest level since December, giving some sense of satisfaction to the analysts who keep suggesting the housing industry will eventually lose steam.
However, the slip was in multi family activity. In reality, single family permits came in at a rate of 1.22 million, the highest level since February, while permits for multi-family buildings with 4 units or less (suggesting owner occupied) had were at the highest level since January '99.

Home Sales won't slow
   If there's a reason to doubt anyone suggesting the housing industry is beginning to slow, just look at June home sales.
First, the National Association of Realtors reported that existing sales fell slightly, but continued at an annual rate of 5.33 million units. Although the timid realtors are still projecting the 2nd best year in history at 5.15 million units, sales have been running at a 5.288 million unit rate for the first six months, 1.4% higher than the rate during that record year in 1999. Furthermore, median prices are up 8.8% over the past 12 months, to $152,600 (a bad economy?).
But the existing home data is pale in comparison to the sales rate of new housing as reported by the Commerce Department. New home sales were up 1.7% in June, from a revised rate of 907,000 units in May. The 922 thousand units represented the seventh consecutive month the rate remained above 900,000. What's significant is that '99s record sales were recently adjusted downward from 906,000 to 881,000. Under the current measure of sales activity, sales for the first half of '01 averaged 935,000 units, 5.5% above the adjusted rate of 886,000 in '99. So, even if existing home fall short, new homes are well on their way to a record year.

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