Veritas

Locally, Primaries are crucial Drain Commission tops Tuesday’s agenda

  Next Tuesday, voters across Michigan will go to the polls to nominate candidates to represent the Democrat and Republican parties on the November 7th ballot. However, due to the partisan makeup of most communities, winning the nomination is tantamount to winning the fall election.
  It’s rather unfortunate that the primaries come in August, as few voters seem to pay much attention to politics until after Labor Day. However, on Tuesday, local voters will actually be picking county officials, township boards, and even a state representative who will serve at least 2, and probably 6 years, depending on post census re-apportionment. And, the candidates that get their voters to the polls will be the victors, Tuesday and this fall.
  The one race that has a serious impact on the home building industry is the contest for Drain Commissioner. And, the BAMF Board of Directors has endorsed Ken Hardin to be re-elected for a full four year term.
  Hardin has served admirably as Drain Commissioner since being appointed to the post in ‘97, then being elected for the remainder of the term in ‘98. He and his staff have developed an era of cooperation with all segments of the community, from municipalities to the development industry. And, perhaps most important, Hardin is committed to the expansion of the sewer and water infrastructure to accommodate growth in the future.
  As a former Chairman of the County Board of Commissioners who recalls the years of tight county budgets, he’s understands the importance of the growth we’ve been experiencing to the county as a whole. And, as a businessman in the heating and cooling industry, he understands the importance of cutting bureaucratic “red tape,” and making compliance with governmental regulations as efficient a process as possible.
  Unfortunately, because of capacity problems he inherited, Hardin’s office has received a lot of attention for drain spills over the past several months. What’s equally unfortunate is that he hasn’t received credit for improvements he’s made in the department.
  One that stands out is that, for the first time, the local drain office received an approval rating from the state on its soil erosion permitting process, an improvement that became critical when there was a request to create an additional level of bureaucracy to the building and development process.
  Quite frankly, we look at Ken Hardin as someone who was hired by the voters to do a job... he’s performed admirably, and should be retained.

  Some of the other races that are receiving considerable attention: Sheriff Bob Pickell appears to have a strong challenge from Chuck Melki; Prosecutor Art Busch has a vocal challenger in Barry Wolf; and the State Rep race to replace Deb Cherry has two candidates with pro-growth histories (Doug Weiland and Paula Zelenko). Also, Grand Blanc Supervisor Bill Delaney is getting a strong challenge from Jeff Zittel.

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Surprise: Fieger party attacks high court

   When a candidate wins the nomination for Governor, he (or she) takes on the posture of titular head of the respective party. So, theoretically, Geoffrey Fieger is the proverbial “poster child” for Michigan Democrats, an image most party leaders publicly reject. However, when the party began spending big time dollars on attack ads against Michigan’s Supreme Court last Friday, the Fieger “image” was all too evident.
  The ad claims the current Michigan Supreme Court is “anti-family,” suggesting it is in the pocket of big business and, particularly, insurance companies. And, as would be expected, it specifically attacks Justices Stephen Markman, Cliff Taylor and Bob Young, all Engler appointees up for election this fall.
  Interestingly enough, one week before the ad began running, Justices Markman, Taylor and Young spoke to the MAHB Board of Directors at our summer conference in Traverse City. As a group, they discussed such concepts as reason, responsibility, and the importance of interpreting the law clearly, rather than making laws stretch beyond their intended purpose.
  In concluding the session, Markman talked about the kind of outrageous awards that are far less likely to hold up in Michigan due to the philosophical balance of the current court. He pointed out how other states, unlike Michigan, have had judicial reform legislation overturned by the courts. And he referred to a number of cases that illustrate just how absurd those outrageous jury awards have become (like a $5.2 million judgment against a rental car company in Florida ... when a client was mugged in a “bad part of town,” he sued the company for not warning him to stay away from there).
  The fact is that Markman, Taylor and Young, along with some of their colleagues, bring a sense of reason to the state’s Supreme Court. And, the specter of reason at the top, tempers judicial adventurism in lower courts. The result is a legal system far less subject to abuse. So, it’s no wonder that organizations like MAHB and the Chamber of Commerce, representing a memberships that’s historically felt legal decisions should make sense, are wholeheartedly backing their candidacies.
  However, there are groups that see reason, when applied to justice, as detrimental to their well being. And one of those groups with the biggest stake in the direction of the Supreme Court is the Trial Lawyers who contribute massive sums of money to the Democrats.
  In the anti-court ad, the Democrats state that, Markman, Taylor and Young have sided with business against the individual 82% of the time. Of course, in a political year, they would never think about questioning the validity of the decisions.

Barry

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Suspicions on Flint sales confirmed

  In a front page story about the decline of local median real estate prices (7/5/00) we asked the rhetorical question, “did the city’s 4th quarter sell off continue into the 1st quarter of 2000?” It was a response to reports from NAHB which showed median prices falling 8.4% from ‘99’s third quarter through 2000’s first ($107,000 to $98,000).
  The article noted that, on a normal basis, Flint is responsible for roughly 23% of the homes sold in Genesee County. When, as in 1998, that percentage approaches 26%, the city’s lower real estate values have a drastic impact on prices across the metro area.
  This question took on special significance due to the fact that the downturn in real estate prices coincided with the reelection of the Flint Mayor, an event that many claimed would begin a new wave of homeowners selling property in the city.
  In the July 5th article, we noted that a “reexamination of ‘99’s 4th quarter sales data was quite enlightening.” In a quarter that saw median prices tumble by $7,000, Flint’s share of the local real estate market soared from 22.5% to 26%. Subsequent to that issue, we were able to review Flint Area Association of Realtors data for the first quarter of 2000, and the analysis was equally enlightening.
  In comparison with 1999’s first quarter we found that total home sales were up 11.5% across the county. However, sales in the city were up a whopping 47.6%, and responsible for more than 30% of the total. Outside of Flint, sales were up an anemic 0.7%.
  So, it appears evident that, at least for the five months following the election, there is a massive exodus of city homeowners. It will be interesting to examine the 2nd quarter data coming soon.

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Taxation and Finance .. by Rachor, Purman & Tucker;
Managing Risk Management

   Every day, your company faces more risks than you probably realize, which is why it is so important to have a risk management plan in place. If your first thought after reading the preceding sentence was, “well, we’re current on all our insurance premiums,” keep reading.
   Risk management is a process for dealing with risks that includes insurance - but not as its only component. Insurance is only one form of risk management. The essence of risk management is assessing a risk, and then handling it. And, there are only a few ways to handle any risk: avoid it; reduce it; retain it; or transfer it.
   The method of managing risk that your choose will depend on the type and level of risk. You must assess the probability of loss, the possible amount of loss versus the possible amount of gain and your own risk tolerance.
   Avoiding risk in many cases is not a real option. For example, if the risk is on-the-job employee injuries, you would have to prohibit employees’ working to avoid the risk. Since this is not an option, you must attempt to reduce the risk. This can be achieved by following safety regulations, training employees on various types of equipment, and supervising jobs.
   Retaining risk entails taking responsibility for it, and paying for the loss if the risk occurs. One example of retaining risk is the bidding process. Accurate bidding reduces the risk that a job will not be profitable. However, if the job turns out not to be profitable after it is finished, you will make up for the lack of profits with other jobs.
   Finally, transferring risk is the insurance component of managing risk. When you pay insurance premiums, you are transferring risk to the insurance company. You cannot transfer all of your risk however, because you generally must pay a deductible when there is an insurance claim, which is an act of retaining risk yourself.
   Creating a risk management plan should entail a process similar to the following steps:

   When establishing objectives, you should think about the type of loss you’re trying to prevent and how you will act in the case of the loss. Pre-loss objectives could include bonding requirements, preventing workplace injuries, reducing economic risks and promoting the company’s image.
   The most important thing to remember when establishing a risk management program is to set objectives. Sometimes insurance will provide the answer to risk management, but there are many risks not covered by insurance and there are many ways to handle risks outside of insurance.
   We would be happy to work with your construction company to achieve its goals, of which risk management should be an integral part.

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It’s still about "Nothing" in particular

On CNN last Friday, Andrew Bergman, who is covering this week’s Republican convention for George magazine, compared the quality of the Bush/Gore presidential race to the contest for the Heavyweight Boxing Title after it was taken away from Muhammad Ali, due to his refusal to enter the army during the Viet Nam era. Berg-man reminded the audience that the quality of the contestants was so questionable, Ali’s former sparring partner won the title.

  Bill Rustem, a senior vice president at Public Sector Consultants, as been one of the primary leaders of anti-Sprawl forces in Michigan. In his anti-development diatribes, his been quick to attack just about any group he considers “bad” for the environment.
  Well, a few weeks ago, he had a column in Fenton based Tri-County Times berating, of all groups, Michigan’s boards of education, claiming they encourage sprawl by overlooking “costs of infrastructure” when choosing new school locations. “Too often,” Rustem writes, “new school buildings are going up on farm fields rather than in the heart of the city.”
  Then, “Sprawl follows the new buildings, as parents want to be nearer their schools, and fast food and other businesses catering to kids join in.”
Rustem also writes of tax increases on the land near the new school, but omits the fact that the value of that “land” has risen dramatically.
  So, now can we deflect some of the antagonism toward developers, to school boards?

The senate came within 1 vote of cutting the president’s authority to protect federal lands by calling them National Monuments. An amendment to force the president to win congressional approval before any future “Monument” designations failed on a 50 - 49 vote. The amendment resulted from western states’ frustrations with the Clinton administration for setting aside millions of acres without consulting state and local leaders. The final bill did, however, cut $600 million from Clinton’s “Land Legacy” initiative.

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Association News and Events

The final deadline for the Fall Parade of Homes is fast approaching. We currently have seventeen homes in the event, and anticipate at least an additional four. Still, it’s likely to be the smallest number of entries we’ve had in the past five years. So, if you have a model that will be ready by October 7th and want to take advantage of the smaller than usual number of participants, make sure that your contracts and home information sheet is in by August 14th ...
If you don’t have the paperwork you should call the association office immediately.

  With the smaller number of needed for parade models, Housing Quarterly will likely be 72 pages in length. Ad reservations for the publication have been coming in at the fastest pace ever, so space is limited, particularly in the full color section. After August 14th we probably won’t be able to accommodate additional requests for color ads, so if you are planning on full color, let us know by that date.
  Also, with fewer homes in the Parade, we’ll be mailing a larger number of magazines, and will also likely have more for companies that request more to distribute. So, if you would like extra copies to place in your establishment, let us know at 603-2200. The final deadline for advertising copy remains at August 28th.

  There remains an opening for a “builder” to serve as an association director, to fill the remaining months of Jeff Doyle’s term, which will run until January, 2002. If you’re interested, call Barry at the association office.

Economic Update: 2nd quarter growth surge puzzling?

   The economic reports during recent weeks gave every indication that the economy has been slowing since early spring. Job creation was slowing, costs for labor were moderate, prices were behaving (with the exception of oil), and even retail sales had been slowing during the period. Even Alan Greenspan was surprisingly upbeat in public statements, lauding productivity and refraining from talking about overheating, so there was a calming perception that additional Federal Reserve action was unlikely in the immediate future.
  Then, last Friday came the bombshell: Economic growth surged 5.2% in the 2nd quarter, meaning an average 6% rise in Gross Domestic Product (GDP) over the past year. The rate was, not only greater than first quarter growth, but was well above the 3.7% expectations by a consensus of analysts.
  The report said inventory investment and business spending, along with increased government spending, was the catalyst for the 2nd quarter growth despite the slowdown in consumer spending.
  However, for those mortally fearful of an upturn in inflation, there were some hopeful signs in the GDP report. The price deflator, often considered a key indication of inflation, rose at a 2.5% rate during the quarter, well below the 3.3% rate in the first quarter. And, without the volatile food and energy sector, the price deflator rose at a rate of just 1.8%, a full point below its first quarter level.
  Furthermore, at a time when the Federal Reserve Chairman was back on his productivity kick, it could also be calming that the economy could grow at so dramatic a rate, based primarily on business spending and, with little evidence of inflation despite soaring oil prices.

Greenspan
In his biannual appearance before the Senate Banking Committee, the Fed Chairman said it was much too soon to conclude that inflationary pressures “are behind us,” but made it clear that, as long as the economy cooled, he was comfortable with the historically low unemployment rate. Those remarks set off a 100 plus point rise on both the Dow and NASDAQ indexes.

Confidence Rebounds
Consumer confidence rose in July, according to the University of Michigan’s and Conference Board’s surveys. The normally reported Conference Board’s gauge rose 2.5 points, to 141.7, which was well above expectations. The survey’s finding that confidence remains near its highest point throughout the 9 years of expansion, suggests that consumers are, basically, not being affected by interest rates.

2nd quarter Labor Costs
The Labor Department report on the costs of payrolls, benefits and bonuses to U.S. companies rose at a 1% rate in the second quarter, well below the 1.4% rate of the first 3 months of the year. That meant that labor costs were up 4.4% from a year earlier, the highest 12 month rise since the second quarter of 1991. But the continued advances in productivity suggest there’s little danger in the labor cost data.

Consumer Prices
  The Consumer Price Index for June wasn’t released until July 18th, but the report wasn’t all too surprising. Prices were up 0.6% for the month, primarily due to energy costs, and the core rate, minus food and energy, was up 0.2% for the third consecutive month.
  Perhaps the bigger story is how volatile the CPI has been all year, caused primarily by oil prices. After rising 0.5% and 0.7% in February and March, it was up a combined 0.1% the following two months, prior to its large jump in June. And each of those months’ price data was affected by oil prices rising and falling, despite the fact that energy costs account for roughly 1/10 of the CPI.
  For the past 12 months, the CPI is up 3.7%, while the core rate is up 2.4%. (Note: the local CPI is up 4.3% since June ‘99)

Housing Industry News’ Update

   Housing starts declined for the second consecutive month in June, falling 2.6% to an annual rate of 1.55 million new homes for the year. Of course, mortgage rates are receiving the blame from most “analysts,” but at least the Wall Street Journal was aware enough to point out that part of the reason for the downward trend through spring resulted from the unseasonably warm winter.
  As housing data is reported on a seasonally adjusted basis, the exceptionally strong activity during the winter left the industry with no direction to go but downward.
  Starts peaked in February at a rate of 1.82 million, the gradually tapered off toward summer, ultimately ending the second quarter at a rate nearly 15% below the peak.
  For the month, single family starts were down 3.2%, after falling 4.3% in May. Multi-family starts were off 3.5%, after rising the previous two month. The rate of building permits remained at 1.51 million.

  Existing homes sold at a higher rate for the second consecutive month in June, but remained well below the record setting pace of June ‘99. Last week the National Association of Realtors said sales of previously owned homes were up 2.8% last month, to an annual rate of 5.23 million units.
  Though exceptionally high from an historical perspective, June’s numbers were still 6.4% below the rate 12 months earlier. However, the first six months of ‘00’s sales were only 2.8% below the pace set in the first half of 1999, meaning the impact of higher interest rates may be far less than most analysts have been predicting.
  If interest rates are having a strong impact, it’s more evident in sales price levels. Although median prices rose to $139,900, the increase was only 2.1% since June of last year. And the average price ($176,700) was up just 1.4% over the same period.

Regarding home prices:
  The latest installment of the quarterly Wall Street Journal metropolitan house price study by Case-Shiller-Weiss was published July 21st and showed, once again, the Cambridge (MA) firm’s forecasting ability leaves much to be desired. Of the ten major housing markets they reported, their twelve month predictions on home appreciation rates from February ‘99 to February ‘00 were remotely accurate in just one venue, Los Angeles, where they’d forecast an 8% rise and the actual increase was 8.2%. While the company was expecting prices in Boston to rise 7.1%, in actuality they were up 12.7%. And, though a 7.4% rise was forecast for San Francisco, the area experienced a whopping 22.1% increase.
  Case-Shiller even underestimated Detroit, where they expected prices would be up little over 5%, but the actual twelve month increase was 8.1%.
  For the 12 months ending July 1, 2001, the firm, once again, expects Detroit prices to rise 5.3%. It’s also forecasting a 14% rise for Frisco as the largest increase for the next year, with Boston and Chicago at 7.4 and 7.3 percent respectively.

  NAHB’s July Housing Market Index (HMI) for July indicates that builders concerns about the effect of higher interest rates continues to depress the index. Although the HMI was virtually unchanged for the month at 58, the reading is 19 points below its peak of June in ‘99 ... and, it’s dropped 13 points already this year.
  The monthly survey of member builders’ sentiment found that most feel current sales conditions have improved over the past month, while expectations for sales over the next six months rose five points.
  HMI scores above 50 mean that more builders see the particular condition as good than bad. The only condition that falls below 50 is traffic of prospective buyers, which fell one point in July to 41. However, it’s been evident that perceptions on traffic have been below buiders feelings on sales and anticipated sales since we’ve been monitoring the HMI in early 1999.

An article in Nation’s Building News noted the problems of middle income professionals falling tens of thousands short in the annual income necessary to purchase a median price home in many communities ... average income computer engineers in Cupertino and detectives in Palo Alto earnings fall more than $100,000 short.

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