Last Wednesday’s release of NAHB’s Housing
Opportunity Index (HOI) for the 2nd quarter found that “families earning
the median U.S. household income ($50,200) could afford to purchase 58.4%
of homes sold nationwide” during the April-June period. However, if any metro-politan
area was “average,” it would rank in the lower third of the nation on the
HOI.
Why? Because an exceptionally large percentage of the nation’s
home sales take place in major metropolitan areas, with substantially higher
prices that more than offset higher wages.
For example, the median income in San Jose is $87,000. However,
the the price on half the homes sole during the quarter was $448,000, while
more than 85% of the homes sold were out of the range for the median income
family.
Reno, NV, was as close to the average as any city, with a median price of
$159,000, a household income of $57,300, and an HOI score of 59.2, which gave
the city a national ranking as the 117th most affordable of 173 markets. So,
despite being close to average, nearly 68% of all metro markets were more
affordable.
Despite a decline in median price and an income increase, Flint
fell from the center of the nation a year ago, to the lower 47%. For the second
quarter, only 66.5% of the homes sold were affordable to the family with the
local median income of $51,900. Just 2 years ago, less than 41% of metro-areas
were ranked higher than Flint. Today, 52.6% are in that category.
The NAHB report confirmed our suspicions noted in recent issues
of Veritas, as the median price of local sales remained below the level from
the previous year, despite the fact that nearly every region of Genesee County
experienced a significant rise in price levels. The fact that the percentage
of homes considered “affordable” fell, shows that upscale homes represent
roughly a third of the local market.
Rockford (IL), where 89.3% of all homes sold were affordable to a family with
the median income of $55,300, returned to the top spot on the HOI for the
first time in 15 months. At the opposite end (npi):? San Francisco, where
the $74,900 median income can support the payments on just 5.9% of the homes
sold.
Housing Consultants’ July report found that permit activity
in the eight county area of Southeast Michigan continues to run below last
year’s level. The first seven months of the year show 13,303 units authorized,
8.8% fewer than during the same period in ‘99.
Genesee County units of government issued 1,185 permits, down 9% from 1,302.
However, as we’ve been reporting, that doesn’t account for the 72 units in
the southern part of the Woodfield development, which is keeping Holly Township
as the fastest growing municipality in comparison to ‘99.
All counties in the region are behind last year’s number, with the exception
of Livingston and St. Clair. Housing starts may have fallen in July, but sales
of new homes posted their biggest gain in more than seven years.
The Commerce Department’s monthly report said that new homes sold
at a rate of 944,000 units during the month. The rise of 14.7% was the highest
since April of ‘93. What’s more, sales are on track to reach 894,000 for the
year, which would make it the second highest on record, despite the continued
concerns about higher interest rates.
The Midwest experienced the biggest increase (23.9%), followed
by the West (22.9%) and the South (11.3%) ... sales fell in the Northeast.
However, things weren’t so good in the resale market,
as existing home sales fell 9.8% during the same month. However, July’s pace
of 4.79 million units remains amazingly strong from an historical perspective,
and the large nature of the decline probably relates as much to the exceptional
rate of sales in June, when homes sold at a 5.31 million unit pace.
July’s median price rose 5.4% from July ‘99, to $143,300.
In the Midwest, sales were off 8% from June, and 12% from last July. However,
the median price was up 4.4% from a year ago, to $128,700.
Mortgage rates fell continued their gradual downward
trend last week, with fixed rates falling to an average of 7.96% .
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NAHB comes to
S.E. Michigan Remodeler/Senior Housing Shows in Detroit
“Learn how to boost your margins on every project! Discover how
to drive new profits in the active seniors housing market!” The NAHB Remodelers’
Show, combined with its Senior Housing Show, are appearing in Detroit next
month with 120,000 net square feet of exhibit space featuring more than 350
leading manufacturers and suppliers of building products and supplies. And,
the two shows combined offer more than sixty seminars, with topics
ranging from marketing, to business management, to technology, to design and
product trends, to actual construction techniques.
The show opens Thursday, October 19th and runs through Saturday
(10/21) at the Cobo Conference Center on the city’s Riverfront. And, if you
register by September 15, you can have it all for just $70, less than half
the price of registering on site.
Registration entitles you to all three days. Of course, because
of its location, you can drive for the day, or take advantage of what appear
to be, very reasonable hotel rates and spend some time at the new casinos
or other Motor City attractions.
Remember, as baby boomers reach retirement age, activity in the senior
housing market is expected to grow by leaps and bounds over the next decade,
and may provide a significant sector of the Michigan housing market in the
near future.
If you haven’t had the opportunity to attend one of NAHB’s National Conventions
and Expositions in the past, the Detroit shows present an opportunity that’s
inexpensive in both time and money. We’ll have a short presentation on the
show at next Wednesday’s meeting. If you want information earlier, call Barry
or check it out on the web at www.RemodelersShow.com
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Save our forests: Cut rather than burn
At a Buick Open party I was teasing a couple of long time industry friends
from Oakland County. They had recently developed an environmentally pure subdivision
in the Davisburg area, and I was joking about ex-communication from BIASM
and BAMF, calling them a couple of “tree huggers.”
As the conversation continued, one of them made the point that “we currently
have more trees in America than at any time in history,” to which I responded,
“well, maybe last week.” Everyone at the table got the joke, as fires were
burning out of control in western forests. And, as would be expected, I followed
the line with a few choice comments about Federal logging limitations and
their contribution to the spreading forest disaster.
Now, three weeks later, the fires continue and millions of acres of federal
forests have been reduced to cinders.
In an August 26th editorial, the Detroit News blamed the disaster on
“a century of misguided federal policy.” It noted that in the early 1900s
the forest service decided to suppress all fires, and later banned commercial
logging. The result was the “uninhibited growth of inflammable brush,” which
now makes it impossible to “resort to controlled burning—a time tested forest
management technique—to thin overgrown forests.”
The News wrote, the “most cost-effective way of returning forests to
ecologically healthy densities would be by allowing commercial logging.”
After referring to evidence that the current fires are a function of “density,”
the News concluded that congress call for a forest plan that “allows
for a realistic management approach, including some logging.” But, is anyone
listening?
Barry
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Taxation and Finance .. by Rachor,
Purman & Tucker
Business owners often do not think about retirement when first
starting a business. Instead, they are more concerned with making ends meet
as they work long hours to establish the business. Even though some business
owners establish retirement plans early on, they may not be receiving the
greatest benefit from their plan. When they retire, business owners may find
that selling the business will not provide enough money to maintain the lifestyle
they desire. They also may find the retirement plan they established will
not provide the benefits for which they had hoped.
Business owners looking to increase retirement benefits for themselves, and/or
key employees should consider age weighted and permitted disparity plans.
These types of plans satisfy nondiscrimination rules while allowing employers
to make larger contributions to themselves or key employees, than to regular
employees, a practice not permitted by other types of plans.
Age-Weighted Profit Sharing
Age-weighted profit sharing plans consider compensation and age when calculating
contributions for participants. Its testing method converts contributions
to pension benefits, basing future benefits on actuarial tables rather than
contributions. The contributions are allocated to each participant using the
present value of a single life annuity beginning at normal retirement age
(called the testing age). The testing age is often set at the
normal Social Security retirement age (65).
Because this is a profit-sharing plan, employers have the ability to make
discretionary contributions. And, it’s a type of plan that’s favorable to
older employees, so an owner’s benefits can be maximized while retirement
contributions to younger employees are minimized, because a greater contribution
would be required to fund the benefit for an individual close to retirement
than for a younger person.
Permitted Disparity Plans
Permitted disparity plans are designed to provide greater benefits
to employees with higher compensation, as age is not a factor. These plans
specify a contribution level for participants up to a certain amount of wages,
usually the SSI wage base ($76,200 in 2000). Above this amount, the contribution
level can be increased to favor highly compensated employees. For example,
a plan could have a compensation formula of 5% of wages up to $76,200 and
10% of compensation above that level. The justification of this disparity
is to compensate for the fact that Social Security benefits do not take into
account income above its wage base.
Permitted disparity rules can be used in, both, profit sharing and
money purchase pension plans, with slightly different results. They can’t
be used in 401 (k), 401 (m), ESOPs, SIMPLE-IRAs or SEPs.
Choosing a Plan
Making the choice between using a age-weighted or permitted disparity plan
depends upon the individual characteristics of the business and its owner.
Although both plans can be combined to create an even larger gap between allocations
made to older and younger employees, the advantage may be minimal compared
to the complicated nature of the resulting formula.
An age-weighted plan may be best suited to a business where there is a substantial
age difference between owner and employees. However, if there are common law
employees close to retirement, this plan may not be appropriate. A permitted
disparity plan may be better for a younger business owner whose compensation
greatly exceeds the Social Security wage base, and is much greater than the
income of other employees.
Regardless of whether either of these plans is utilized, it is important for
business owners to establish a retirement plan of some type. If your business
does not have one, we can assist you in establishing a plan that will best
suit your individual situation.
For businesses that do have a retirement plan, we can review the available
options to ensure that owners are receiving the greatest possible benefit.
R, P, & T
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It’s still
about "Nothing" in particular
A Sarasota (Fla) columnist had the audacity to use George
W’s problems with the English language (hostage/ hostile; tariffs/terrorists)
as an opportunity to take a shot at Michigan tour-ists that visit his state.
Noted David Grimes of the Herald Tribune, “To say that Bush has problems
with the English language is like saying tourists from Michigan have problems
with their turn signals.”
Of course, unlike in Florida, Michigan Republicans backed John McCain, who
has no problems with the English language. By the way, do they still speak
English in the Sunshine State?
Presidential Debates? Bush wants to spare us from 3 universally covered
debates, so he’s proposed one (plus special one hour debates on Larry King
and Meet the Press). The traditional Mr. Gore wants to do all five.
A better suggestion: Since the spin is more critical than the events themselves,
hold the debates in private. Then have Bush spokesman Ari Fleisher and Gore
buddy James Car-ville tell us who won on Nightline! Rogaine would sponsor
the event (commercial free) ...
The “McCain” vote: According to CNN, Michigan’s McCain voters are
currently supporting Gore by a 2 to 1 margin.
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Association News and Events
WORKERS’ COMP dividends from
Michigan Construction Industry Mutual (MCIM) have been mailed to local agents,
and will be presented to their recipients at the 10/13 General Membership
meeting. Flint area participants in this exclusive benefit program will receive
$82,000 + in dividends from the 1998 year, and most recipients have
been notified of the presentation.
The meeting will also focus on the opportunity to take advantage of the NAHB
Remodelers and Senior Housing Expositions’ coming to Detroit in October.
This is a great, yet inexpensive opportunity for educational seminars and
exposure to new products and services (see Article 2).
Also, Jeff Wright, who was victorious in the highly contested primary
for Drain Commissioner, all but assuring his election this November,
has agreed to appear at one this fall’s meetings. Due to the Labor Day weekend,
we haven’t confirmed for September as we went to print at 2:00 p.m., but it’s
a strong possibility that he will be in attendance Wednesday.
Economic Update: Some act like
the economy surrendered
Reading news reports on the release of economic data during the
past two weeks could make one think that the economy has raised the white
flag in surrender to a year of Federal Reserve bombing missions.
The headlines since mid August stated: “Housing Starts & Building permits
decline; Dura-ble goods orders sink; Leading indicators drop; Factory orders
tumble; and Jobs, manufacturing drop.” And, each headline was followed by
statements regarding “further evidence” that the economy’s in a period of
“slower growth,” just what the Federal Reserve has been trying to achieve
with the six interest rate increases in 1999 and 2000. However, the Fed’s
“vic-tory” over the economy may resemble the Gulf War far more than the bombing
of Hiroshima.
Although the data appears to suggest a decline on the surface, there’s reason
to believe that much of the data suggesting a slowdown could well be short
lived.
We can’t help but question the depth of the apparent slowdown because of consumer
oriented factors: Confidence remains high; spending has continued to rise
since April; and long term interest rates have drifted lower for nearly two
months. With an economy primarily driven by the American consumer, its projected
demise may as premature as that of Saddam’s in 1992. So, look for the Federal
Reserve to set up the equivalent of “no fly zones,” along with plans
to shoot down any perceived threat to, what it considers, sustainable growth.
Home Construction
As reported in the 8/15 issue, housing starts continued their decline in July,
which was reported as more evidence of a slowing economy. However, sales figures
reported for the same month showed the largest gain in roughly seven years
and, coupled with lower fixed mortgage rates, will likely stimulate starts
and permits in the next couple of months.
Employment
The August jobs’ report is almost a carbon copy of July’s data as a couple
of unusual figures dragged employment downward. During the past month, the
economy supposedly shed 105,000 jobs, the biggest decline in nine years, raising
the unemployment rate to 4.1 percent. However, during the month there were
158,000 census jobs cut, which showed up in the report with the 87,000 Verizon
workers that went on strike. So, without those two factors, the economy actually
added 138,000 jobs.
Leading Indicators
The index of leading indicators, meant to forecast growth six month down the
road, fell slightly in July. The index either fell or remained flat all year
long except for a slight rise in March.
However, the index’ fall was primarily due to declining orders for consumer
goods and equipment, as five of the ten indicators were up.
Durable goods/factory orders
New orders from factories fell at their fastest rate on record, as durable
goods’ orders were down by 12.4%. But before we put too much emphasis on the
July figures, we have to recall that orders showed strong rises in May and
June.
Personal Spending
The main reason to question slower growth forecasts is the third consecutive
rise in personal spending (up 0.6% in July) ... as long as the American consumers
are responsible for 2/3 of U.S. economic activity, any slowdown without their
cooperation is in jeopardy.
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Housing Industry News’ Update - See
Article 1
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Look Here for Previous Issues of Veritas
