HOST will provide an "interest rate guaranteed to equal or exceed the annual increase in Michigan home prices," according to promotional literature. The program promises "a right to early withdrawal without penalty," and is "tax exempt for federal, state and local taxes." HOST is "backed by the full faith and credit of the State of Michigan," and is "flexible, with low monthly payments."

Under HOST, "any family or individual will be able to guarantee funds for a down payment on the home of their choice. They will be able to pre-select the value of the home they want to save for, the length of time they wish to save for their down payment, and the down payment percentage they want to have when they buy." The program guarantees that "each down payment investment will grow each year at the annual housing inflation rate throughout Michigan. This unique guaranteed rate of return," according to promotional literature, "will provide peace of mind to these young people that their hard earned savings will not be eaten away if the price of housing rises faster than normal savings rates." [1]

For first-time buyers purchasing homes in upscale areas such as north Oakland County, Ann Arbor, Grand Rapids, Livingston County, Macomb County and western Wayne County, HOST means that their savings for the purchase will be underwritten by the state, whose "full faith and credit" includes taxpayers residing in locales where housing price increases have not been a concern. Home prices statewide have increased at an average annual rate of 8.1 percent since 1984, according to the Michigan Association of Realtors. But another picture emerges when examining housing in upscale areas, where prices have increased at greater rates: [2]

Average Annual Rate of Increase

Area

1984

1989

%

North Oakland County

$49,533

$87,397

15.3+

Ann Arbor

$73,659

$116,205

11.6+

Grand Rapids

$50,515

$73,951

9.3+

Livingston County

$58,167

$105,225

16.1+

Macomb County

$51,603

$78,626

10.5+

Western Wayne and Oakland County

$57,731

$91,225

11.6+

First-time buyers planning to purchase homes in upscale areas are likely to take advantage of HOST, which could conceivably have the perverse effect of boosting demand and prices for homes in these areas.

Home prices statewide have increased at smaller average annual rates in middle-class areas:*

Average Annual Rate of Increase

Area

Battle Creek

(1987)

$48,129

(1989)

$50,194

2.1+

Detroit

NA

NA

NA

Downriver

(1986)

$51,788

(1989)

$63,113

7.3+

Flint

(1986)

$50,737

(1989)

$60,778

6.6+

Holland

(1984)

$58,233

(1989)

$81,718

8.1+

Jackson

(1986)

$46,072

(1989)

$57,293

8.1+

Kalamazoo

(1984)

$51,518

(1989)

$66,854

6.0+

Lansing

(1984)

$52,772

(1989)

$68,389

5.9+

Midland

(1984)

$60,500

(1989)

$72,000

3.8+

Monroe

(1985)

$53,400

(1988)

$65,400

7.5+

Saginaw

(1984)

$45,384

(1989)

$56,203

4.8+

* Percentage figures are expressed in terms of average annual rates between the years indicated. Housing prices for 1984 were unavailable in Battle Creek, Downriver, Flint, Jackson and Monroe. A 1989 figure was not available for Monroe. All 1989 figures are inclusive through Nov. 30. Source: Michigan Association of Realtors.

For first-time buyers in middle-class areas, HOST is an illusion: an ill-designed concept that substitutes a political promise of home ownership for the traditional American notions of thrift and savings. Assuming low inflation and stable interest rates, HOST is unnecessary for many prospective middle-class buyers because investments such as money market accounts, certificates of deposit, zero coupon bonds, tax-free municipal bonds, and certain mutual funds, stocks and bonds provide after-tax rate of returns greater than housing price increases in most middle-class areas. (See Appendix) All of these investments have established secondary markets.

Serious questions, however, exist about secondary markets for HOST bonds and the program's overall legality. Will other first-time buyers be able to purchase HOST bonds in secondary markets? Can a HOST bond be sold by a first-time buyer to a home owner? Or will the secondary "market" consist entirely of the state Department of Treasury?