The Housing Bubble

Several readers have taxes on their minds this weekend. “Well, Monday is tax day, so I’d like to see a discussion on how the current tax structure subsidizes the real estate industry and what impact a national sales tax or so-called ‘fair tax’ would have on the housing bubble. A national sales tax appeals to me since I think it would capture tax revenue from sectors that were not previously taxed. Also it would simplify compliance which would free up some very smart people to think about better things than tax avoidance. Finally, business decisions would be made based on factors other than taxes, hence create efficiencies in our overall economy.”

Another replied, “You used ‘fair’ and ‘tax’ in the same sentence. Thus no productive discussion is possible. Taxes ‘distort’ the real estate sector and we could have a thread about that.”

One targeted housing deductions. “If there was no interest tax dedection for homes, home prices would be lower. Imagine if the government had never started the deduction. A few people benefited at first, but then the housing prices rose to the point that it was a wash because everyone took the deduction into consideration in the price they were willing to pay for a home, just like they do now. Every time the government does something to ‘increase’ home ownership the result is that home prices go up and certain people profit from the change and then others from the rise in price.”

“The tax problem is a pet peeve of mine. National sales tax (consumption tax) is the only ‘fair’ way to impose taxation. Those who consume pay more. Those who grow their own food, economize, don’t buy monster plasma televisions and McMansions, and are otherwise conscientious, responsible, rational citizens pay less. Beauty.”

Another had a local take. “On the local level, I would like to see tax reform that separates property tax from home valuations. For example, have a set property tax rate that is based on lot size or some other static feature, which increases with inflation (or another set formula) rather than property values. Then impose a local capital gains tax upon sale of the property.”

“This way, homeowners won’t get taxed out of their homes due to forces beyond their control, but the local governments would still benefit from increasing property values. As a side benefit, it would also discourage flipping.”

And My San Antonio has this taxing story. “Driven by economic growth and a white-hot housing market, the value of property in Bexar County jumped 13 percent this year, to $81 billion, a bittersweet fact that will be reflected in homeowners’ mailboxes next week.”

“Mary Kieke, the district’s deputy chief appraiser, believes the greater wealth for homeowners is worth celebrating, even though it means higher taxes. ‘It’s definitely a double-edged sword,’ Kieke said. ‘But I’m excited for San Antonio. It ought to celebrate its increased wealth, the dynamic market and growing economy.’”

“Janie Medellin owns six homes in the neighborhood just east of Roosevelt Park on the city’s near South Side. Medellin, 80, who collects rent on just three of her homes, family members live in the others, says her valuations ‘have gone up something terrible. Why do they go up every year?’ she asks. ‘I don’t live in a famous neighborhood.’”

The Lahontan Valley News found a difference of opinion in Nevada. “Though the market has slowed since last year, demand for homes continues to be strong, said Bob Getto, the Fallon-area MLS director and a local realtor. Homes are spending more time on the market before they are sold, but no deep discounts are to be found.”

“‘The prices are not coming down, but the market time is getting somewhat longer,’ Getto said. ‘The buyers are not feeling the urgency to have to buy right this second.’”

“While thousands of homes are proposed in the area, the development of infrastructure will limit the build-out. Getto said, ‘All of these units proposed for future developments are not proposed all at once.’”

“Realtor Mike Berney said the fact that homes are staying on the market longer means consumers have a broader inventory to browse and more time to decide. ‘Last summer, you would have a couple of different people vying for your home at one time. Right now, there’s a lot of things to look at,’ Berney said. Berney didn’t anticipate a housing glut.”

“‘If you’re a developer and you’re building X amount of homes, you’re not going to build them if you can’t fill them,’ he said. Buyers are diverse, including Californians and locals looking to upgrade, Berney said.”

“Local real estate appraiser Jim Davis had a different take on the market.” “He said MLS numbers don’t accurately reflect the actual market because manufactured homes and bare land are not included. Homes sold by owner are not included, and some developers don’t list properties on MLS, he said. ‘The Realtors are looking through rose-colored glasses,’ Davis said.”

“The Fallon market is intimately tied to California, where the real estate market is turning downward, he said. He projected a housing glut could be on the horizon.”

“Speculative investors and outside buyers are inflating the market, he said. He questioned if local wages were substantial enough to justify houses of more than $225,000. ‘I think it’s going to come down; how much and when I don’t know,’ Davis said of the market.”

One reader had this suggestion. “I want two new posts every morning: “‘The Daily Bit Bucket’ where everyone can put their OT comments without disrupting the flow of threads.”

The readers second topic: “Hey Look at What I found on Craigslist!’ where everyone can put their OT comments without disrupting the flow of threads.”

Readers want to know what effect lending regulations will have on the housing bubble. “What are the chances of the Fed tightening lending regulations on home loans. Since most of our elected reps. are bought and paid for by corp. America I doubt any tough measures will be enacted unless people who have these loans start feeling some pain from lower house prices and rsing interest rates.”

A reply, “The chances are slim now, because the new mortgages haven’t been proven yet to be bad, reform will have to wait until the data show that those loans lead to more foreclosures and depress the housing market even more than strict mortgage regulations.”

The Chicago Tribune. ” There was a period, not so long ago, when the mortgage-refinancing business was so boffo that loan originator Leigh Friedman didn’t have time to return phone calls from prospective clients. Not anymore. ‘When somebody calls, you get back to them very quickly,’ said Friedman, a 10-year veteran.”

“‘Some consumers are just interested in the lowest rate and the lowest closing costs,’ Friedman said, acknowledging that the ubiquitous ads for lenders who tout incredibly low interest rates and no closing costs have added to the competition. ‘What I tell them is, it’s not just about rate, it’s about service. But service just isn’t on their lips,’ Friedman said.”

“And, though they’re generally shy about talking about it, more are quietly willing to negotiate fees. The real estate boom also generated a boom in mortgage-industry practitioners. Today, Illinois has about 17,500 loan originators, up from 3,000 in 1993. Their numbers reached 25,000 until last year. ‘A lot of people fell out of the business who shouldn’t have been there,’ said Donna Angarone, a loan originator for 21 years. And she says the numbers are shrinking daily, as Chicago-area refinancings dwindle and the industry watches nervously to see whether the bellwether spring home-sales season takes off.”

And from the Tampa Bay area. “The reports seem to confirm that the housing market has cooled. In February, sales of existing single-family homes, here in Florida, went down 20%. But the people who are buying, are using something called an ‘interest only mortgage,’ It’s helping buyers get into that dream home.”

“Mortgage broker Jennifer Ewonaitis has advice for home buyers are try to buy too much home. ‘That’s where the interest only loan comes in. It enables home buyers to to get into a more expensive home. And it’s exactly how it sounds. For a limited time, 5-10 years for example, the buyer pays just the interest. But, down the line, that buyer has to start paying off the principal.’”

“‘The average loan amount is about $160,000 right now and if you’re looking at a 30 year fixed at about six.25 %, then your interest only payment on that is going to be about $154 a month less than a standard 30 year fixed principal and interest…so it’ll go up about $154 or it can go up more than that.’”

An update on the Connecticut housing market. “Wallingford: The cost of a home remains high in Connecticut, but the housing market is slowing down a bit. Houses are sitting unsold longer.”

“It’s buyers like Gary Helbling who realtors say contribute to a soft real estate market. He’s biding his time. ‘We’ve been doing a search for quite some time,’ says Gary. ‘Now we’re finding a lot more homes out on the marketplace that’s meeting what we want to really look at.’”

“Ruth Ratner has been trying to sell this financial analyst a home for almost two years. She says buyers are cautious and do their homework. ‘The buyers are online, it doesn’t even matter what age group. And they will find what they want to find.’ Ratner says that’s one reason for sale signs sit in front of homes a lot longer these days.”

“A million dollar home in Branford was on the market for a year before it recently went under contract, and a four bedroom Colonial in Wallingford is priced at $599,000. That’s much less than the original asking price of $800,000 a year ago.”

“‘The last couple of years you would see the prices just going up, up, up and up. And now it’s just not there. It’s softer. It’s stable,’ says Ratner. ‘The prices are a little more reactive to knowing the buyers aren’t going to be buying right away,’ she said.”

“And that works for buyers like Helbling, who’s engaged to be married. ‘We’re looking for homes that are starting to come down in price a bit. Which we’re starting to find a little bit now, but the menu that’s out there is absolutely amazing.’”