‘Pay No Attention To That Asking Price’
The Boston Globe reports on home prices. “Falling prices have created a new twist in the suburban Boston real estate market: More homes are selling for less than their assessed values. Massachusetts house prices slumped 3.5 percent in July, the biggest monthly drop since 1993, as a slowdown in sales brought about by rising interest rates created a glut of homes on the market.”
“As a result, home prices are falling below assessments, which are the estimated values communities place on homes to determine property taxes. For the past five years, most homes sold well above their assessed values because prices were rising faster than assessments, which typically are at least a year old.”
“In today’s declining market, some homes are now selling for less than the assessed value in stable communities like Newton, and in volatile markets such as Lowell. ‘Before, it was, pay no attention to that assessment. Now it’s, pay no attention to that asking price,’ said Bill Wendel, owner of a Cambridge fee-for-service brokerage firm.”
“‘Great entry-level property. Priced below assessment. WHAT A GREAT WAY TO START,’ reads a March listing for a Colonial near Newton Center priced at $499,000. Agent John Milligan’s said he hoped the advertisement ‘might just motivate someone to make a phone call.’”
“One of Sriram Nookala’s ‘primary criteria’ in his search is a house priced below its assessed value. ‘If the seller is interested in moving the house off the market, they make pretty aggressive reductions and usually those come under assessed value,’ Nookala said.”
“In the $1 million-plus housing market in Greater Boston, sales plunged 62 percent this year, according to the listing database MLS Property Information Network. The drop is making it ‘routine’ for assessments to exceed asking prices in that market, said agent Terry Mailtland, causing problems for sellers whose assessments are so high that buyers perceive a big tax bill as ‘an impediment to a sale.’”
“If house prices continue falling, assessments eventually have to follow. But ‘the taxes will always go up,’ said Richard Simmons Jr., the assessor for Belmont, a wealthy suburb northwest of Boston. City officials determine the size of the budget and assessors are free to increase the property tax rate to compensate for falling assessments.”
“‘I don’t want people to say, ‘My values are going down. My taxes are going down,’ Simmons said. ‘That’s not going to happen.’” “Diane and Richard Schmalensee view a slightly higher assessment on their home overlooking Chestnut Hill reservoir as a selling point. The house was put on the market in October for $2.95 million. In May, they dropped the price to $2.75 million, below the $2.84 million assessment.”
“‘Right after we bought this, the prices began to shoot up, and we said, `Aren’t we lucky,’ said Diane Schmalensee. With the market in decline, she realized perhaps ‘we waited a little too long’ to sell.”
The Ithica Journal:
‘Residential building permits issued in the Ithaca metropolitan statistical area crumbled 20.06 percent in July. Looking at the first seven months of 2006, building permits issued for new residences are well below their level for the same six months of 2005. Home sales dipped 12.90 percent in July. Nationally, we are seeing some air come out of the housing bubble, but there is no evidence of this locally.’
The Concord Monitor:
‘The housing market continued cooling off in New Hampshire during the second quarter, with home prices falling slightly in the Manchester-Nashua area. The agency said higher interest rates and more homes on the market could be factors in the slowdown. Dennis Delay, a private economist in New Hampshire, said a further correction is likely because people’s incomes haven’t been growing as fast as home values.’
What a JERK!
I am all for normal 1-2% + Inflation appreciation but how about abnormal appreciation for past 10 years? Shouldn’t we estimate the appreciation from that point and figure out what the house price should be? By the way here is that estimation and that is not pretty
http://photos1.blogger.com/blogger/3791/1451/1600/ShillerIndex.jpg
I missed the quote I intended to include. This is from NAR’s Cheerleader published today
Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but “people who purchased last year with the intent of flipping are likely to get burned,”
of course, in general that’s right (although the actual appreciation number is closer to inflation +0.75% in most countries). He is clever enough not to mention that you can’t expect ‘normal appreciation’ as long as we are waaay above the historical trendline.
In the US, it’s been 0.54% over inflation over the last century.
I actually don’t understand why it appreciates. Homes deteriorate over time. I would expect one to depreciate to the cost of the land over the course of its lifetime. For some reason, it doesn’t.
Because we (society) want them to appreciate, so they do. If we gradually depreciated properties based on their useful life like we do with cars, then yes, homes would be valued based on the value of the land, plus its salvageable use. It’s a strange and complicated world, but free markets always work out the kinks. The only problem is we don’t have a truly free market.
I almost forgot. Plus we (society) are conditioned to believe homes will always appreciate. Just ask any Real Estate industry so called professional. They’ll explain it to you. No statistical modeling experience needed.
“I actually don’t understand why it appreciates. Homes deteriorate over time.”
Same for beanie babies. It’s supply and demand. Nothing more and nothing less.
Dennis Delay, a private economist in New Hampshire, said a further correction is likely because people’s incomes haven’t been growing as fast as home values.’
I wonder how much he charges for this brilliant observation.
It’s because of immigration. More people competing for homes equals higher prices. Very simple.
Of course, if an over abundance of homes are built, like in AZ, NV and FL, that would increase supply even more than the extra demand of what, ten million immigrants? Probably more.
If you really want a BIG house crash, fight to end illegal immigration. We’ve got thousands of people rushing in over the border every day, month after month, year after year. Hate to say it, but everybody’s got to live somewhere!
Other reasons:
1) Population growth (300 million and counting) — not just immigration but native born.
2) Wealth increases — our country’s average wealth per capita has grown considerably in the past century.
3) Govt programs that favor homeownership, such as Fannie Mae and Freddie Mac MBS securitization activities, $500K capital gains exclusion, American Dream Downpayment Act, etc. all are capitalized into home prices.
Sad to say, someone close to me just bought a house in LA, they were quite excited by the “instant” equity — the house was appraised at $30K more than they paid. Fortunately this was a 1031 roll-over.
SUZ,
From my local experience those rollovers are one of the things that have driven prices higher. People surrender their judgement to their accountants telling them they have to buy.
“People surrender their judgement to their accountants telling them they have to buy.”
Bad move, during the last downturn I saw my share of these types of moves. Then the thing was even if it has a negative cash flow buy it anyway so you can write it off on your taxes. Yea, that ended up well.
I have a friend who recently sold a property on the East Coast for well over a million and she is frantically looking for something else to buy on a 1031 exchange. To me, paying the 15% cap gains tax is preferable to buying a sinking ship but….
her husband is Mr. Property Genius and disagrees….
You can lead a horse to water but you can’t make your friend realize a buying a depreciating asset is worse than paying taxes. Not only will the housing market continue to deflate prices, but if you buy now, that money is tied up. The bargain of the century may pop up in a year but your liquid assets are tied up in a POS bought in haste.
“To me, paying the 15% cap gains tax is preferable to buying a sinking ship”
Exactly…seems like cutting off your nose (taking another risk in RE) to spite your face (keeping $ away from Uncle Sam’s Tax Collectors).
I guess people have noticed this article?
“Realtors expect home prices to fall”
http://www.marketwatch.com/news/story/Story.aspx?guid=%7BBDA09CEA%2D0277%2D4781%2DB9BD%2DBC0E993116A9%7D&siteid
From the NAR:
Home Sales Forecast Lowered, Prices To Dip Temporarily
Home sales during the rest of the year will be lower than earlier projections as the market works its way through an inventory and price imbalance, according to the National Association of Realtors®.
David Lereah, NAR’s chief economist, said the most obvious effect in the near term will be with home prices. “A year ago we had record home sales and tight supply with buyers bidding over the asking price,” he said. “This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.”
“This is a normal pattern during a market correction, but home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms,” Lereah said. “Keep in mind that over time, home prices rise at the rate of inflation plus one-to-two percentage points – buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned.”
Caveat Emptor!
Grim
Northern NJ Real Estate Bubble
It was predicted on this site many months ago that the realtors would campaign for lower list prices once they saw they weren’t making money on the no sales stand-off between buyers and sellers .
A 3.5% decline, annualized is a 42% fall in prices. If they keep this up, we’ll be back to 2002 prices in a year. Wowza, that’s a pretty hard landing by anyones definition. I wonder what the yearly declines will look like.
Simmssays…Cool Password Protection
http://americaninventorspot.com/password_protect_files
Wow. That’s breathtakingly arrogant.
Forget “impediment to a sale” - a “sky’s the limit” property tax policy is an impediment to fixed income seniors staying in their homes, FBers living to make the note another day, etc. I’m well aware that school funding and other infrastructure has to come from somewhere, and maybe Belmont is sufficiently weathy that Belmont can hack it, but if this standard marching orders for Assesors offices nationwide…well, the words “blood” and “turnip” come to mind. Just one more reason to stay a BitterRenter on the sidelines until all these repurcussions of speculative excess play out.
Rookie Question: I know that municipalities can push through a tax lien sale much faster than a lender can foreclose, but if there is negative equity in the property, does the city’s tax claim trump what would otherwise be the primary mortgage’s lender’s “first dibs”? Can a city sell the property for less than the total amount owing on the property?
“Just one more reason to stay a BitterRenter on the sidelines until all these repurcussions of speculative excess play out.”
I think that is why towns like developers who do “apartment to condo conversions.” however, they are finding out that when the median salary is $50,000 per household, the model doesn’t work.
My apartment manager doesn’t want to fix the plumbing because it’s too expensive– “the law says that only a pencil width of water has to come out of the faucet!, he told me.”
When I see this, I wonder: “for those who pay ‘low association fees,’ who’s going to pay for the major repairs when they’re needed?”
People should starting seeing the risk they are taking on…
Property taxes take first place on any property . If a property goes to tax sale ,(if the 1st trust deed lender doesn’t bring taxes current ), the tax sale can sell for less than the property is worth. People wonder why lenders like to have impound accounts for taxes and insurance .
> and maybe Belmont is sufficiently
> weathy that Belmont can hack it,
Sufficiently wealthy is a good description.
That $500K Colonial in Newton Center sounds
pretty attractive. But it’s probably a very old
beater that needs a lot of work. Newton
Center is a nice village that has a rapid
transit stop so you can live there without a
car if you work along the MBTA lines.
I imagine the property taxes in Newton are
enough to give most people heartburn. You
need money to live there.
“breathtakingly arrogant”
I read the full article this morning in the Globe, and I thought the guy was just being honest and informative. State Law limits aggregate tax increases, by town, to 2.5% per year regardless of property values. Since the aggregate tax revenue on assessed values will increase at a steady rate, a town won’t have to close schools just because property values are bouncing around on Zillow.com.
From breathtakingly arrogant to breathtakingly clueless. Why should aggregate tax revenue on assessed values increase at a steady rate, AFTER having doubled due to the bubble? If local governments had their tax income cut in half, they would be in the same financial shape they were in way back in aught-two. That’s 2002, not 1902. How do you turn ‘the income level of 4 years ago’ into ’school closure’?
What are you talking about?
Absent a voter override, total tax revenue in Massachusetts cities and towns can increase only 2.5% per year. That is less than inflation. And it is certainly not “doubling.”
memphis,
Actually, property taxes are capped here in Mass. A city can only increase the total take 2.5% per year, new construction isn’t capped. Assessments have to be made annually and are fairly accurate. We moved here four years ago and the rate was like $16 per $1000. Because assessments went up so much more than 2.5%, the rates fallen to $12.
In essence, the average homeowner’s taxes will go up 2.5% per year, every year. Which is a lot less than the inflation rate 95% of the time.
So what he’s saying is that taxes only went up slightly and will continue to go up slightly.
Property is capped, but the increase in assessed value is not. You can increase the base tax rate 2.5%, but also increase the assessed value from 100K to 350K in a year, if the assessment comes in. Know how I know? My grandmother has a beat up old house that has been in the family for 200 years. The assessed value is around 350K, although I would not find a buyer at that price. Go ahead buy it at 200K. Your assessed value is still 350K, no matter that you paid 60% of it… You can sue the town, the state, and the supreme court, and nowhere will you be able to lower it. You might get lucky and lower it a year or two, but it will come right back. Sucks to live in Taxachussetts!
Um, no.
You apply for an abatement with the city assessor. Don’t know what town grandma lives in. In mine, abatements for homes that sold under assessment have been routinely granted.
- 1 More homes are selling for less than their assessed values.
- 2 Massachusetts house prices slumped 3.5 percent in July
- 3 as a slowdown in sales brought about by rising interest rates
- 4 created a glut of homes on the market.
Homer Simpson would say “DOH”
“‘I don’t want people to say, ‘My values are going down. My taxes are going down,’ Simmons said. ‘That’s not going to happen.’”
the tax assessor is laughing all the way to the bank! they love to give me money, he’s thinking.
This will make things interesting as far the bottom of all this is concerned.
Who the hell will want to buy a $200K house that has a property tax based on a $500K value. If the assessors don’t adjust to normal (ie stop being greedy) they’re going to drive the market so far down into a hole nobody will ever want to own a property again
(even us bubble watchers looking to pick up cheap deals)
Here in California in my county (Alameda -where Oakland is) If property values drop significantly you can petition for an assessment reevaluation, and of course on sale a house is assessed for property taxes at it’s sales price. The tax dosen’t change except for a 2% ( of the assessed value) rise annually unless there is a sale or significant construction that raises value ( usually in incerease in size - re-doing a kitchen typically does’nt trigger it) One of the few benefits of prop 13. One interesting positive note is that the County which had successive years of budget problems in the late 90’s through 2002 is currently OK budgetwise due to swelling revenues from all the homes selling for double what they were 4 years ago. I have some co-workers who did some (responsible) flipping to pull appreciated equity out of homes in 2004-5 and use it to buy bigger more expensive homes. The ended up with essentially the same paymments (or smaller due to the lower interest rates) as on their previous homes but have bigger houses futher out in the burbs in new developments. But they also have double the prop tax payments, a gift that keeps on giving (to the county of course)
Another case for the upcoming popularity of auction sales. Fair and open public auction of a property sees the house sell for say , $300k. That is the value of the house, simple. This is what assessed value should represent. Hard to argue that the value of the house is $500k , as the assessor is claiming. Me , I’m gonna try and petition or sue somebody to have that reflected. Blood and turnips is right. There is no reason that everyone - from FB’s , to investors , speculators , flippers , to the elderly , to realtors , homebuilders , contractors and suppliers , should feel the pain , and share the burden (however unequally) of a housing downturn — everyone that is , except your friendly municipality. They have benefitted as much as anyone from this , and many have no doubt squandered that benefit just as surely as the Heloc-hammerhead with his new Hummer. Just a matter of enough people realizing it and making noise.
I was in a discussion on this topic over at bubblemeter a few weeks ago with VA investor. S/he claims auctions are not FMV and are not included in comps. Another poster tried to back VA’s position by saying that auctions do not usually allow appraisals so it’s not FMV b/c the buyer does not have full knowledge of the property. I argued that all the homes sold during the boom wihtout an appraisal should also not have been comps under those requirements. The poster also tried to claim that without marketing and proper exposure to all potential buyers, a sale would not represent FMV. I countered by asking by that measure, are FSBO’s not comps?
I would like to know if auction sales are considered comps from someone on this board who knows firsthand. If they’re not, will all the homes that will likely be auctioned in the coming years not count a lick towards comps?
Please delete “appraisal” and replace with “inspection” above …sorry, one-track mind. The sentences should read
“…auctions do not usually allow inspections so it’s not FMV b/c the buyer does not have full knowledge of the property. I argued that all the homes sold during the boom without an inspection should also…”
I would say that the issue of comps is almost irrelevant if auction sales become more prevalent, so long as the auction prices and bids are publicly available after the sale. Auctions do a much better job of establishing the ‘true’ value of a property, since the competing buyers have better information about each other. The inspection thingy is a problem, though, and might preclude the widespread use of auctions to sell non-foreclosed houses unless inspections are somehow included in the process. I would never buy a house without an inspection unless I was getting it at a fire-sale price.
But are they considered comps now? While I agree the inspection issue is problematic, how can it be that so many homes were sold “as is” w/o inspections these past few years, yet they’re regarded as comps? In my mind, there is no difference between the two situations–both are properties that are available on the open market that can be visited and walked through, but the auction is even better because of what you mention regarding the buyers having more info on each other.
How do appraisers find comps–do they use only MLS comps? How do they find FSBO comps?
Agreed Chris. That’s my case too. I see the auction as becoming more and more prevalent , not only for the reason of taxes , but as a natural way to eliminate the middle man(realtor). Pay an auction firm .5% or something as opposed to 5 or 6 commisions to realtors. I have to think that the market will naturally find a way to account for inspections and other contingencies as well. If the RE market should come down 20 , 30 , 40% , enough people will challenge previous assessed values. Should auctions become the norm , the municipalities will be hard pressed to continue to tell people what their house is worth.
Nikki, I’m sure that realtors don’t see auctions as ‘comps’, since they don’t want to see them at all. I think VA Investor is blowing smoke on the issue of whether non-inspected sales count as comps, for the reasons you stated. At heart, a comp is nothing more or less than what a similar house in the same neighborhood sold for in the recent past. Period. If you try to tack on any more limiting conditions than that, then comps become mostly useless as a measuring tool. And no one should ever claim that comps are 100% reliable, just based on the number of variables between individual properties. Since owner-occupied residential RE doesn’t generate income, fixing its ‘intrinsic’ value is never anything better than guesswork and plausible arguments.
What type of auctions are you speaking of forclosure auctions or seller auctions. The latter would be considered a comp the former would not.
Typically appraisers don’t use FSBO comps unless they really really have too. There is not enough details on the sale. Whereas if they use MLS data they get full details and if there are questions they typically can contact the agent and get their questions answered for a more complete reflection of what actually happened in the deal.
At least in my jurisdiction (the District of columbia) as a former member of the DC Board of Real Property Assessments and Appeals, I can assure you all of the following:
1. From the Assessor’s point of view, a good comp is any arms-length transaction between a willing buyer and a willing seller. Auctions are considered very good indicators of FMV because they are quintessentially arms-length transactions.
2. Unless there is some technicality, the comps used by the Assessor are always the most recent sales used during the valuation year, which, in most jurisdictions, usually precedes the year for which property tax is charged (i.e., 2006 taxes are based on the sales prices of property Jan-Dec 2005, and Dec 2005 sales are considered more indicative of value than Jan 2005 sales).
3. Therefore, I can promise you that, unless your jurisdiction by law changes the standard from a percentage of FMV as determined by comps, your assessed value WILL come down. There’s enormous incentive for politicians to want that to happen — they can take credit for it!!!
4. Unfortunately, the reduction in assessed value will probably not show up for another year or so, since the algorithms most jurisdictions use will pick some kind of yearly average or midpoint to determine the value.
5. Using end-of-year data rather than mid-year data, you could probably successfully appeal your initial determination.
6. It is going to be very interesting, as part of the general downturn, to see how municipalities survive. Cities have been very flush lately (DC especially so), and politicians (espeically DC politicians) have been taking credit for the sequential budget surpluses the past few years. Things will turn around real fast for them too. Will they raise property tax rates to make up the difference? In the short run, not likely. In the long run, we’re dead.
I Hope this is helpful to everyone.
I looked up the people who bought in the building after reading the article in the globe. There are about 5 people that bought per construction1 bedrooms @ around $470,000 and know they are going to start the price @ auction @ $325,000. Take about losing equity in just 6 months.
pre construction not per
In the long run, we’re dead. .. is correct since if your municipality needs $10,000,000 to function it’ll need $10,000,000 regardless of appraised value– halve the appraised ‘value’ just means doubling the mill rate… some lag and variables obviously. Simplistically: if you pay $4000 in taxes on a $500,000 home will not ever mean paying $2000 on a home that now has dropped in value to $250,000 if that drop % is universal over the community. Insurance does, however, work that way since premiums are predicated on payout ‘value’ — halve the ‘value’ and you’ll halve the premiums..
Legit, diligent appraiser’s get their FSBO’s sale from muni assessment records; comp data banks; other appraiser’s their own files, etc…
The hacks will simply use the MLS because they have a 24 hour turnaround to meet for their $50.00.
Foreclosures will be used in an appraisal report depending on the quality of the subject. Beat to shit-abandoned compared to beat to shit-abandoned.
What can happen, though-is the number hitters who are so accustomed to reachin’ for the sky in their day to day OP’s-over-appraise the garbage which then sends the loan work-out dude beserk ’cause he’s just lost out on collecting what he’s due on his deficiency judgement…
i.e….
FB paid $350k. Trashes the house. Work-out dude knows he’s lookin’ at $150k top bid at auction. Trainee hack workin’ for bucket shop, goes and gets old appraisal. In order to save time-only does an outside inspection, and sends back appraisal for $350k, figurin’ market’s dead in water, so he’ll do his thing and call it “stable” which is how he has been trained; and assume everything’s ok on the inside.
Judge looks at report and says-no value loss here…and so the dirtbag mortgagee skates for $200k, with the MBS holder left holdin’ the bag.
Bank work-out guys hate appraisal hacks. But that’s all they got, ’cause the good guys are mostly gone.
Lot’s of this shit out there.
Well, what happened in the last crash, the one in the late 80’s, early nineties?
Here on LI, property tax grievance lawsuits were extremely popular in the nineties.
In some townships, it’s just not worth improving your home, at least on the outside, because your taxes will go up demonstrably.
Agent John Milligan’s said he hoped the advertisement ‘might just motivate someone to make a phone call.’”
Labor Day Massacre. Now agents are begging just for phone calls.
I smell Panic, and the dot.com crash of real estate prices will be here any day now. Another quote from an ex WSall Street sage
“The Masses are Asses”
I like that quote from wall street. They seem to always bet against the masses and make big bucks.
My sister is one of the 62% who didn’t purchase in MA last year in the $1m+ market. Good for her. Good for everyone. Now if I can only convince her to not buy in Dayton or Austin for 2 years… Actually I want her to pick out the housenow and move in as a renter and “take over payments” when the owner caves in.
why not be a house sitter in an expensive home for sale ?
“will pay untilities” and feed the squerls”
LoL. Believe it or not my brother-in-law and his wife do exactly that in Marin. As mentiond about 1500 posts ago I want to start a “keep a light on in the window” company. Water the grass, remove door hangers, rotate cars in the driveway, cycle the a/c, that stuff so the house doesn’t get stale.
must have inflatable furniture and many sweaters to qualify”
prices comming down alot faster than 1990
it’s all in since may 05- unlike the last downturn
…and wipe the down the granite countertops periodically.
Robert,
I’ve advocated this very basic strategy for some time with less than rousing approval from fellow bears. It strikes me odd that someone that would be renting anyway could possibly see the harm in at least attempting to implement this “no skin off my nose” ploy.
Forgive my thickness here, Robert, but how would that any better a deal for your sister than it was for the FB/landlord? Is your expectation that by ‘08, there will be a lot (or some) of speculative owners in a positive equity situation but who, even so, will be basically willing to give that equity away? Within this short timeframe, do you think RE and sentiment will both so depressed that your sister will look like a GF to her landlord when actually stepping in at the perfect moment? (I’d love to believe you on the timing, and have no particular convictions otherwise, beyond thinking that how long for the the unwinding depends almost entirely on how far our feckless leaders are willing to go to “patch everything up” and “restore confidence in the American Dream” rather than accept a true reversion to mean.)
Oh…and to the “other” Robert - a National Prop 13? Uggh. Just one more reason we left California a decade ago. Maybe I’m talking out of both sides of my face, inasmuch as I’m piling on with other revilers of the speculators pushing Granny’s tax bills past her capacity, but Prop 13 is a blanket stick-it-to-the-next-generation abomination that gifts to the greedy as much, or more, than the needy.
memphis,
I’m not sure exactly where you’re taking this thing and sadly this is the very type of objection I get from my fellow bears. I realize you’re not doing this on purpose so I’ll try to word it another way.
Would Robert C’s sister have been better off to have bought at the peak of the market (along with an inflated tax bill) or would it be better to simply “game” the market with a one or even two year lease and see how this plays out? Given they’ll need a roof over their head anyway isn’t removing door hangers and watering the lawn waiting for the “owner” to default a better strategy than say staying in an apartment? In the process of “crisis hunting” we can actively seek out “weak hands” NOT deep pocketed long time owners. Through new on line services like Zillow etc. how hard can that be?
DiNOR, I don’t understand what objections you believe I have here, other than feasibility. I was wondering out loud if, when the falling knives have hit the ground (market bottom), there will be many properties left in the hands of the same FBers and unlucky speculators who hold them today. I’d expect that most wouild either go to GFs who will also lose money for buying (or “taking over the payments”) too soon in a depreciation cycle, or would first end up as REOs. Might still be a good deal for a tenant who is patient and lucky (and ready with a “Plan B”), but I’m thinking: “Dear Lender - Take over payments on the original amont lended? YOU WISH!”
I guess I’m working on the assumption that pre-foreclosure hunting is for an “up” market, and that it’s the REOs that will slowly and reluctantly chase the market down to the point of reality-based pricing in a “down” one - all the speculation here about the boarded up houses to come would seem to support that assumption.
That said, I’m aware that Robert C. is something of a resident expert here, so it’s very likely I’m missing something basic to his proposed strategy.
The homeowner will rent at a significant loss while waiting for the market to recover. My sister saves thousands every month by renting. The owner merely loses less money in a bet on a recovery. The rental income slows the bleeding, that’s all. There is almost no way for any recent (’03-’06) speculator to get into a positive equity position honestly for years. Houses just haven’t sold at multiples that justify prices. I sold my last at 273x rent. That’s insane, actually it is just a bad bet on appreciation.
Owners of leveraged property won’t be giving away equity. They never had it and the system will belatedly and unstinting be correcting the books. The paper profits will be forcibly ripped from their greedy fingers taking skin, fingers and entire limbs with them.
Yes, my sister has always been the one with great timing. She got out of Honolulu last year, she rented in upscale Boston this year with the interest from the proceeds. There’sa whole class of sheeple who own houses, multiple houses even with no clue or timing whatsoever. They have the same look on their faces that the the sheep have at Farmer Hogget’s World Famous Mutton Ranch. “Isn’t this great? No matter how much I eat they put more in the bucket. And now I hear they are dressing us and taking us out to a fancy restaurant.” These sheeple think we shepards are just dumb sheep that work too hard and don’t have the good sense to follow the herd.
Our feerless leeders have lost control of the situation. And no tweren’t just Bush/Reps. That partisan cr@p has no place here. Berenake walks a tightrope. He is deliberately popping the housing bubble while trying to contain the damage. Ain’t possible but that won’t stop him from making things worse by trying.
Prop 13. Don’t get me started. Greatest thing since representative democracy. It ain’t perfect but it is something better; Prop 13 is volluntary as you demonstrate by example. Like SOAR, Prop 13 is an explicit limit to government. For centuries we didn’t need this because it was so ingrained into the American psyche limited govt like privacy needed no formal protection. Whether the 1911 formation of the Fed or the FDR court packing was the catalyst is beyond my pay grade but don’t set up Prop 13 strawmen. It treats everyone almost equally. Quite an achievement for a tax policy.
And finally, “other” Robert. Name causes confusion, limits searches, annoys me personally. How about Robby or Rob2 or any other unique id?
Ok, I admit it. I’m in love.
Good thing you turnoutthelights. Here’s a pic:
http://www.patrick.net/wp/?p=300
Prop 13. Don’t get me started. Greatest thing since representative democracy. It ain’t perfect but it is something better; Prop 13 is volluntary as you demonstrate by example. Like SOAR, Prop 13 is an explicit limit to government.
This would be true if the government couldn’t tax, create fees, etc in other areas at whatever rate they wanted to increase spending. As it is, Prop 13 merely shifts the tax burden somewhere else; the tax burden that supports services and infrastructure that add value to land owner. (i.e. Fire & police departments, road maintenance and cleaning, parks, etc.) In effect, non-landowners are subsidizing landowners as inflation has far outpaced the allowable rate of increase under Prop 13. In fact, at 2%, the allowable increase barely covers the historic appreciation above inflation (as noted on this blog). With inflation at anything beyond 1%, the law undercharges the property owner for the benefits they receive.
While no system will be perfect, perhaps a better system would take the average assessed value of the property over 10 years to set a tax rate which would moderate the tax bill increases.
“Maybe I’m talking out of both sides of my face, inasmuch as I’m piling on with other revilers of the speculators pushing Granny’s tax bills past her capacity, but Prop 13 is a blanket stick-it-to-the-next-generation abomination that gifts to the greedy as much, or more, than the needy.”
Actually, inflation and government overspending through bond borrowing are the culprits that stick it to the next generation. Prop 13 was a reaction to those forces and tax redistribution schemes. You had to be here at the time it was passed to understand how truely angry the voters were when Prop 13 passed. Not only was inflation going nuts (along with taxes), but we had just been informed that our property tax money was being grabbed for redistribution by the courts, and our gasoline tax money was being diverted from highways to mass transit. The tax revolt continued for several years after that, btw.
Except for the mass transit diversion that got worse and the schools funding to cities that got worse and the car fees that got worse and the lowering of supermajority from 66% to 55% that made things worse and the defered infrastructure that made things worse… The govt just found other ways to screw the best of California to subsidize the worst.
Yes, the victory was not quite pyrrhic, but the taxpayers of California did indeed lose the war.
Damn straight. I always interpreted Prop13 primarily as an attempt to ’starve the government beast’ into responsibility. Problem is, this particular beast has many different fields on which it can forage, to extend the metaphor into the absurd.
You’re dead on about Prop 13. Well intentioned, but it has lead to unbelievable tax inequities. On my street, nearly identical adjacent properties across the street from me have assessed values of 1.05M and 275K! And this is not even unusual, it would be easy to find similar properties with much lower assessed values.
I think much of the problem may lie with the 2% annual limit on assessed appreciation. 5% would be more realistic.
Property taxes are a huge problem because it seems unjust that a person could buy a house ,pay on it for years and than lose it because of other people buying at sky high prices . At the same time it seems unjust for new buyers to pay this extreme higher share of property taxes .I don’t know what the answer is . Maybe 5% increases are more realistic with a cap when a person reaches 65 and they go to a fixed income .
“‘Right after we bought this, the prices began to shoot up, and we said, `Aren’t we lucky,’ said Diane Schmalensee. With the market in decline, she realized perhaps ‘we waited a little too long’ to sell.”
Gee Wally. Ya think.
sd renter,
LOL! Been awhile since I heard that one!
I dunno Beav, parents seem ta like that junk.
This is an oldie, but ….
What was the first dirty joke on TV?
Ward, you were a little hard on the beaver last night.
That’s why she married someone named Cleaver.
that’s funny, robert — i always thought of you as Ward!
Ward Cleaver. Jed Clampett. Britt Reid. Al Bundy.
At least in my own mind. My criticsmention:
Eddie Haskell. Jethro Clampett. Kato. Jefferson Darcie.
no, I’M eddie haskell. need a new swimming pool??? (from beaverTV2)
In the area around Boston that I’ve been tracking, the inventory numbers declined somewhat toward the end of summer, faster than could be accounted for by sales. A lot of houses were being taken off the market unsold. Now after Labor day, the number is shooting up again with a lot of new listings, at least some of which look familiar. Now, the New England market is very seasonal under even the best circumstances, and sales slow down as the weather gets cold, and normally inventory goes down too. If inventory is going up when the number of buyers can be counted on to decline, that’s certainly a bad sign. Anybody else seeing this in their markets?
On the other hand, it means that winter would be a good time for a buyer to drive a hard bargain. Actually, I always thought it would be better to look in winter, because you’d get to know how well the house handled bad weather.
try xmas eve 07
dress up like Montgomery Burns from the Simpsons= excellent
listing inventory should now gradually dry up over the next few years almost completely, except for overpriced crap and distressed sales, i.e. foreclosures, etc.
after 5-8 years, you’ll hit bottom. it takes a long time to really break the back of the market to the point of complete capitulation. but there’ll be tons of foreclosures on the market within 2 or 3 years.
consider that we’re already about a year after the peak of this mania. so it might only take another 4-7 years! this thing is going to unwind PAINFULLY slowly, although there will be moments of great drama as it inexorably unwinds….
Good lord. Who wants to wait that long?
I’m renting and happy about it, but eventually I want a place I can reshape as I want.
Schmalensee is an economics professor at MIT. Just thought I’d throw that out there. Must have written a book or two, that’s an expensive house.
He was in my fraternity in college, long before I was there though.
the article says he is “the dean of the mit sloan school.”
Another of the the book smart and street stupid?
this mania has been equal oppurtunity in every way — it has laudably refused to discriminate against those with advanced degrees or high positions. you can be sure this guy’s name is followed by “BA, MA, PhD, FB.”
Richard L. Schmalensee is the John C. Head III Dean, and Professor of Management and Economics, at the MIT Sloan School of Management. He holds a joint appointment with the Department of Economics at MIT.
Dean Schmalensee is an expert on regulation and antitrust policy, and is known for serving on the President’s Council of Economic Advisors as well as his testimony in the Microsoft anti-trust trials, in which he testified as an expert witness in favor of Microsoft. Frank Fisher, another MIT economist who was Schmalensee’s former thesis advisor, also testified in these trials, but in favor of the Department of Justice that was prosecuting Microsoft.
Schmalensee received his S.B. and Ph.D. in Economics from MIT.
And is working on his FB at the school of hard knocks.
‘My values are going down. My taxes are going down,’ Simmons said. ‘That’s not going to happen.’”
This is horrible. Some little old lady, quietly living in her house for years, has to keep paying raising property taxes because Harry Howmauchamoth and Sally Spec-u-vester are willing to pay any price for houses in that neighborhood (as long as they can afford the first years monthly payments!)
That’s just not fair!
Time for Mass to get their own Proposition 13 in place…
My parents have lived in the same house in Massachusetts since 1972.
I saw my father’s tax bill a while back. It is over $7000. That is almost $600 a month in taxes. How is that even justified.
They bought the house for $56,0000.
Why is what they paid for it in the 70’s relevant? Inflation makes that a spurious if not stupid argument. They pay that in taxes because thats what the municipality decides is necessary to collect to pay for services. You can argue whether those services are cost effective, but your comment leads to a prop 13 mentality. Californias infrastructure and school funding issues are proof that thats a failure.
Housing appreciation alone isn’t the culprit in Mass. People have explained five times already, a town’s total property tax revenues cannot grow more than 2.5% a year here.
The problem is, first, that people are fighting a full-on war over a one-half-of-one-percent decrease in the state income tax rate. A laughable amount. It means nothing to an individual–but a lot to the state. And over the past five years, the state has severely cut aid to cities and towns. That aid goes down, taxes must go up.
The second issue is the lack of revenue from business. Commercial property has been doing poorly relative to residential. The towns that have it worst are bedroom communities that have banned anything other than McMansions on farm-sized lots: they have no source of tax revenues from business at all.
That statement also jumped out at me as patently unfair. Take atke take. But no giving back when the valuations turn south. City officials =POS
The assessment problem is going to be a huge issue in the next few years. Since I’m moving back home to Pittsburgh this coming spring I’ve been checking out the Howard Hanna web listings and at least this company lists the added assements on the listing. Some of these assessments are enormous, as I saw one that was the equal to the full asking price of the home, so a $100,000 is goinng to be treated as a $200,000 house by the tax man! I guess that’s why some of these people are deciding to sell as the tax burden must be killing them. Does anyone from the ‘Burgh on this blog have a comment about this situation?
High property taxes are going to kill home prices even more. They just add to carrying costs and reduce the amount of principal mortgage that can be taken out to pay for the house. Buyers will have to pay less for the house to make up for property taxes.
The reason why buyers/flippers were not considering property taxes was they did not think they were going to stay in the property long term . This is the other problem about the locust ,they run up property prices and taxes and leave .
…and your’re going to see 49 other states pass something like “Prop 13″ if this keeps going on
Right on…note the way it works:
Rising house prices….increase the assessment NOW, don’t drop the rate.
Declining house prices..lower the assessment, increase the rate.
To put it mildly, that attitude is ridiculous; maybe people in Taxachusetts don’t mind, but that attitude would start a tax revolt elsewhere.
Maybe they will have a “tea party” and throw their deeds in the harbour. The Boston Deed Party!
Most counties around here lowered the tax rate over the past few years as prices shot up. Taxes still rose because of the insane appreciation but the rate was cut significantly. We had a debate on this blog a few months ago about whether the tax rate should have been cut or not.
I was in the camp that is would be irresponsible to cut the tax rate as it would be politically unfeasible to raise rates during a housing bust led recession. Also, cutting the tax rate reinforced the speculation and rampant real estate greed instead of discouraging it.
Of course if property values really plummet 20-40% we will see huge tax revenue shortfalls and insufficient funds for teachers, police, and firefighters. A degredation in these essential services will really put downward pressure on housing values.
Teachers, police and firefighters, especially firefighters, are overpaid. They are local government workers in monopoly industries. Their incomes have been rising way faster than most workers, and their pensions are absurdly generous.
I think the comment may apply to firefighters and policeman, but not to elementary or secondary teachers. My wife is a teacher in WA and brings home $1800 a month. Most teachers are either married to someone who makes more money or the single ones live with roommates or their parents.
Teachers don’t work a full schedule and they are in an industry which is supplied by both sexes, unlike, for the most part, policemen and firefighters. If she takes home $1800/month in high-tax Washington she’s making about $3500/gross for the months she works. It ain’t great pay, but why should it be? Why shouldn’t government workers in monopoly industries live with working spouses, roommates or their parents? Government shouldn’t even be in the education business.
“Teachers, police and firefighters, especially firefighters, are overpaid.”
How do you come to this conclusion? You couldn’t pay me enough to take any one of these jobs. Only $1,800.00 per month for a teacher is criminal.
I find that to be a disturbing undercurrent on this blog as a whole. There seems to be a wholesale jealous resentment towards anyone making money.
These people put their lives in danger daily -yes, including the teachers- for other people. They deserve what they earn + their pensions and more.
This is why we feel teachers aren’t overpaid:
FUSD Pay
Average Fremont pay is $64,616. CA Avg is $57,294. Now add in the benefits (tenure, very good health benefits, very good retirement benefits, vacation time) and you can see why, at least in CA, teachers are not underpaid.
Sure, they can’t afford to buy a house here on that salary, but most people can’t, either, without suicide loans, and why should they have any more right to live close to their jobs than anyone else?
Teachers, firefighters, and police here in Fairfax County, VA and Montgomery County, MD are overpaid.
proposition 13 entry in wikipedia.
http://tinyurl.com/effgv
from the wikipedia entry:
“Proposition 13 has hurt mainly immigrants and young upwardly mobile workers in California. Because Proposition 13 is a disincentive to sell, there is less turnover among owners near the older downtown areas, and prices have appreciated fastest in these areas. Young people who would be wealthy in other states are house-poor in California, and are forced to live dozens of miles from their workplace in order to afford a home. Thus, the Proposition can be seen as a “transfer tax” from the working classes to the retired class, as retirees are subsidized and the young have less working hours in their day because of long commutes.”
Prop 13 has hurt no one. There is no checkbox that asks if you are old or retired or rich or poor or young or immigrant or anything.
Thats total BS Robert. For someone who is as conservative in his tax opionions as you are, I find that very strange. Prop 13 has hurt alot of people and rewarded only those who stay in their houses for long periods of time. It has created a MASSIVE free rider problem, whereby newer buyers pay a disproportionate amount of taxes, giving previous buyers a pass.
I believe you live in Ventura? I live around downtown San Diego. Our tax base has been totally destroyed by tax inflows not in line with outflows for basic infratstructure and schools. California is an expensive place to live. Prop13 cut off cities abilities to raise revenue. it did nothing to control the rising cost of living.
this discussion has been a great opportunity to find out about 13, which i’d heard of but only in the vaguest (”CA prop. tax revolt…”) terms.
i would certainly be the beneficiary of a prop 13 if it were enacted in nyc. as it is, we have an assessment based on a rolling 5-year average. and assessments are usually far-unervalued and subject to appeal and lowering. but there are plenty of complaints as well.
Barnaby33 says;
“Thats total BS Robert. …Prop 13 has hurt alot of people.”
Who? Who got hurt? Who is getting hurt? You don’t understand Prop 13 and probably only listen to the critics. Who are those criticsand what are the complaints? That should tell you vmore than adistortedwiki entry.
Oh, that education you recieved? Currently costs three times as much. Please remit. Is that fair? That’s what Prop 13 stopped for housing.
In an abstract sense everyone got hurt. Municipalities aren’t allowed to tax most things, property taxes are the major form of levy they are allowed. Prop 13 said they could not raise those taxes, which means by the way they will also never get lowered. Be that as it may everyone who has bought a house since prop 13 has been progressively hurt more than those who bought before them. Why should you or someone else pay a smaller share of the burden of police/fire/roads/schools just becuase you lived there longer? Do you use less of those services? If that were demonstrable you could possibly make that argument. Everyone is hurt when the tax system is slanted to favor one group over another(a classic conservative argument that I happen to agree with), the amount of hurt being proportionate to the amount of favoritism.
Oh, that education you recieved? Currently costs three times as much. Please remit. Is that fair? That’s what Prop 13 stopped for housing.
Currently costs 3x as much as what ignorance, or are you making a historic reference to the cost of education? Education is one of those issues that is impossible to effectively debate, because it ties into so many other issues. Overcrowding/overbuilding, immigration, ethnic integration and ultimately peoples expectations of what education is. If you think your tax money is wasted, the vote on how its spent. Starving the beast (prop 13) is never an effective long term mechanism, it doesn’t get at the underlying issues!
Seeing as you concede that no one ets hurt by Prop 13 maybe now you can ttell me whaat things municipalities cannot tax?
You don’t know anything about the situation and it shows.
To highlight my own comment is a bit weird but I think it bares repeating Be that as it may everyone who has bought a house since prop 13 has been progressively hurt more than those who bought before them. Why should you or someone else pay a smaller share of the burden of police/fire/roads/schools just becuase you lived there longer?
How is that a concession? I will admit I don’t know alot of things, but I believe I stated my position fairly clearly Prop 13 does hurt people and yet you say I have conceded. As a point of fact I believe I stated that prop13 is a form of, “starve the beast,” tax policy which is really the point to argue.
Before you accuse me of not knowing anything, kindly tell me where your education costs 3x as much point comes from? We are all capable of over-stating our case, even you.
Oh and as far as I know, municipalities don’t tax income. Nor for the most part do they tax sales, though some do.
I stated my position fairly clearly Prop 13 does hurt people.”
I didn’t ask you to repeat the assertion. I asked WHO was hurt. Come on. Teachers? Municipal employees? Home ownrs? Home buyers? Who got hurt? And how?
Doesn’t matter. The next challenge was; “as far as I know, municipalities don’t tax income. Nor for the most part do they tax sales, though some do.”
Neither is correct. SF 1.5% on income. EVERY municipality in the State recieves Sales Taxes nearly every has add on addtional sales taxes. You don’t know the subject. You cannot even provide examples of your assertions.
Oh and something to think about:
Ifr you bought last year you pay anywhere from 1.16% to 1.28% of of your purchase price in property taxes. If you bought in 1975 that is 1.8%-2.1%. Fair that two nerly identicsal houses side by side and one has twice the tax rate of the neighbor?
I thought I did state who, and I also stated how. I think a quote from Wikipedia might help:Proposition 13 greatly benefited homeowners whose homes have appreciated in value since it was passed, particularly those (such as the elderly) whose incomes have not risen as fast as property values. In cities with many older residents, this has led to a severe shortage of affordable housing, since new developments must often be far above the state’s median home price in order to provide enough tax revenue to pay for the services they require. Impact fees have offset this problem somewhat, but are limited by developers’ ability to go “jurisdiction shopping” for localities with low impact fees.
Whats really interesting is the articles description of who it hurts, and that is what you wanted me to answer on.
Proposition 13 has hurt mainly immigrants and young upwardly mobile workers in California. So Robert you ask who its hurt, its hurt me. Its made owning a home more expensive for me(young upwardly mobile native) than for someone who bought in years past. The longer ago somone bought, the more I pay in taxes for basically the same home with the same services. (I am not however making the argument that its the primary reason I can’t afford a home.)
The problem is with the subtlety of the argument. Am I truly hurt by paying more taxes than my neighbor? Yes, yes I am, but maybe not fatally. The real problem comes on the other side of the coin, when it comes to how municipalities make up for that lost revenue, because in many cases they can’t.
So now that I have given you a specific example of who is hurt let me give you the more general case, the one I feel is far more demonstrative of why prop 13 was bad, New Orleans Levees.Everyone wanted to have safety, but nobody wanted to pay for it, so the re-building of levees was for years chronically underfunded. That was ok as long as the city wasn’t hit by a major hurricane. Katrina ripped away the pre-tense that the levee system was fine and functional, and that the govt had been doing its job. Everyone tried to pass the buck, when the reality is thatall were to blame. Of course in the process the city was destroyed. Now you can make the argument that it never should have been built there, but once it was it is spurious at best to claim that the chronic underfunding was a good idea. Thats the parallel I draw with prop13. It created a kind of chronic underfunding of municipal coffers that requires them to constantly rob Peter to pay Paul. It created and incentivized a massive free rider for people who had previously bought homes, allowing them to escape their share of the escalating costs of infrastructure and basic services.
Now as to taxes I beleive I said some municipalities do, though they are a very small percentage, I know SF does. SD doesn’t, nor has any city I have ever lived in. The state collects and re-distributes sales tax, and it does go into cities general funds, but then again so do all sorts of unfunded mandates. None of which has to do with why prop 13 is particularly unfair.
Barnaby33 you have no ideawhat you are talking about. You finally claim what every uneducated person claims; ” its hurt me. Its made owning a home more expensive for me(young upwardly mobile native) than for someone who bought in years past. The longer ago somone bought, the more I pay in taxes for basically the same home with the same services.”
What about what the current buyers pay has anything to do with what purchasers in years past have paid? How are young buyers singled out? Why do controls on property taxes raise prices? Were prices low before? Did prices not go down about 14 years afterwards? What about knowing that you won’t be taxed out of your home is bad? What about paying lower RATES for new purchases is unfair? And since taxes figure into rental charges what about all those years renting at subsidised rates are you resenting? You just don’t understand and your JBR mentality is obscuring the path of enlightenment.
Robert, in reading the blog for the past year I have great respect for you opinion, but I think that we have found your sacred cow.
Your example of the taxes based on the purchase prices is ludicrous. Who would you rather be, the guy with the 1975 purchase or the guy with the 2005 purchase? Fair that two nearly identical houses side by side and one has twice the tax rate as a percentage of fair market value as the neighbor? Could both these properties be sold for the same price today and could they be rented out for the same amount? While sounding cruel, just because grandpa has lived there forever doesn’t change the fact that both houses cost the same for the city to support. And all that “extra money” that grandpa is spending on property taxes above and beyond the “reasonable” appreciation on his purchase price he gets back once he sells or rents the place out.
As I stated above, property taxes pay for services and infrastructure that add value to the property being taxed. (Or at least they use to.) Because of those services and infrastructure, the property owner can charge more in rent or sell the property for a higher value because they are selling a property with XYZ services and infrastructure associated with it. Under Prop 13, income and sales taxes were raised to pay for those services instead of taxing the property owner. (From around 5% to around 8%.)
As for who is hurt?
1. The renter. They pay for the services and infrastructure through higher income and sales taxes only to be charged again in higher rental prices.
2. Anyone who purchased after you at higher prices. They paid for the services and infrastructure through a higher purchase price only to be charged again through higher income and sales taxes.
property taxes pay for services and infrastructure that add value to the property being taxed. (Or at least they use to.)
“At least they used to be.” Do I detect an ah-hah moment? No, I can see you don’t want to understand.
Fair that two nearly identical houses side by side and one has twice the tax rate as a percentage of fair market value as the neighbor?
One is twice the tax rate of fair market value, the other is twice the tax rate of purchase price. Which is fair? clearly the second by near any rational measure.
Even under Prop 13 the money from property taxes flow from the better school districts to the worst school districts. Where’s that rationale?
Renters benefit from Prop 13 as ownership savings are part of rental pricing.
People who buy are covered equally there is no penalty.
What is funny is that I made the, “it hurts me claim,” because I figured it would resonate with you. As to uneducated, hardly, but you are free to draw your own conclusions.
What about what the current buyers pay has anything to do with what purchasers in years past have paid? Thats a no brainer, because a certain amount of the purchase price (in this case property taxes) goes to infrastructure. Those costs are not fixed they grow over time. I’ll turn the table on this one. What buyers paid in the past has no bearing on what costs are today. You expect your roads to be paved regardless of when you bought the house. That requires, in an inflationary environment, constantly increasing costs/revenues.
Were prices low beforeI completely fail to see how this has any bearing on prop 13. Prices fluctuate, we are all here because we realize that the current prices are untenable.
How are young buyers singled out? In the same way that all people are singled out in under our property tax scheme. The later you buy the more you pay. Even if you buy at a low point in the market you still end up paying more(taxes) than people who bought essentially the same commodity earlier in time.
What about knowing that you won’t be taxed out of your home is bad?Nothing whatsoever, except that its a terrible premise to base a tax system on. I would also like to know that I will never lose my job or go bald, but I have no guarantees. Besides there are much better means tests for the ability to pay taxes than simpy when you bought the place. Lots of people in La Jolla don’t pay squat for property taxes, I don’t know the numbers but would be willing to bet there aren’t alot of little old ladies being pushed out(Thats the classic pro-prop 13 adage.)
What about paying lower RATES for new purchases is unfair?If I had a clue what you meant I could maybe answer, people pay more for new purchases.
And since taxes figure into rental charges what about all those years renting at subsidised rates are you resenting?
I currently have little choice but to rent. However I would still vote for the taxes repeal, yes my rent would rise a bit, and so would everyone elses.
You just don’t understand and your JBR mentality is obscuring the path of enlightenment. On the contrary of the two of us, it is you who seems to have resorted to bluster. I do know what taxes are. I understand what they are intended to do at their core and I made my initial BS call based on that. They are after all an attempt to reward/punish behaviour. Afterwards I have answered each of your jibes and provided as much as I can, backing information to give you my context. You still haven’t answered why prop 13 is a fair tax and you never even touched the free rider issue. Its a shame that you fall back on calling me a JBR(which I am), because mostly I admire your comments, I just felt that this one I couldn’t let stand. I’ve said all I really care to, I suppose we must agree to disagree.
The beauty of blogs is you can pick who you engage. You are willfully ignorant and obstinately unwilling to change in addtion to a blatant liar. Yes, blatant liar. Doesn’t matter that you arer making up things like taxes not going down. You’ve won. Yes, absolutely won. Singular victory. No questions, no appeal possible. I’ve no patience for you and am not going to participate. I leave it to others to judge if thehousingbubbleblog is better for your triumph. Goodbye.
“At least they used to be.” Do I detect an ah-hah moment? No, I can see you don’t want to understand.
If you are referring to the state’s tendency to fund the giveaways first and the infrastructure last, I do understand. Prop 13 does nothing to address this problem. It is in fact a different discussion entirely.
One is twice the tax rate of fair market value, the other is twice the tax rate of purchase price. Which is fair? clearly the second by near any rational measure.
Though the wording is a bit confusing (My reading of this is that you agree with me.), I’m going to assume you meant that the basing property taxes as a percentage of purchase price is the rational way to go. (To stay consistent with your other arguments.) We have a disagreement on the basic premise of what the tax is for. Question, if you bought a car in 1975 does that mean that you are entitled to 1975 prices on gas and services? Question, if you bought a house in 1975 does that mean that you are entitled to 1975 prices for police and fire services?
Even under Prop 13 the money from property taxes flow from the better school districts to the worst school districts. Where’s that rationale?
Ask the courts.
Renters benefit from Prop 13 as ownership savings are part of rental pricing.
When you had your rental properties what did you charge for rent? The price the market would bear or a fixed amount above your cost?
People who buy are covered equally there is no penalty.
The people who bought the 1975 car are paying 1975 prices for gas and services plus 8% sales tax. The people who bought the car in 2005 are paying 2005 prices for gas and services plus 8% sales tax. In both cases the cost of providing the gas and services are the same, the amount charged for providing the gas and services is different.
Are you seriously trying to argue rationally with someone whose entire legal, economic, and moral justification for his position is, “I got mine?”
“Great entry-level property. Priced below assessment. WHAT A GREAT WAY TO START,’ reads a March listing for a Colonial near Newton Center priced at $499,000.”
Half a million bucks for an entry level house? We still have a way to go.
…Diane Schmalensee. With the market in decline, she realized perhaps ‘we waited a little too long’ to sell.”
No dearie, you waited too long to list at near a market price. You haven’t sold yet.
Her husband is a well-known economist. I am sure he knows about Dutch auctions…
Assessments are just a way to divide the tax bill, not a way to set it. The question is, did localities increase the tax burden along with rising assessments, or did they cut the rates?
My guess is they increased the tax burden to make up for rising needs and falling state aid in the wake of the recession. The bubble bailed out America on the fiscal side, as well as the consumption side. Yet another aspect of the potential fallout.
Richard and Diane should know better than most of us what a house is worth…
http://www.nber.org/cgi-bin/familyinfo.pl?a=a&user=richard_schmalensee
“If house prices continue falling, assessments eventually have to follow. But ‘the taxes will always go up,’ said Richard Simmons Jr., the assessor for Belmont, a wealthy suburb northwest of Boston. City officials determine the size of the budget and assessors are free to increase the property tax rate to compensate for falling assessments
Some day I suspect “we the people” will wake the f*ck up and take back the gov’t from assholes like this who are sounding more and more like the operators of a criminal enterprise instead of public servants. This guy has no idea that there may actually be a link between a person’s income and the amount of money he can extort from them through threat of tax seizure. This country is F*cked!
Assessments do nothing more than track “fair” market value created by the dynamics of arms length transaction between buyer and seller both knowledgeable and informed and acting on their own best interests. The values in an assessor’s office are totally dependant on the date of a town’s revaluation. In ME, statues dictate that this “should” be done ever 5 years. At best the numbers are lagging indicators.
However, the underlying basis for the article’s premise is that the real estate appraisal profession per se, has become incompetant and untrustworthy despite the abysmal efforts at control by inept and out of touch state and federal governments.
Advancement in the appraisal profession for the past 4 years has been predicated upon how fast can you get it done; and are you going to give us the the valuation number to make this deal work.
The lenders could give a rat’s azz about educational qualifications, honesty, intergrity, and competency, because those idiot license’s issued by the state licensing boards all look the same.
Ironically, the mandate of the licensing boards was to “protect” the public…but as all can see on this blog-the bureaucrats have failed mightily.
There is a common misconception (enforced by examples of sloppy reporting, as above) that assessors control local RE taxes. Assessors only have a statutory duty to value property in accordance with state law. How that RE “pie” gets divvied up is the responsibility of the local govt.
On the assessment side, problems arise for a variety of reasons, e.g.(1) assessment periods will always lag market conditions (except for new construction) or (2) where political considerations have led to convoluted property classifications or abatement programs.
The real problem is that local govts. (at least from I can see in the northeast) have exercised zero fiscal restraint since the boom started, and have paid for the party by slicing a bit more out of the taxpayer each time assessments went up. The hangover from that party will be severe.
I’m finding less and less reasons to buy in Mass. My husband finds the work he’s doing here to be very compelling and that’s what’s keeping us here for now. However, the tech market is so anemic that everything just has such a temporary feel to it. Combine that with the generally polluted drinking water (think “A Civil Action”), the aging population, the small crowded roadways and you get the sense that this state is just kind of used up.
Right now I’m renting a $500,000 cape style house in a town that’s similar to Newton for only $2,000 a month. As an added bonus, at the end of the year, we can deduct a portion of our rent from our state income tax. If nothing else this state is kind to corporate gypsies like ourselves.
Meanwhile our vacation property in Vermont was paid for in cash during the late 90’s and we built our cabin ourselves for less than $500 using salvaged materials. We might take an early working retirement there or we might scoop up another cheap house in NH in a couple of years.
Check out this Miller Samuel post on median household income changes by state for a different view of which parts of the country are kind of used up. Looks like manufacturing decline is hitting the midsection hard.
http://matrix.millersamuel.com/?p=839
millersamuel.com is excellent for data on the nyc market, especially manhattan. take a look at their 2Q06 charts. incredibly thorough.
i also liked their comprehensive report on the “manhattan real estate market 1996-2005.”
do you think they will ever be publishing a report entitled,
“manhattan market 2000-2010″ ? :\~~
Does anyone have historical # of sales and/or graphs of Boston area sales? It seems that they’re dropping, but I’d like to plot them out. Thanks!
Already done here (at least for the whole state, not for Boston specifically):
http://masshousemarket.blogspot.com/
Well, well, well….the geniuses at the NAR have generated their latest forecasts for 2006, and SURPRISE!!!…the numbers have dropped yet again. I’ve been tracking their forecast numbers for the past 12 months - check my site to see what kind of bull they’ve been generating; I’ve recorded their forecasts verbatim. It’s funny and pathetic, at the same time.
:^)
” car fees that got worse” as per Robert Cote’
Yes they did and when the state chose to apportion a percentage of our yearly car tag fees for mental heath with no accounting on mental health community no one (except me) screamed in protest.
Same with the cigarette tax.
My favorite is the LAMTA apportioning either 78% or 87% of all funding to the 2.4% of transit users.
I’ve been tracking the prices paid vs assessment (sporadically) over the last year in my neighborhood, West Roxbury, MA.
Its a mixture of blue and white collar incomes. The peak (as I can see it) was in July and August 05. Prices were about 50% over assessment. Now, the average sale is about 10% over assessment (with more and more negatives appearing).
I’ve lived here since 1983. Never have seen so many for sale signs (nor have I seen so many in Newton). Its become a game with me to see if I can go down ANY street without a for sale sign.
How much further can prices decline? I would say “equilibrium” will be met when the average income can buy the average house with a standard 20% downpayment. In this area, it would probably equate to a $2,000 per month payment, which (@6%) would probably qualify one for a $350,000 house. Houses around here have averaged $500k. So we may be in for a decline of 20-30%.
Dumb question. Instead of things like Prop 13, wouldn’t it be easier to stop the @#$ inflation that leads to bloated prices and tax bills to begin with?
Of course, at this point the government has the public so completely hoodwinked about inflation that they’ll just continue to revolt against “taxes” and miss the real problem entirely.
Sure, it would be great to stop the inflation, and it can be done if we got rid of the Fed and went back to the gold standard. From your handle, you obviously are on board with this. However, having failed to get rid of the Fed or fiat currency (which requires a national solution), the voters in California did what little they could by enacting Prop. 13. We would also be better served by having politicians that would actually use fiscal restraint, and prioritize spending on items that are necessary (e.g., maintaining roads) and avoid spending it on pork barrel projects. Basically, smaller government, less spending, less taxes and, ideally, with a real currency instead of a fiat currency.
And, not to restart the debate on Prop. 13, but I am in favor of it (and I’ve always rented - looking to buy when values are reasonable - so this is not about me trying to keep my property taxes lower than my neighbor’s). Prop. 13 allows purchasers of property to know what their taxes are going to be long term, thereby allowing them to plan long term. Just as I would not want to buy a home with an ARM because I don’t want my payments to go up, I similarly don’t want my taxes to work like an ARM and move up in wildly unexpected ways. Think about, property values have more than doubled in about 5 years, and if property taxes were allowed to double during that period it would leave a lot of people in a tough spot. I’ve lived in SoCal all my life, and I remember retired people on fixed incomes having to sell their home because they couldn’t afford the ever increasing property taxes. I don’t want to see that happen again. As far as the equity arguments are concerned (i.e., neighbors paying disproportionate share because one bought at lower price at an earlier time), I am not that concerned. They knew the cost of the property when they bought it, including the property taxes, and decided that the property was worth the cost (including the property taxes). Prop. 13 will allow them the peace of mind to know that property taxes will not force them out of their home. Besides, property taxes are not necessarily equitable anyhow. The owner of raw land is paying taxes at the same tax rate as owners of improved land, and yet is using far fewer services (likely only fire - no need for schools, streets, police, etc.). And, rates aren’t based on the actual use of services (e.g., I have no children, but I am still paying for schools), so there are inequities built into the tax code (and as long as government is providing “free” services from tax dollars, there always will be such inequities), so I’m not too concerned if Prop. 13 does not perfectly reflect the use of services of land owners.
Anyhow, that’s my $.02
Waiting in OC,
Exactly my sentiments! I’m also a native and a renter, and support Prop 13 100%. Additionally, I’m a former teacher and married to another municipal govt worker (sorry, flat), and still think the arguments against Prop 13 are uninformed.
#1. With Prop 13, **BUYERS** decide what to pay in prop taxes, since they know in advance what the taxes are and can refuse to buy at prices which cause taxes to rise to prohibitive levels. Impatience is not an excuse. We must wait the credit/housing bubble out — Prop 13 has not contributed to the runup.
#2. The cities spend waaay too much money in far too foolish ways (yep, you heard that from a person who’s lived on municipal wages all my life — father was also a muni worker as was my FIL). The “crumbling infrastructure” is due to mismanagement and lack of prioritization, not to mention unwillingness to enforce our laws. Hate to bring this up, but the infusion of people from other countries who have little/no money and require more resources than the local folks does not bode well for the institutions that provide for healtcare, education, protection, etc. Fix this problem first, then ask the taxpayers for more money once the govt has taken care of the cost side. Perhaps we should tax their governments since we are picking up their costs?
#3. Prop 13 does not keep supply off the market. Where do you think these “old” people would go? If they give up one residence, but move to another, there is no additional supply. If you’re saying they would move to another state or???, then prop taxes would likely be lower there, and not a hindrance to their leaving their home. BTW, what’s wrong with people actually living in **their** own homes. Or do we not believe in private property rights (I think prop taxes should be banned altogether for this reason)? Why do anti-Prop 13′ers think someone should be forced out of their homes in order to free up a residence for them?
BTW, the govts can raise money through bonds. If people believe the govts are spending responsibly, but still come up short, most people would be willing to pass bonds. The problem is, nobody is held accountable once the bonds pass. All too often, we hear of these various bonds passing, but nothing really to show for it once the money’s spent. I can write volumes about how money can be saved –without touching wages or benefits.
On the morning she realized her husband and son would learn the family was losing their house, Carlene Balderrama, 53, faxed a note to the mortgage company, then went to the basement and shot herself.
“I hope you’re more compassionate with my husband than you were with me,” she wrote in a suicide note left for the company.
It is a dramatic picture of the worst that financial stress can wring. As home foreclosures and unemployment mount, so do their companion tales of fraud, robbery, arson and even murder. And though suicides remain rare, evidence that financial stress is erupting in rash, often illegal behavior isn’t difficult to find.
“A lot of people, they just feel hopeless,” said Kita Curry, a psychologist and the president of Didi Hirsch Community Mental Health Center in Los Angeles, where the crisis line has seen a 20% jump calls from people citing financial woes. Centers in other cities are reporting as much as a 65% increase in calls.
“If you’ve been evicted from your home and you’ve lost your job and they’re talking about unemployment rising, then what are you going to do?”
Desperate acts in down economies
It’s too early in the current downturn for national data crunchers to accurately observe fluctuations in suicides or crimes. And even then, analysts have a difficult time isolating motive, which is elusive. The underlying causes of crime trends always remain in dispute.
The fraud data are also incomplete because insurance companies generally don’t release comprehensive figures, said Frank Scafidi, a spokesman for the National Insurance Crime Bureau, a nonprofit that investigates fraud for the insurance industry.
“Most of us have a sense that when the economy’s bad, people will do things that they wouldn’t normally do, especially insurance fraud, but that’s nothing more than a sense that people have,” he said.
Still, the anecdotal indicators are hard to ignore. Nationwide, crimes of desperation are increasingly being chalked up to economic anxiety.