3rdnlng Posted December 30, 2010 Share Posted December 30, 2010 (edited) Unintended consequences of the collapse of the housing market The sudden collapse of the national housing market initially attributed to mortgage financing problems but later stemming from economic recession and rising unemployment has resulted in lower investment expectations, slower turnover of homes, rising defaults and foreclosures and expanded inventories that are difficult to liquidate. Austin Jaffe, Ph.D. But there are a few surprising secondary effects: "Growing Property Tax Burdens — Property tax assessments are based upon the value of the property (land and buildings). With declining house prices, the property tax burden rises for the homeowner. It does not matter if the assessed value is established as equal to market value or some fraction thereof; property tax levies are likely to be set based upon some assessed value. These values are used only for property taxation but are determined by local tax authorities (sometimes using only the historic price paid at the time of sale and not adjusted over time but more often, increased via an index by the authorities). With recent declines, the effective property tax burden becomes significantly higher as a percent of the true (market) value. (Of course, overall assessed values could be lowered, too. But this is not likely these days.) Most local tax systems enable homeowners to appeal their tax bills to win lower assessments, however, this is often a costly and bureaucratic process. At the same time, communities with local income taxes have seen this source of revenue stagnate or decline and now look toward property taxes for an even higher percentage of funding local services. State and local government budgets are feeling the pinch from the economic slowdown so pressure is on to look for revenue. It is quite unpopular to consider higher property tax rates at any time – but especially these days. Yet, unlike the federal government, most state and local authorities are required by law to run balanced budgets. The Failure of Home Improvement as an Investment Strategy — One plan in the old real estate market was to buy, fix up, sell and move up. The idea was not just home ownership as a route to wealth creation; it also included remodeling and/or expansion to increase the modernity, quality and size of the asset. CNNMoney.com has just concluded that remodeling for profit-making purposes does not pay off. The article notes that the concept of remodeling for profit has been becoming less attractive for years and observes that 2010 has seen a “particular decline” in the percentage of home improvement costs recouped. They report that only about 60 percent of remodeling costs are typically recovered at sale, about 16 percent less than the average a year ago. They conclude that the more spent for a job, “the lower the percentage of return.” No Wealth Accumulation Through Home Ownership. Many of the Baby Boomers’ plans have gone astray since homeowners can no longer rely on rising house prices to provide a source of funding for home improvements, college tuition, vacation or other needs and desires. Equity build-up remains available for fixed-rate mortgage borrowers (the savings portion of the borrower’s monthly mortgage payment kept by the lender until sale) but it is quite slow to accumulate. When house prices decline significantly, the reduction in equity easily exceeds the accumulation of equity through the sinking fund provision built into the fixed-rate mortgage commonly known as equity build-up. Estimates are that the equity reductions since the peak of the housing boom now exceed 50 percent for the typical household. This is greater than the decline in house prices because of the leverage effect. In other words, when house prices fall, the existing debt remains the same so dollar-for-dollar, the reduction comes out of equity. (Remember: when prices were rising and debt was fixed, it was common to cheer the gains from leverage!) Most economists rely upon the theoretical notion of market equilibrium, a cornerstone in neo-classical economics. There is an overall belief that the current housing market is slowly making its way to stabilized conditions and a new equilibrium. Along the way, there are substantive difficulties and often unintended consequences". Should make everyone feel better, eh? Edited December 30, 2010 by 3rdnlng Link to comment Share on other sites More sharing options...
DC Tom Posted December 31, 2010 Share Posted December 31, 2010 Just curious...were there intended consequences? Link to comment Share on other sites More sharing options...
ExiledInIllinois Posted December 31, 2010 Share Posted December 31, 2010 I just don't see how housing is gonna get "better"... We gotta stop think that it will return to what it has been... That was an aberration. Just do the numbers and a whole generation retiring... How can it possibly get "better" for many years to come??? Let's take the good for what it is: CHEAP HOUSING! :thumbsup: In all honesty I couldn't put my finger on it 10 years ago when the whole refi-boom was taking off... All that was in the back of my mind was that a whole generation will need "cheap housing" when they retire... I guess we got it! Yet, I knew to stay the course with a relatively easy mortgage and make a plan to get off the bastard mortgage as quick as I could! Just think of all the wealth and property that wil be getting passed down in the coming years as people start to croak. Anyway... Sorry... Carry on... Link to comment Share on other sites More sharing options...
/dev/null Posted December 31, 2010 Share Posted December 31, 2010 (edited) Just think of all the wealth and property that wil be getting passed down in the coming years as people start to croak. You mean all those old white people that are going to die soon? As the beneficiary of an old white guy with a heart condition, Let me just say that I care a fraction of a percent of helluva more about your carp than I do about what's on TV right now Edited December 31, 2010 by /dev/null Link to comment Share on other sites More sharing options...
ExiledInIllinois Posted December 31, 2010 Share Posted December 31, 2010 As the beneficiary of an old white guy with a heart condition, Let me just say that I care a fraction of a percent of helluva more about your carp than I do about what's on TV right now That makes two of us! Link to comment Share on other sites More sharing options...
KD in CA Posted December 31, 2010 Share Posted December 31, 2010 No Wealth Accumulation Through Home Ownership. Many of the Baby Boomers’ plans have gone astray since homeowners can no longer rely on rising house prices to provide a source of funding for home improvements, college tuition, vacation or other needs and desires. Equity build-up remains available for fixed-rate mortgage borrowers (the savings portion of the borrower’s monthly mortgage payment kept by the lender until sale) but it is quite slow to accumulate. When house prices decline significantly, the reduction in equity easily exceeds the accumulation of equity through the sinking fund provision built into the fixed-rate mortgage commonly known as equity build-up. Which is exactly how it should be. You're not supposed to be tapping into a !@#$ing home equity line every two months to pay for your latest whim. Regardless of property market fluctuations, you pay your mortgage each month and by the time you're ready to retire, you've paid it off and own the house. Link to comment Share on other sites More sharing options...
Nanker Posted December 31, 2010 Share Posted December 31, 2010 Just curious...were there intended consequences? Perhaps "unexpected" consequences from the perspective of zealous home buyers that know housing values only increase in value. They never decrease - do they? Which is exactly how it should be. You're not supposed to be tapping into a !@#$ing home equity line every two months to pay for your latest whim. Regardless of property market fluctuations, you pay your mortgage each month and by the time you're ready to retire, you've paid it off and own the house. Bingo! Except that one never truly "owns" real property. Just try not paying your property taxes for two or three years. You'll find out who really owns the place. Link to comment Share on other sites More sharing options...
/dev/null Posted December 31, 2010 Share Posted December 31, 2010 That makes two of us! So you were watching Ancient Aliens too? Link to comment Share on other sites More sharing options...
KD in CA Posted December 31, 2010 Share Posted December 31, 2010 Bingo! Except that one never truly "owns" real property. Just try not paying your property taxes for two or three years. You'll find out who really owns the place. Don't worry, eventually the liberals will get around to talking about how ownership of property is 'unjust'. Link to comment Share on other sites More sharing options...
DC Tom Posted January 1, 2011 Share Posted January 1, 2011 Don't worry, eventually the liberals will get around to talking about how ownership of property is 'unjust'. "Get around to"? Link to comment Share on other sites More sharing options...
Nanker Posted January 1, 2011 Share Posted January 1, 2011 Don't worry, eventually the liberals will get around to talking about how ownership of property is 'unjust'. "Get around to"? Oh yes, they have quite a history of it already. One of the social anthropologists that Marx cited was Lewis Henry Morgan, who's work studying the Iroquois included their beliefs about "private" property - or the lack thereof. Property was considered communal with only transitory ownership recognized - at best. Morgan's buried at Mt. Hope Cemetery in Ra-cha-cha. His theories on social evolution are regarded as foundational by many on the left. 'Hey hey motha- phokka, get outta yo kar 'fo I blow a cap in yo azz. This is a "People's Chevrolet" now. Take a phokkin' hike.' Link to comment Share on other sites More sharing options...
ExiledInIllinois Posted January 1, 2011 Share Posted January 1, 2011 Regardless of property market fluctuations, you pay your mortgage each month and by the time you're ready to retire, you've paid it off and own the house. That is IF people actually stayed in the same house for 15-30 years. You think that is happening. People are moving around as much as they change their underwear. IMO, it is the constant "upgrade" mentality that is just as bad as people tapping into their equity. So you were watching Ancient Aliens too? Be careful who you talk with. Don't worry, eventually the liberals will get around to talking about how ownership of property is 'unjust'. Why is it "unjust?" Link to comment Share on other sites More sharing options...
Chef Jim Posted January 2, 2011 Share Posted January 2, 2011 There is absolutely nothing wrong with having a mortgage in retirement. If you plan properly you should have enough retirement income to pay all your fixed expenses including a mortgage. Link to comment Share on other sites More sharing options...
Rob's House Posted January 2, 2011 Share Posted January 2, 2011 Question: Just curious...were there intended consequences? Answer: I just don't see how housing is gonna get "better"... We gotta stop think that it will return to what it has been... That was an aberration. Just do the numbers and a whole generation retiring... How can it possibly get "better" for many years to come??? Let's take the good for what it is: CHEAP HOUSING! :thumbsup: In all honesty I couldn't put my finger on it 10 years ago when the whole refi-boom was taking off... All that was in the back of my mind was that a whole generation will need "cheap housing" when they retire... I guess we got it! Yet, I knew to stay the course with a relatively easy mortgage and make a plan to get off the bastard mortgage as quick as I could! Just think of all the wealth and property that wil be getting passed down in the coming years as people start to croak. Anyway... Sorry... Carry on... I do think that consequence was intended and I don't think Barney Frank and the rest of the guys who were dick deep in Fannie/Freddie were at all shocked by what happened. They may be stupid, but they're not dumb. Link to comment Share on other sites More sharing options...
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