I don’t claim an increase would be automatic. But if real estate values and asessments drop by 10%, would a hypothetical county’s costs that are paid for by real estate taxes drop as well? Would the school teachers be eager to accept a 10% pay cut because their houses had declined in value?
Ultimately, each property owner is going to have to pay a share of the county’s costs.
Correct you are this will raise your basis. In this case only the extra value to the house is considered, not the total value of the house, in the increase. If it’s a small remodel, no big deal. A major renovation will cost you.
The tax break is like getting 40% off of your house payment early in the mortgage. It’s the only true tax shelter left for wage earners and it is significant. As rents go up, your house payment stays the same and eventually what is flushed is less for a home owner.
You said that “everyone’s tax rate would go up.” That is very unlikely. There are other possibilities like cutting services, going deeper into debt and raising other types of fees which is, in fact, what happened here from '90-'94.
This is a new claim. If true, this burden will be shared with the non-home owners through bond debt or an increase in other fees. The property tax rate will not increase.
Well, what I actually said was that “everyone’s tax rate is going to be headed up”. And when a county’s revenue falls short of its expenses, this indeed results in pressure to increase taxes.
One possibility you mention is that the county could borrow money. Quite common, but at best this defers the problem of the shortfall. Eventually, money will need to be collected.
Obviously, things are handled differently in different areas. Here’s how a Virginia county deals with tax rates:
Of course they are. California may be unique in this regard. The OP is from California which is why I gave such a specific answer.
When my wife and I bought our current home in 2000, we were “priced” for a house in the $350,000-450,000 range, more if we were to get an ARM.
Our agent couldn’t really understand why I refused to “maximize my purchase” (his phrasing) by buying a 1,500sq foot manufactured ranch on 1/2 acre for $92k instead of some McMansion (on a 1/2 acre :rolleyes: ) for $400k.
Well… in 2006, my damn PITI is less than $500/month (and will never increase), the value of the house is now ~$130,000, and we are in no danger whatsoever of taking a financial bath on an ARM, being unable to pay the mortgage in case of job loss, or watching our home depreciate so badly that we’re upside down on our loan.
Unlike some people I work with who are now sweating their ARM adjustments.
That’s why, Mr. Agent! 
Yup. During the housing boom, they were lowering rates to dampen the effects of insanely rising home values on homeowners. This spring, IIRC, they didn’t lower the rate for the first time in 5 or 6 years. But our assessments are based at least in part on market value of homes, so this makes sense.
Things have cooled off in my neighborhood, but not that much. All those McMansion communities waaay out in the exurbs and their ilk are taking a far bigger hit.
Boston, MA area here…the key indication here is that houses are taking FOREVER to sell! My brother-in-law has been trying to sell since last feb.-no offers! My guess is; due to the falling US dollar, we will have a fairly significant recession, in 6-12 months time. This will cause the value of RE to drop like a stone…its happened before. I’m looking forward to that, because i plan to buy some rental property on the cheap. But seriously, watch out-a LOT of people are going to get hurt.
I think that the lowering of the interest rates was what drove the booming market, not the other way around.
Some say the lowering was Greenspan’s call to keep the economy from tanking after the stock market fell apart. I don’t understand economics on that level deeply enough to really say whether that’s true, or even possible.
I read An Arky’s post to mean homeowners tax rates, not interest rates, Trunk.
Oh, you’re right. i glossed over what he was responding to.
Sorry, An Arky for thinking you’re a total moron for the last 5 minutes of my life.
One major difference in the last housing bust was that unemployment was much higher. A lot of people had lost their jobs and had no choice but to sell. This made things worse. If you don’t have to sell and you were planning on staying in your house long term, this will sting because you could have waited a bit longer to buy and gotten a better deal but it won’t be as devastating. The preceding, of course, is just lame speculation by another economics non-expert.
That’s OK, I’ve been thinking I’m a total moron for the last 43 years of my life…BA-DA-BOOM!
Yep, I was referring to the tax rates.
The literal answer to the Question is that there is no one Answer for the Country - but there is one for you – the depth and length of the correction will depend on your area. It is safe to say though that generally, unless you overpaid (often the best way to do this is by paying a premimum sweetner on a luxury property (traditionally +1million$ but that definition has moved upward in recent years), most real estate highs tend not to be 10 year highs in California. IOW traditionally, no matter where you were in the state, almost always what you paid for your house 10 years ago you can sell it for more today (NB with inflation and house payments that doesn’t mean you always make money, though more often than not it does, what it means though is that in time you can usually escape even a really bad Real Estate deal)
*Hedging because someone will come in with a Great Uncle in Bastaloosa who had a unique experience or someone will have made a bad deal, and then tried to sell at 10 yrs right as a correction occurred – but that is a generally true rule of thumb
Sounds like you are in good shape to ride it out. Don’t panic sell. There appears to be no reason to sell now. So don’t. Things will recover. The market won’t grow crazily for some years in most places, but pretty much no matter where you are, things will equalize enough that long-term you will be ahead if you can wait it out.
(A 2-year 12% market correction has a break even point of 4 years of 3% growth and you are talking 10 years - watch the rate predictions and if you are in an ARM think about a refi)
In my neighborhood (Bay Area) reasonably (hah!) priced housed seem to take a bit longer to sell, no longer get a premium, but pretty much get asking price. The exceptions seem to be the houses where someone buys them, guts them and rennovates, then tries to flip them as luxury houses. Their asking prices are way above average for the neighborhood, and they don’t seem to be moving at all. I’d guess that the owners need to get their asking price to make money on their investment.
My parents sold during the height of the boom-but my mother told me last week that real estate agents are now telling people it may take up to a year and a half to sell a home (this is in Lexington, where prices are generally pretty high, but houses used to turn fast).
My parents now live in an older neighbourhood in an adjoining town-the street over from them has new houses that were in the $1.1 million dollar range up till last year. I saw listings for new construction, not even people trying to offload homes they can no longer afford, in the very same neighborhood for 780K. It seems to me like that’s a pretty significant drop in 1 year.
Prices have remained steady here (so far) but houses are definitely staying on the market longer. The house across the street from me sold about six years ago. A guy heard a rumor from a FOAF that the house was going to be for sale. He knocked on the door, introduced himself and asked them what they were planning on listing the house for. They told him and he said, “I’ll take it.” Ten minutes later he knocked on the door again and told them. “Please don’t give it to anyone else. I’ll give you an extra $10k.”
One owner later with some renovation, the asking price as more than doubled. It’s been sitting for two months so far. They are holding open houses and very few people are showing up.
One longish term factor that might keep prices low I’ve seen cited is the retirement of the Baby Boomers. Millions of them live in suburbia, and many now want to shed the effort of maintaining that single family house on one acre of lawn. They’re looking to move for better weather, or maybe just into the nearest city, but either way they want retirement homes or condos, so therere are lots and lots of suburban houses that will be coming up for sale over the next decade +, and there might not be enough demand from those in the following generations to absorb them without significant price reductions.
Indeed.
Note that a new house is by no means exempt from “gotta dump it; can’t afford to keep it.” The boom produced a lot of new construction, no small amount of which is currently in seach of a buyer.
I was just surprised to see that large of a drop in one year. Granted 780K isn’t a small sum (though it’s a fairly standard asking price for these towns and you’re getting a lot of square footage as these are luxury homes) but it must suck for the people next door who bought when the range was in the high 900s to the low 1 million range.