Housing Bubble Bursting?

[23Degrees]

In Old Creek Ranch - San Marcos, CA

Property tax/mello roos rate is still up there at 1.6%, or $1,100 per month.

It is intereseting when someone brings up the tax issue, I have not run into it too much but to someone who bought at or near the bottom it can be a big deal. It is probably going to be recognized as a big deal for those who bought later and have ARMS that are about to explode too.

Go ahead and sell that condo for 400% appreciation. You can use the funds to buy a bigger better place in the same area and maybe even end up with the same size mortgage payment you had before. Guess what? - your taxes are going to be comparable to a very sizable chunk of your total housing expenses before you moved. This can even be the case for folks wishing to downsize and don't qualify for the property tax transfer program that I hear is reserved for the more mature among us. For folks with fairly stable incomes over the period I'm betting this can become a deal killer without all the fancy toxic teaser rate mortagages that will no longer be available - even if they have serious equity. Unless of course they are selling in Southern Cal and moving to a non-bubble market.

I know my thinking on this may be somewhat rudimentary but it definitely played a role in my personal decisions once the property values in my area blasted past the point where the yearly tax bill, even for a similar property to mine, would have become a much more burdensome load to carry.

 

[murray stroupe]

Re Excellant info; but Ben B Fed head is against raising limits to $500,000

Got this from DOCTOR HOUSING BUBBLE , It's hoot...
H.R. 1852 Objective Number One – Bailout the Lenders.

Posted: 20 Sep 2007 12:21 PM CDT


You can tell it is an election year when political operatives try to pander to every single group with no long-term thought process of the implications of instant gratification. Maybe that is why the United States on a personal level, has a negative savings rate. How can the government encourage people to save and be prudent when they do the complete opposite? Let us take a look at the winners with this newfound ease in lending:

Home Loans: Winner because they become cheaper

Lenders: Winner since they are given a lifeline to do more loans

Savings Account: Losers since your interest rate is lower than inflation

Dollar: Loser as you can clearly see by the drop below the 80 support level


Pretty basic right? But if you think about .......Take a look at this press release issued a few days ago from the House Committee on Financial Services:


· Lower Down Payments. Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.


Down payments exist for a reason. They show that a prospective buyer has the ability to tighten their belt and manage their finances for a few years to purchase a home; normally this is achieved by foregoing spending on other discretionary items.

· Housing Counseling. Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.

Do we really need housing counseling?

The folks that need “counseling” are the lenders and the policy makers for thinking this is a good long-term strategy.

· Subprime borrowers. Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.
Reverse Mortgages. Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses, by removing the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.

What .......credit doesn’t matter, saving is irrelevant, and bad financial moves will have a bailout from the government. Does this make sense?


Then the reverse mortgage portion is just classic. You can see the light bulb over these congressmen go off. “Next year is so important. Older voters are an important constituency group.” Since Social Security is peanuts and the cost of living adjustments are based on ministry of truth data, they only see marginal increases. The majority don’t have adequate savings but what do they have? Over inflated home equity! How about we slap on another virtual ATM and drain all their savings so instead of the equity going on to their children or grandchildren, it will go to the good old government. Amazing planning here. Let us keep reading.


· Multifamily Loans. Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.

You really need to put on your doublespeak reading glasses for this one. So they want to raise FHA multifamily loan limits to encourage affordable housing? They are basically forcing prices to go up. If the market played itself out, construction companies that are able to acquire cheaper resources and labor would be forced to pass on the savings to consumers via more affordable housing. But this legislation assumes that current housing bubble prices are justified and are trying to institutionalize them under the guise of good public policy. What we need is less legislation and more open market competition. Think about it. If you have two companies and materials are being driven down because of competition and efficiencies, then the company that can provide lower priced goods to the market will win. That means lower priced homes and more sales. Did you notice how Hovnanian had no problem attracting buyers when it slashed prices by $100,000? But here, we have this big government mentality and you’ve seen the ridiculous budgets where toilets cost $2,000 and pens go for $30 each. Do you really think these companies compete when they know they have a locked in price? Why do you think communism failed so miserably? And the language is scary. What do they mean “fully fund construction costs” in bubble areas? They call them more expensive areas instead of overpriced bubble metro areas fueled by rancid loans but I think the PR folks removed that language. This is a blank check. Make sure you contact your representatives in both houses and contact the White House to veto this. Maybe Bush will dust off the pen and use it for once.

· Affordable Housing Fund. Authorizes up to $300 million a year from the bill’s excess profits for affordable housing, instead of returning such funds to the General Treasury.


You don’t need the affordable housing fund if you relax zoning rules, stop bailing out lenders, and make these folks accountable for their actions. They are trying to seal high prices into the system as a paradigm shift. These folks want you to believe that higher prices are just a thing of the modern day as opposed to being fueled by exotic funky lending and mass greed.

· Higher Loan Limits. Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95% of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national GSE conforming loan limit. The amendment also also retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”

This is the one that is getting everyone worked up. How is raising loan caps going to help the family on main street USA by pushing limits over $500,000? I thought the median price was somewhere around $225,000 for most Americans? Oh! I forgot. Lenders make their most profits from overpriced bubble metro areas therefore we should ask our brothers and sisters in Wyoming, Montana, Arkansas, and every other non-bubble state to contribute to their mass greed. Make no mistake. This bill is 95 percent for the housing industry. It will not help you or your family if you are facing foreclosure. They will use the 1 or 2 examples to get media heart bleeding and lenders going into crying moments (did you see that Youtube video of the guy pleading for Brittany?); it’ll be something to that effect but everything is garbled up in this translation. Pandering at its finest. How is someone in a high priced area with a $400,000 or $500,000 mortgage with a family income of $50,000 going to get help if the main problem is a pricing and income issues? Unless they want to give everyone a 50 percent mandatory raise, I’m not sure how this helps anyone except lenders on the large part by washing their hands clean ala Pontius Pilate of unethical and corrupt mortgage products?


Doublespeak: Helping Minorities Pad our Bottom-line


Someone once told me that getting married is easy, staying married is the hard part. During a presentation, one of the nation’s mortgage lending leader reiterated their goal of helping minorities to own homes. The government always throws this PC statement out. The last few years these lenders have done the most damage to minorities. Guess who are the folks who are losing their homes because of subprime lending in the largest numbers? These greedy lenders didn’t care about folks’ long-term well being, they only cared about putting people into homes and getting their nice commission cuts. So what if 1, 2, or 3 years down the road the family drowns in their own debt service? Setting people up for failure is not the American way.


The fact that many are subprime meant they couldn’t afford homes to begin with. Simple way to avoid this mess from the start. If people want to buy homes why is it so bad to ask that they save a minimal down payment? You know why? Because this slows the real estate complex down. During this time people aren’t buying, selling, refinancing, busting out home equity lines of credit and all things where the housing Ponzi Scheme gets their money from. To use this “we are helping minorities” line is arrogant and absurd. Why don’t they address the real reason that of massive inequities in pay for minority groups? Oh! We can’t talk about income because that is taboo. Yet they are okay with putting people into ticking time bombs. A good senator and representative, for example, in voting for a war should always ask themselves if they would send their own child to a conflict. In the case of lending, a good lender should be required to ask, “would I loan this person money if it came out of my own bank account?” Guess what your answer would be?

==============
Quite a read, agree with most all of your points,Greg;
especially headline.

Couple other points probably prefer a strong dollar, but thats not the first time i got outgunned;
but frankly it certainly does smooth the way for-USA exports more desirable.

And not saving some because of inflation/any other reason is silly/irresponsible.
Disagree -auto payment makers are winners because of a possible smaller finance charge.

Thanks

 

[MARK JOLLIFF]

What do you guys think of prop 13? For those of you not in Cali your property taxes is based on 1% of your purchase price and is fixed for as long as you own the home. Some supplements get passed however that can raise your tax bill. For instance I purchased my home for 235k in 1999 and my taxes is now 3k. I think if homeowners that are buying up are allowed to at least take part of their tax basis with them then that would help kick start the market. For example last year my mom's partner of 30 years passed away and due to finances it was necessary to move her in with me. I had a 3/1 @ a 1000 sq. ft at the time. I had 400k in equity and 200k from the sale of her home. I could have easily purchased a 4/2 in Walnut Creek for around 850k and moved to an area I've always wanted to live in. Instead I spent 220k adding a family room and bath and went through the whole house replacing everything. The reason I didn't purchase the new home was the property taxes! With supplementals I was looking at 10k a year! I want to retire in five years and 800 a month in taxes and another 1500 in supplementals would put a strain on my pension. so what do you guys think of allowing people moving up a break on their prop taxes as a way to stimulate the market?

 

[Randolph Kinney]

What do you guys think of prop 13? For those of you not in Cali your property taxes is based on 1% of your purchase price and is fixed for as long as you own the home. Some supplements get passed however that can raise your tax bill. For instance I purchased my home for 235k in 1999 and my taxes is now 3k. I think if homeowners that are buying up are allowed to at least take part of their tax basis with them then that would help kick start the market. For example last year my mom's partner of 30 years passed away and due to finances it was necessary to move her in with me. I had a 3/1 @ a 1000 sq. ft at the time. I had 400k in equity and 200k from the sale of her home. I could have easily purchased a 4/2 in Walnut Creek for around 850k and moved to an area I've always wanted to live in. Instead I spent 220k adding a family room and bath and went through the whole house replacing everything. The reason I didn't purchase the new home was the property taxes! With supplementals I was looking at 10k a year! I want to retire in five years and 800 a month in taxes and another 1500 in supplementals would put a strain on my pension. so what do you guys think of allowing people moving up a break on their prop taxes as a way to stimulate the market?

MARK,

You are pointing to exactly why new houses are not built when they should be or there is an implied housing demand that goes unfulfilled.

People buy starter homes but at some point in the future they want to move up to a larger home. It makes more sense to add a second story or room additions than to face the huge cost to buy new and pay higher property taxes and Mello-Roos tax. You are demonstrating that point.

I don't think the politicians will go for tax equalization without removing Prop 13.

 

[MARK JOLLIFF]

MARK,

You are pointing to exactly why new houses are not built when they should be or there is an implied housing demand that goes unfulfilled.

People buy starter homes but at some point in the future they want to move up to a larger home. It makes more sense to add a second story or room additions than to face the huge cost to buy new and pay higher property taxes and Mello-Roos tax. You are demonstrating that point.

I don't think the politicians will go for tax equalization without removing Prop 13.

Thanks for the reply! I would have moved in a second if there was someway to alleviate at least some of the new tax burden! However I think you are correct. Nothing will change.

 

[23Degrees]

Mark

Based on a quick google search it appears that those 55 and over can transfer the tax base if you sell and buy a less expensive home. Other than that, those of us who are inhibited by the tax issue despite having massive equity have the choice of either leaving state or ????

Many recommend selling and renting but again, someone paying a mortgage balance from the 90's when prices were in line with incomes could be looking at a 50% or more increase in housing expenses to do so and rent out a similar home to the one you just left. And then what?? Pray for the collapse to be quicker and more cataclismic? Realizing just how dumb the government can be there would always be the chance that some form of bailout could continue to sustain prices at elevated levels for some time. Then you may be looking at being locked out for an extended period of time or buying back in at a much higher tax burden. On the other hand if you don't sell you'll be watching equity do the slow drip (or fast flush) out of your home. Nothing looks like a safe bet unless you are moving from LA to an area with median home prices that are substantially lower - then you are sitting pretty.

After the market value of my home tripled in a very short period of time I reconciled my equity could very well primarily be froth and unless I wanted to leave my nice oceanside area I should start to look at it as such and try not to feel so wealthy. When the insanity continued and it had more than quintupled and the tax issue become a serious detriment to moving I knew it was time to get comfortable where I was even if a starter home is not exactly where I pictured myself at this point in life.

So be it - if there is no monkeying around by the Govt. home prices should be taken care of by the market and eventually fall back in line with incomes and then people like you and I can be remiss about our lost equity but can take heart from being able to buy a home at that point without being stuck with a yearly tax burden that would be untenable long term.

 

[MARK JOLLIFF]

Mark

Based on a quick google search it appears that those 55 and over can transfer the tax base if you sell and buy a less expensive home. Other than that, those of us who are inhibited by the tax issue despite having massive equity have the choice of either leaving state or ????

Many recommend selling and renting but again, someone paying a mortgage balance from the 90's when prices were in line with incomes could be looking at a 50% or more increase in housing expenses to do so and rent out a similar home to the one you just left. And then what?? Pray for the collapse to be quicker and more cataclismic? Realizing just how dumb the government can be there would always be the chance that some form of bailout could continue to sustain prices at elevated levels for some time. Then you may be looking at being locked out for an extended period of time or buying back in at a much higher tax burden. On the other hand if you don't sell you'll be watching equity do the slow drip (or fast flush) out of your home. Nothing looks like a safe bet unless you are moving from LA to an area with median home prices that are substantially lower - then you are sitting pretty.

After the market value of my home tripled in a very short period of time I reconciled my equity could very well primarily be froth and unless I wanted to leave my nice oceanside area I should start to look at it as such and try not to feel so wealthy. When the insanity continued and it had more than quintupled and the tax issue become a serious detriment to moving I knew it was time to get comfortable where I was even if a starter home is not exactly where I pictured myself at this point in life.

So be it - if there is no monkeying around by the Govt. home prices should be taken care of by the market and eventually fall back in line with incomes and then people like you and I can be remiss about our lost equity but can take heart from being able to buy a home at that point without being stuck with a yearly tax burden that would be untenable long term.

Very well said! I realized it was time to get comfy and stay put. I'm 47 now and at 55 I can move and take my basis with me. Now that I've done all this work I think I'm staying put. Weird to think a dumb garbage man can go shopping for $850,000 houses but can't afford the taxes.

 

[23Degrees]

Weird to think a dumb garbage man can go shopping for $850,000 houses but can't afford the taxes.

Not only did he go shopping, he bought the house. And he could afford the taxes because he was interest only, teaser rate with negative am or some other such garbage. His home is now worth less than 800K and his ARM is going to explode at which point he won’t be able to afford both the mortgage and the taxes whether he manages to refi out of that high reset rate to a more conventional rate or not. Then we get to watch what happens:

A - He gets bailed out one way or another delaying the normalization of home prices but bringing on increased inflation – the dollar gets crushed even more and everyone’s equity gets blasted anyway even if they are unaware of what is happening right under their noses.

B - He doesn’t get bailed out and has to walk away, home prices normalize and everyone’s equity gets blasted – here at least they will know that they are not as wealthy as they used to be (or thought they were).

Just my musings – if I’m wrong I’m wrong but then again……

 

[ZZGAMAZZ]

Funny Example:

 

[ZZGAMAZZ]

Leaving Las Vegas following the recent A.I. convention, the bellman who was wheeling our luggage to the valet stand asked whether, as appraisers, we felt that the properies (multiple) that he had purchased last year were a continued good investment...