Sunday, February 8, 2009

Trust the experts?

Twelve to 18 months ago, the biggest problem in the real estate market was owners "trapped in their homes".

"[T]he housing boom" of the past few years had an unintended effect on homeowner's tax bills. Because the rate of "increase in a home's assessed value" for property tax purposes was slower than the rate of increase in the home's market value, property taxes on long term homeowners were artificially low. Any long term homeowner moving or down sizing would face tremendous increases in property taxes on their new residence.

The supposed solution? "[T]he Amendment 1 property tax campaign with a promise: if the referendum passed, they would no longer be 'trapped in their homes.''' "The centerpiece of the amendment was portability, the ability for homeowners to transfer from one home to another up to $500,000" in assessed value for property tax purposes.

The reality? "[T]he converging forces of the worldwide credit crunch, the explosion of home foreclosures and the resulting surplus of homes had a chilling effect. By the end of 2008, 39,000 homeowners transferred only $3.1 billion worth of tax savings to new homes, a fraction of the estimate, according to revenue department reports."

The reason? "'The problem is, people can't sell their home to be able to move' . . . 'Whether it is effective in getting the real estate market going isn't going to be known until we get this glut of foreclosures off the market.'"

In other words, people are now trapped in their homes by declining property values, in some cases to levels below their mortgage balances. The problem was not portability, but over inflated values which led to market collapse. A situation no one predicted.

So, why do we still keep listening to the prescriptions of all the financial experts and economic bureaucrats and real estate professionals? They've been wrong about EVERYTHING.

No comments: