Monday, April 14, 2008

The Doom and Gloom of the Housing Market

We have been treated to an unending series of reports in media outlets about how badly the housing sector of the economy and its trickle down effect on other segments, including furniture retailers, retailers in general, and the overall slowdown in the economy.
In today's economic climate, even holding onto what they already have is a challenge and source of distress for significant numbers of homeowners. Nearly three in 10 said they are concerned their home's value will decline over the next two years, while 14 percent of mortgage holders expressed worry that they might miss payments in the next six months.

One nervous homeowner is Daniel Gallego, a warehouse worker in Stockton, Calif., who said in a followup interview that he may have to sell his house at a big loss.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

He said the rising cost of gasoline and other expenses have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now before his rates rise.

One in 10 have adjustable rate mortgages, half the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions — which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.
Many of these people are in an unfortunate situation, but another factor that isn't getting much play in these media stories is the role of increased taxes hitting homeowners. Municipalities keep hitting up homeowners for more taxes every year, and even those who are in fixed rate mortgages are going to feel that pinch. It hits those who have limited income options (those on Social Security for example) hardest.

Some states, like New Jersey, continue to play shell games with property taxes, claiming that they will provide homeowners with tax relief plans, but they simply redistribute tax revenues from other sources that were increased to cover those costs. In the end, homeowners get hammered from every angle by tax increases. Increases in energy costs aren't helping matters either.

However, it would be nice if the media and politicians would both start looking at all the reasons that homeowners are in a precarious situation with respect to the mortgage situation instead of just at adjustable rate mortgages or those who entered into subprime mortgages.

Also, concern about price drops of homes don't really matter to those who own homes unless they are hoping to open up lines of equity or intend to sell their homes. If you are buying your home for the long run, a short term prospect for a drop in home price isn't going to be felt.

If you happen to be in the market for a home, this does become a good time to buy since homes are more likely to be priced according to current market situations instead of pie-in-the-sky figures from months ago that themselves were based on sales data from when the markets were still hot. Now that the markets have cooled off, comparable sales will show that prices have edged downwards.

The Record of New Jersey posted a story about homeowners in distress, and nowhere in the article does it mention taxes. New Jersey has the highest property taxes in the nation - averaging $6,800 per year. That's a cost that gets passed on to renters as well, in the form of having the fifth highest rents in the nation.

Control taxes and you're able to make homeownership and renting more affordable in the state.

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