Home prices are plummeting nationwide as the irrational exuberance of the HGTV-inspired, subprime-mortgage-fueled, and Federal Reserve enabled Housing Bubble finally bursts.
As far as I can tell from the news reports, most people in America are either in foreclosure or else paying their skyrocketing adjustable rate mortgages with the variable rate credit card debt they aren’t already using to buy astronomically-priced gasoline. Clearly, this crisis is the biggest crisis since the last crisis, which I think had something to do with a war in the sunny heartland in the Midwest… or maybe that was the Sunni heartland in the Mideast?
Anyway, the point is, people are losing their homes and having imaginary spending power gobbled up by the abstract black hole of rapidly evaporating and entirely unrealized capital gains in that most sure of all investments: your very own home.
A number of solutions to the crisis have been proposed: most seem to center on politicians expressing wonderment and outrage that people are being asked to pay back the money they borrowed from evil banks. As if this weren’t bad enough, it also appears that many variable rate mortgages have rates that are somehow varying! Who knew that that 0.1% introductory interest rate you got on your THREE YEAR ADJUSTABLE RATE MORTGAGE could be adjusted just three years after you got the mortgage? Unclear terms! Predatory lending!
But if government really wants to help, the strata of administrative oppression that can really do something is not the federal government, but local towns, cities and counties. They’re the ones that tax property based on its value, after all.
Local governments across the country were quick to send out the reassessments when property values were magically rising year after year during the bubble. And why not? Property tax reassessments are the ideal tax increase: no one has to vote on them, they single out a minority of the voters in any given year (thus preventing nasty tax revolts) and half the people getting these reassessments will be so bewildered by the small shiny object of their allegedly increased home value that they will think they just won something. Increasing property values — now that’s the sort of problem a taxpayer ought to have! Idiots.
(The only time anything has value is when it’s actually being sold. At all other times, value is just a guess.)
Well now the shoe is in the other butt, and values are falling. If local governments really want to be fair to taxpayers…. HA HA HA HA HA HA HA! Snort! Oops, sorry, I couldn’t finish that sentence without laughing for some reason. Anyway, if local governments really want to be fair to taxpayers they will need to quickly send out new lower assessments of property value — and lower taxes accordingly.
This isn’t just about being fair, either, but about a real solution to falling property values. Few factors can affect property values as directly as property taxes. Property taxes are figured into the maximum monthly payments that any potential buyer of a home can afford. Every dollar paid in taxes directly and substantially reduces the amount of mortgaged money that qualified borrowers will be given to bid on a property. For example, every $100 in additional taxes that must be made in a monthly payment reduces the size of the mortgage that a borrower can afford by $15,000 (based on a 30-year fixed mortgage at 7%).
Reducing property taxes increases home values by increasing the amount of money (and number of qualified buyers) available to bid up prices in the area.
Reducing taxes also gives those suffering from the adjustable part of their adjustable rate mortgages real money each month with which to make their payments — thus avoiding foreclosures, which can have a devastating effect on home values in a given area.
The problem with this solution to the mortgage “crisis” is that it takes money away from government. Why should government have to cut back, just because the economy takes a turn for the worse? The town really needs a 4th salt truck and some party official’s worthless brother-in-law can’t really be expected to go out and get a job in the private sector. Plus, how will the schools ever stop failing the no-child-left-behind standards if they don’t get more money every year, year in and year out?
When values were going up, assessments were prompt and unavoidable. Now that values are going down, well… what do you bet that things are fine just how they were last year?
Of course, there’s nothing to keep millions of homeowners from challenging the assessments of their houses this year. The facts are on their side. And we must always remember that every dollar we deny to government is a dollar that might go on to live a productive and useful life in industry and commerce. So challenge your property taxes this year.
Do it for the dollars.
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