Loudoun County, VA - the wealthiest county in the nation (income per household) is facing a budge shortfall of $251 million due to housing downturn. With a population about 275,000. That is a shortfall of almost a thousand dollar per capita.
"It's difficult to overstate the importance of real estate values on the county budget. In the budget adopted by supervisors last spring, taxes from real estate accounted for 72 percent of all county revenues, most of which is used to fund school projects and programs"
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Seems local governments got caught up in the excitement and increased their spending in line with the rapid increase in tax revenues over the last few years as housing values rise. I wonder why homeowners and renters alike did not demand a reduction in property tax rates as home values increased so dramatically? Local governments may now look to increase tax rates rather than cut programs or salaries.
ReplyDeleteTies in with low mortgage demand:
ReplyDeletehttp://money.cnn.com/2007/12/19/real_estate/mortgage_applications.ap/index.htm?postversion=2007121907
Puts the housing market in perspective. Mortgage applications are way down from the peak. However, by historical standards, mortgage applications are still incredibly high.
I wish DC had better sales stats. The areas that have better information are showing a December nose dive in sales and prices. Oh well... we'll see december's Case-Shiller at the end of February. The normal 'slow season' seems destined to set 20 year lows nationally. Wow!
But hey, its different in DC. I mean different inside the beltway... I mean different on this street. ;)
oh, here is a link on the Fed's proposed tightening of lending rules:
http://money.cnn.com/2007/12/18/real_estate/fed_tightens_lending_rules/index.htm?postversion=2007121821
Got popcorn?
Neil
"It's beginning to look a bit more desperate, isn't it," said Jonathan Loynes at Capital Economics.
ReplyDeletefrom a better link on the Fed:
http://washingtontimes.com/article/20071219/BUSINESS/916712885/1006
split in case it doesn't fit:
http://washingtontimes.com/
article/20071219/BUSINESS/
916712885/1006
Anon 12:24. They can try to raise taxes, but too many home owners cannot afford taxes at the current rate. Renters and select owners are far too mobile to put up with punitive taxation. (e.g., my brother and a few friends working outside the US). If they go that route it will create a spiral of declining revenue. reference:
http://en.wikipedia.org/wiki/Laffer_curve
Not to mention ACA going to junk is really throwing the bond markets into an interesting spin. All interesting... was the WSJ noted, it will take years to sort out this mortgage mess. Cest la vie.
Got popcorn?
Neil
Worse, a great many municipalities made "out year" commitments that can never be honored. A couple years of reduced revenues is nothing. The granting of retirement and other obligations are going to crush them.
ReplyDeleteIt sounds like Loudoun County will have to stop budgeting for new schools ... which has been its biggest budget item by far. And in the nick of time since there won't be a need for new schools with the housing boom stopping. Jeez ... isn't it funny how well the free market works. But wait ... don't Bubbleheads advocate greater government intervention to "protect" us all from the price mechanism of supply and demand?
ReplyDeleteActually they lowered rates in 2006. Given the growth, Loudoun has had to spend a lot of money on infrastructure (schools, libraries, etc) and roads. My wife works at school that just opened in loudoun, initially they were planning on 3 classes for her grade, by the first day they had 4 classes, some of which reach the maximum kids per class. I'm not saying Loudoun hasn't spent their money perfectly, but if I look around you can actually see where a good chunk of it is being spent.
ReplyDeleteLance said
ReplyDeleteBut wait ... don't Bubbleheads advocate greater government intervention to "protect" us all from the price mechanism of supply and demand?
Only in sensible mortgage rules. The defaults are getting staggering. Its not the renters putting the banking system on crunch time.
The question is, can the county cut spending as fast as revenue is dropping? I'm serious. Construction contracts come with back out penalties.
The issue isn't one county, its the fact that tax revenue is plummeting nationally. Its the issue that every one of the large states is going to have to cut spending. Do you really think that won't spread through other parts of the economy?
Got popcorn?
Neil
It's not the bubble causing the shortfall. It's the return to normal prices.
ReplyDelete"But wait ... don't Bubbleheads advocate greater government intervention to "protect" us all from the price mechanism of supply and demand?"
ReplyDeleteDo you ever find yourself getting tired of making up stuff about what "bubbleheads" supposedly believe?
I haven't been reading here all that long compared to some but I have never seen one of your "bubbleheads believe" jokes that was funny.
Were they funny when you started? Or are you just not that funny?
Princeton University economist Paul Krugman discusses the housing bubble here. It's a YouTube video that takes a little over an hour.
ReplyDeleteOddly enough in McLean this week I saw an odd sight; 'Under Contract' and 'Sold' signs. A total of four of them, on houses that have been for sale for a long time, I think in two of them for over a year.
ReplyDeleteThis does not meant that I think the market is getting any better, just that the people doing the selling re-adjusted their prices.
One of these was going for $1.4 mil, so it's hardly any indication of where the market might be going. (On Great Falls Street, Zip 22101)
Story out today 46 foreclosures in Culpepper Co. in the last 6 weeks. Compare that to the mere 30 some odd sales, and it is likely that foreclosures are exceeding sales - wow.http://www.insidenova.com/servlet/Satellite?pagename=ISN/MGArticle/CSE_MGArticle&c=MGArticle&cid=1173353912435
ReplyDeleteIf a senior-editor at Fortune calls it a bubble, is it a bubble Lance?
ReplyDeletehttp://money.cnn.com/2007/12/20/news/economy/fed_mojo.fortune/index.htm?postversion=2007122009
I just want to say this. I live in LoCo and we JUST voted to go Millions of $ in to debt, in November. We the people voted to pay for new school, police, library, community, fire facilities, etc.
ReplyDeletehttp://www.loudoun.gov/
Default.aspx?tabid=1726
we voted YES for all but one of these. Hardly anyone in the county voted because it was local election, that we have voted in all this debt, (or failed to vote NO to all this debt) Now are we all gonna complain about property tax?? Where do the voters of LoCO think all this bond money ($68M) is going to come from??
I looked at the statistical data and posted two threads ago. Since sales are off more than two standard deviations, we can officially declare the previous process "broken." (That is why one does an ANOVA analysis.) I'm blog a much more detailed article with charts and tables after Christmas. Last time sales were off their decade average was 2004... when they shot high and sent us into the bubble.
ReplyDeleteConclusion? The bottom is 18 to 24 months away. Oh... the core of DC is only lagging the exurbs by 3 to 4 months... In other words, its not different here.
Sadly, employment is getting soft:
http://biz.yahoo.com/ap/071220/jobless.html
Got popcorn?
Neil
We will see what will happen to center city DC if the Dems win both houses and the prez. Especially if its Obama or Edwards. Wonder where all those new big pharma lobbyists are going to live.
ReplyDeleteStory out today 46 foreclosures in Culpepper Co. in the last 6 weeks. Compare that to the mere 30 some odd sales, and it is likely that foreclosures are exceeding sales -
ReplyDeleteWOW! Toast. Of course Lance will note that this isn't in the inner circle and thus couldn't ever impact his home value. ;)
Do look at the statistical data... I'm shocked we're at a 2 sigma delta on sales. Everywhere is reporting in slow December sales. 'Jim the Realtor' is noting that San Diego Sales are down over 50%. Bay Area Reports slow December sales... DC? I doubt it will change.
So ACA and MBIA have been downgraded. Besides Ambac, is there any large bond insurer that hasn't been downgraded to the point they can still do new under-writting?
It looks like the stigma of walking away from a home is gone. That's going to shake up the market in 2008, 2009, and 2010. If there is no shame in defaulting on debt, then down payments have to come back.
But some here haven't realized yet that large down payment requirements are a really good thing for waiting buyers. :) It makes homes far more affordable. ;)
Got popcorn?
Neil
anon 1:50 p.m. posted: "We will see what will happen to center city DC if the Dems win both houses and the prez. Especially if its Obama or Edwards. Wonder where all those new big pharma lobbyists are going to live."
ReplyDeleteOf course they will want to live with all the gays and dopesmokers in 20009, and pay millions for it, instead of McLean, Great Falls and Chevy Chase, where rich people actually choose to live. Idiot.
"The bottom is 18 to 24 months away. Oh... the core of DC is only lagging the exurbs by 3 to 4 months..."
ReplyDeleteNeil - do yo mean to tell me that places like arlington & alexandria which currently have just over 6 months of inventory, are only 3-4 months away from seeing 14-20 months of inventory like the exurbs do?
My guess is you will answer in some way that does not truly answer this question because in your heart of hearts you do not believe it will get this bad there. But do us all a favor, after you spin your answer to phrase it in a way most favorable, please go back to the core question for the rest of us simpletons. Will the inventory levels get that bad - YES OR NO?
First: too many anons. Please get user names. Its hard to take anons on either side of the issue as serious as someone willing to have a username.
ReplyDeleteThe sales trend is showing that Alexandria entered the 2 standard deviation/mean downturn 3 to 4 months behind the ex-urbs. This will drive the prices.
As to when 14 to 20 months of inventory (implosion level), inner DC is about one year behind San Diego. In other words... around next Christmas.
Have you been reading this weeks news on mortgage/muni bond insurers? All three major bond insurers are on the list for downgrade. Note: I expect one to get the *mere* $1 Billion it needs to keep the AAA rating required for that industry. My friends who work large accounts at a few banks won't be getting their normal time off this year. They all are looking at total defaults in the multi-billion dollar range. (Note: No one account is defaulting more than $300 million; but one portfolio is looking at a 20% default rate on commercial loans.) Aren't you the anon claiming to be doing detailed statistical analysis? So "simpletons" isn't a defense I believe in. ;)
So YES the inventory levels will get that bad. The real estate market will not see enough of a 'spring bounce' in sales to overcome an unusually large 'spring bounce' in inventory.
Got popcorn?
Neil
I the sockpuppeting has returned. If you are going to do it, you should at least try to be halfway-decent at it.
ReplyDeleteAnother of lance's neighbors has slashed their asking price!
ReplyDeleteCheck out: DC6527258
Price Reduced: 09/10/07 -- $1,879,000 to $1,495,000
Price Reduced: 10/02/07 -- $1,495,000 to $1,180,000
Price Reduced: 12/12/07 -- $1,180,000 to $1,070,000
109 days on the market and the price cuts continue!
(remember according to lance the DC market is hot hot hot and "average rowhouses" have gone from $1 million to $2 million in the last 12 months!)
This house is just one short DC block from Lance's house. (340ft according to google maps)
If this much larger and nicer, fabulously restored house on a better block can't even break $1 million, what chance is there that lance's house is still worth the $900k he paid for it in 2005?
(lance's is a 2 bedroom with less square footage)
Take a look at this house at:
http://www.dcbrownstone.com/
"Robert ... open your damn eyes! I looked at a couple open houses today in the District. Prices are up by a high degree. Houses that last year were going for $1.0 to $1.2 million are now just under $2.0 million ... That is a HUGE increase ... in only a 12 month period. And we aren't talking about McMansions ... just your average rowhouses in nice areas."-lance March 25 2007
"We have the fundamental problem that we built too many houses and we charged too high a price for them," says David Wyss, chief economist at Standard & Poor's in New York. "We have to stop building houses for a while and the prices have to come down. We are trying to make sure that process doesn't derail the rest of the economy."
ReplyDeletehttp://news.yahoo.com/s/ap/20071223/ap_on_an/mortgage_crisis
While this may be what should happen, human nature is such that this isn't what will happen. What will happen is what has happened every other time we have found ourselves in this situation. The high price of house will add to the pressures on inflation already being exerted by high oil pressures and cause us to experience another late '70s / early '80s high inflationary period. Gradually those unable to buy now will be able to buy as inflation comes to their rescue in the form of higher wages. (Yes, some folks such as everyone Neil knows will instead have been relocted to low cost areas rather than be given raises. Most won't ... unless you can envision NYC, Washington, Chicago, etc. "abandoned".)
Those who bought before the inflationary period with fixed rate mortgages will of course be the best off. Just like I remember in the 80s when longterm homeowners were paying for their mortgage what I was paying for my car payment ...
I don't mean to be cynical, but I do tend to think there is always the "what should happen" and the "what actually happens" ... And history is there to provide us a guide as to what "has happened" in this regards.
Lance, finally, you got it right. Your argument for inlfation is the only REALISTIC thing that could happen to save the home debtors. I think this has been the mantra for our financial leaders, but they are doing it on the stealth. Most logical people know that inlfation is no where near the 2.2% they claimed. It was probably somewhere around 10%. The only down fall is that I think homeprices are dropping faster then inflation can help.
ReplyDeleteI have been tracking several house ranges. I have noticed that any thing over the conforming loan limit plus about 20% is not selling at all. Stuff under that limit are still selling. I wonder if we will see this huddled mass of home around 400k. I am starting to see that now. Homes that were around 900k (2005) are asking around 600k. Homes that were around 500k are around 400k. It seems that the downward pressure on the top 75% of homes is much harder then the lower 25%. I guess I thought things would drop a little more evenly. Any thoughts?
Bob
Inflation is the only way many of these people can get bailed out, but it isn't going to come fast enough for most of the greater fools that bought at the top.
ReplyDelete(inflation is higher than the gov numbers, but it isn't anywhere NEAR 10%.)
People like Lance already have negative equity. Houses all over his neighborhood are being forced to slash their prices in an attempt to sell. Houses 50% or more larger than his(in top condition) are now asking roughly what he paid in 2005.
The other problem with the inflation theory is that thus far it hasn't been accompanied by wage growth. Inflation adjusted wages are still down from the level seen in 2000.
Remember, inflation isn't everyone getting richer, it is everyone getting poorer. It will make it easier for underwater borrowers to get out from under their load, but it isn't going to make anyone rich.
What I want to know is when can find a bargain priced house in Capitol Hill, Georgetown, or North Arlington? I don't care about stupid prices out in the exurbs. It's only worth it to me to buy if I can get into a nice house in a nice zip code. Why haven't the good zip codes had a price drop yet?
ReplyDelete