Report Says Property Values Could Decline By $1.2 Trillion

An especially gloomy report by the U.S. Conference of Mayors says that property values across the U.S. could decline by $1.2 trillion next year, slashing tax revenue by $6.6 billion.

Although California will be the hardest hit by the property value decrease, the New York City region will “see the greatest slowdown in the output of goods and services because of the mortgage crisis, according to the report.”

From Bloomberg:

“The real estate crisis of 2007 and 2008 will go down in the record books,” according to the report, released as the Conference of Mayors gathers in Detroit today for a special meeting to discuss the housing slump. “The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods — and it’s not over yet.”

According to the report, New York/New Jersey will see a $10.4 billion loss in economic growth, Los Angeles will lose $8.3 billion and “$4 billion each in Dallas and Washington and $3.9 billion in Chicago.”

U.S. Mortgage Crisis Slams Property Values, State Tax Receipts [Bloomberg]
(Photo:chickee510)

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  1. primechuck says:

    I highly doubt property tax assessed values will be going down. In most markets that I’ve looked at, property tax values were generally 5% – 20% higher than the actual market value. Even with a piece of property worth less, the local government will still be demanding the inflated value.

  2. vastrightwing says:

    Yes, tax revenue is what it’s about. Add to that the lower gas usage (more efficient cars & less driving) = less tax revenue, lower spending on goods and services = less tax revenue. The U.S. dollar is 25% devalued, so we can purchase less abroad. I’m going to guess this means higher taxes coming real soon. Property tax rates will go up 10% or more. You will soon be taxed by how far you drive rather than by how much gas you consume and sales tax will go up half a point or more. What will get for the increase? Less!

  3. Munsoned says:

    That is a great picture. At first I wondered why the photog’s jacket was so clean. Then I noticed it actually says “Photographer” across the back.

  4. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    PHOTO CAPTION: “Guys? Uh, guys?”

  5. kenposan says:

    @vastrightwing: Taxed by how far you drive??? Glad I start working at home next week and won’t have to commute anymore.

  6. ceejeemcbeegee is not here says:

    ::salivating:: Bring it on! I’ve had my eye on this $700k condo…

  7. huadpe says:

    @primechuck: In high foreclosue/abandonment areas they can demand all they like. They’re not getting it.

  8. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    @kenposan:

    I wouldn’t worry about that too much. It would be political suicide.

  9. Saboth says:

    @primechuck:
    I kind of wonder that myself. My house was appraised last year at about a 30% higher value than 2 years ago, resulting in a big spike in my property taxes. This was due to the housing bubble, and house sales in my area. I’d assume the city is not going to reevaluate the value 2 years from now and actually lower the property value…but rather keep it at the inflated rate, which makes me angry.

  10. noquarter says:

    In all these discussion about the imminent tanking of the housing market, I have yet to hear an explanation of why that’s bad. How is affordable housing a bad thing? How is a housing market so overpriced that only rich people who already own a home can afford a new one somehow good for the country?

    If tax revenues are the only concern, then raise the rates that houses are taxed at. Nobody’s bemoaning the lowered prices at Wal-Mart and their effect on tax revenues.

  11. millcitymodern says:

    I recently got my tax assessment for 2008, and my value and taxes went down…value by about $5k, taxes by $80 a year. I’m not thrilled at my value decreasing, but I plan to live in this house a long time, so I’ll take the hit and tax cut and wait for the market to turn around.

  12. MENDOZA!!!!! says:

    could this be the advent of less goverment spending?
    /huffing heavily-taxed E88

  13. HRHKingFriday says:

    @ceejeemcbeegee: I doubt condos in town will go down. I’ve been drooling over a building near by, but the values have been holding because people don’t want to drive to work anymore.

  14. spinachdip says:

    @noquarter: Keep in mind that lower prices doesn’t necessarily mean more affordable. Since most people don’t pay cash for houses, they have to find financing, but banks have less money to lend, what with the drop in liquidity and all.

    Plus, since the capital market’s all intertwined, a slowdown in home sales can hurt the growth of other industries, which can ultimately put a dent in your paycheck.

  15. Consumer-X says:

    Property values went up close to 10% per annum in most areas of the country over the past 6 years. Thus all states have effectively enjoyed 6 years of 10% per annum tax increases. Sorry but I don’t feel sorry for the tax collectors in the slightest.

  16. ARP says:

    Noquarter- What SPINACHDIP says. Plus, people have been propping up the economy with consumer spending. A sizeable chuck of that is from home equity loans and credit cards. With the reduced value of homes, there is less to borrow against. Credit spending will continue for a while, but will fizzle once the general economy begins to slow and people realize that their raises/bonuses will no longer be there to finance their credit spending.

  17. Rupan says:

    In MI homes get assessed every year. I bought my place in April of this year for 120K but the current tax assessment is for 180K. So next Feb I will get my new assessment in. If it isn’t close to the 120K that I paid then I will be having some fun with the tax board in March.

    Which is basically a group of local people hearing arguments as to why you should be paying less taxes. Not exactly an unbiased group. It should be an interesting time.

    Cutting my property taxes by 33% sure would be nice.

  18. pearlandopal says:

    Good. Maybe we can afford to buy if prices keep going down. Little bitty starter homes are going for $600K here.

  19. CumaeanSibyl says:

    @Rupan: Oh, is that how it works? I’ve had a hell of a time finding information on property taxes (or primary elections, or anything really) on Michigan’s gov’t website.

  20. theblackdog says:

    @ceejeemcbeegee: I’m with you there. I figure that by the time the market bottoms out from all of this, I’ll be debt free and ready to start looking for a home.

  21. avantartist says:

    right on: NOQUARTER!

    it’s easy for me to say this because i don’t own a home but i think it’s a good thing that “The real estate crisis of 2007 and 2008″ is happening.

    imagine: property values back down to where they should be.

    If people had bought or spent within their means in the first place there would be no issue here.

  22. overbysara says:

    GOOD. maybe I will be able to afford something.

  23. spinachdip says:

    @avantartist: Except it’s not (just) a real estate crisis, but a widescale credit and liquidity crisis. Property values are an important and tangible, but ultimately small piece in the sub-prime meltdown puzzle.

  24. Charles Duffy says:

    @pearlandopal: Move somewhere cheaper — seriously. I’m in a state capitol / tech center, and reasonably-well-located starter homes can be found here around $85K. Also, there’s no state income tax, and that $85K house is likely to increase in value over time, as our population is expected to expand significantly over the next decade or so. (Property taxes are nontrivial here if you’re living in a mansion… but if you’re putting all the money from your California house into buying a house somewhere they run cheaper, you deserve just what you get).

    Sure, living in a tech center isn’t quite the same as living in the tech center (which I did before deciding to move) — but I haven’t second-guessed myself on that decision yet.

  25. Rupan says:

    @CumaeanSibyl: Check the website for the city you live in. They should have some sort of Tax FAQ or something like that. It’s what I used as a starting place.

    MI property taxes are a piece of work. It has to be one of the more complicated systems in the nation. I can’t imagine a weirder way of doing it.

  26. Jamie Beckland says:

    Please remember that property taxes have two components: the value of the asset (your house) and the tax rate. So, while property values have been going up over the past six years, where I live in Arlington, VA, the property tax rates have been going down. This has resulted in a net increase in the tax base, but not nearly by as much as the appreciation of houses.

    Typically, municipalities don’t want huge swings in the total amount of tax paid by their residents, but instead, nice, predictable increases. Your city managers don’t want old ladies to be forced out of their homes because they can’t afford the property tax.

    However, steady increases in revenue become a problem when the asset value is falling. At this point, cities will need to start increasing the tax rate, even as assets continue to fall, in order to maintain their tax base. Even if you are a die-hard small government person, your local property taxes pay for the things you are likely to care the most about from the government, e.g. police force, street lights, public schools, etc.

    It seems like the mayors are intentionally promoting a bleak picture, so that they will be able to raise the tax rate in the coming years to collect equivalent or slightly more revenue than previous years…and have it be politically acceptable.

  27. Consumer-X says:

    @WillScarlett: Will, everywhere I have ever lived as the value of a house goes up the tax amount goes right up with it. As for your suggestion that municipalities should raise tax rates at the same time that house values are falling in order to prevent tax revenues from falling, I say why not try a few spending cuts first? Tax rates have increased around 10% per annum over the past 6 years in most areas. Does anyone really think that the “police force, street lights, public schools, etc.” cost 60% more than they did 6 years ago?

  28. Observer2121 says:

    I can’t wait for values to decline. I love to hear stories of people getting burned and foreclosed on. I know it’s mean but I don’t own a home and I saw all of them taking their equity out and buying all the goodies they could get thier hands on. Now the chickens are coming home to roost and they are crying. I hope everyone get foreclosed on, every negative story I see makes me feel warm inside. I want to buy someones home for pennies on the dollar, then rent it back to them at my new mortgage amount.

  29. Jamie Beckland says:

    @Consumer-X: I am not suggesting that municipalities SHOULD raise rates while house values are falling…I am saying that they WILL raise rates to maintain their tax base.

    The basic idea that most city managers are interested in is steady, predictable increases in the tax base.

    In order to maintain those increases, they will have to raise (previously lowered) rates.

    I am not sure where you lived, but I would be surprised if your property taxes have increased the exact same rate, year over year, as home values, particularly during the past fifteen years.

    Remember I’m talking about the dollar amount of your total property tax bill, controlling for any moves to larger homes you may have made…

    As for the cost of basic local-level government services, I think you would be surprised at the increases in costs over the past six years. I, too, doubt that they have gone up by 60% (I also doubt that the total property tax you pay has gone up by 60%), but from 1999-2006, the CPI (when compounded) has been 20.25%.

    Add that 20+% ending in 2006 to the additional demands placed on our local services: cost of energy to run those street lights has increased dramatically (remember, CPI doesn’t include food or energy costs); teachers’ and police officers’ salaries have gone up more than the cost of inflation so that they could reasonably expect to live (and afford to buy a surging-priced home) in the communities where they work; and don’t forget that during this time, police force budgets (whether justified or not) have exploded due to terrorism training, terrorism-related equipment, seminars, etc.

    All of this does not total a 60% increase, but where I live, my own property tax bill has gone from about $1700/yr. in 2000 to about $2150/yr now. That’s a 26.5% increase – only slightly more than the rate of inflation.

    The old bogeyman of “government is trying to take my money” just really does not hold up very well on the local level. City managers are going to get hell from their constituents over the next three years as they try to figure out how to cope with this situation that was not their faults.

    Sorry to rant, but seriously, please learn how a city government works before piling on to the hate-fest.