Home owners have a vested interest in seeing their home value increase. This is probably no shocking revelation. But local governments may have an even bigger interest in rising values. Property taxes are on the uptrend with higher home values. Property taxes are a major source of revenue for local governments and go to various things including school districts, community colleges, counties, and cities. Certainly the big jump in real estate values is causing these local agencies to cheer on the real estate market. Even with the 1 percent property tax rate in California, local governments collected well over $50 billion. There is another $4 to $5 billion in additional property taxes levied to pay bonded indebtedness and many in Orange County and Los Angeles County get a taste of this on an annual basis. Many local governments I’m sure love the fact that many properties are being sold at a much higher reassessed values. Let us examine the trend with property taxes.
One piece of housing information that warrants a deeper analysis is the continually falling home ownership rate. Since the recession hit over 5,000,000 Americans have gone through the process of foreclosure. Yet for over a year now, the housing market has been recovering with lower interest rates, higher home prices, and a record low amount of inventory. Yet even on the national inventory front, it does look like some pressure is being released on this end. US housing starts are bouncing from the bottom and this will add much needed relief on the inventory side. However, this doesn’t answer why the home ownership rate has fallen so hard. Trying to explain the dichotomies in the housing market is like trying to wrap your head around dark matter. Sure, those that went through a foreclosure are likely now in rental housing. But as foreclosures become a smaller part of the market, why does the rate continue to fall like dominoes falling over one another with momentum? And the term “investor†has definitely shifted in the last few years. Let us take a look at the overall trends first.
Only in Southern California will you have someone moan about making six-figures while driving their European financed car and not being able to “live well†while the weather is near perfect all year round. There is one thing you can’t complain about and that is the weather. Ironically though, some of the cheaper SoCal counties like the Inland Empire have weather on par with Arizona or Nevada. So the groaning comes from people looking to buy cheap beach front property for example. Newsflash, beachfront property will be expensive in boom and bust. Yet let us focus on bigger markets since SoCal is vast. Last month sales reached a five year high for April but guess what? So did the use of jumbo loans. Jumbo loans accounted for 26 percent of originated loans, the highest since September of 2007. Another 33 percent of purchases were made by all cash buyers. FHA insured loans still accounted for 21 percent of mortgages and this will be an interesting figure to watch as FHA insured loans become incredibly expensive in June. Little by little certain areas of SoCal are being gentrified as those unable to buy are pushed further inland or are forced to move out of state (or rent which isn’t such a bad deal).
Going to any open house in Southern California during a sunny weekend will make you think that the entire housing market is on fire and that the homeownership rate must be going up. Obviously with all these buyers, the rate must be going up. Right? Well it isn’t because a large number of these buyers will be absentee buyers or will flip the house shortly. Another bigger reason comes from the lack of supply. The maddening crowds are simply hungry investors and regular buyers trying to out-bid each other for the limited supply of homes on the market. Low rates are adding fuel to this mania but the homeownership rate continues to decline. So what gives?
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