As Housing Fades as a Means to Build Wealth
Shadow health secretary calls for higher land taxes
| At the bottom of the land-price cycle, tax breaks and subsidies keep misfiring, so some question the cycle, some the whole system, and one aware politico proposes a feasible solution that’s part of geonomics. We trim, blend, and append seven 2010 articles from: (1) MarketWatch, Aug 12, on mortgage rates by April H. Lee; (2) Los Angeles Times, Aug 24, on home sales by Alejandro Lazo; (3) Los Angeles Times, Aug 16, on tax breaks by Jack Dolan; (4) New York Times, Aug 22, on building wealth by David Streitfeld; (5) Mrzine, Aug 21 on system failure by Rick Wolff; (6) TruthOut, Aug 22, on sprawl by Anthony DiMaggio; and (7) The Press Association, Aug 23, on rent recovery (via reader Frank Walker). |
by Lee, by Lazo, by Dolan, by Streitfeld, by Wolff, by DiMaggio, and by Press Assoc.
- Mortgage rates continue to fall, setting record lows
Fixed-rate mortgages and the 5-year adjustable rate reached record lows, Freddie Mac reported.
The 30-year fixed-rate mortgage averaged 4.44% for the week ending Aug. 12. It averaged 4.49% last week and 5.29% a year ago. The rate is now at its lowest level since Freddie Mac started tracking it in 1971.
The 15-year fixed-rate mortgage averaged 3.92% this week, down from 3.95% last week and 4.68% a year ago. It is also at its lowest point since Freddie Mac started tracking the rate in 1991.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.56% this week, down from 3.63% last week and 4.75% a year ago. The ARM is at its lowest since Freddie Mac began tracking it in 2005.
JJS: Less demand for loans lowers their rates. And now demand is way low.
- Sales of existing US homes fall 27%
Sales of previously owned homes plunged 27.2% nationally in July -- fallout from the expiration of a popular federal tax credit that had fueled the market for much of the year.
The annual rate of sales was the lowest since 1999. The sales rate for single-family homes -- which accounted for the bulk of sales -- was at its lowest level since May 1995.
The July plunge was the third consecutive monthly decline following the April 30 expiration of the tax credit, which offered up to $8,000 for certain buyers. The credit was extended and expanded by Congress last year to help prop up the housing market.
"From our vantage point, the first-time home-buyers credit pulled forward demand -- by definition this is what stimulus measures achieve -- however the issue this time is that there was so little demand to be pulled forward, the credit has left no demand for the summer," said Dan Greenhaus, chief economic strategist for Miller Tabak + Co.
Total housing inventory represents a 12.5-month supply at the current pace, up from an 8.9-month supply in June. A six-month supply is considered normal.
The median sale price was $182,600, up 0.7% from a year ago, but down 0.2% from June.
JJS: The high price suggests the recession is over for the more moneyed few. Robert Dye, senior economist with PNC Financial Services Group, said that government stimulus efforts such as another tax credit are unlikely to create lasting benefits. "Another tax credit will pull demand forward and then a hollowing out (of sales) again." Micro-managing does not always get government the results that citizens might want (who might prefer a cash dividend to themselves).
- Some affluent areas qualify for tax breaks intended to benefit the poor
Businesses can save up to $37,400 for hiring in an economically disadvantaged area. But those areas are designated based on large census tracts that are large enough to include middle and upper middle class residents, too.
It's impossible to say any poor people benefited from the tax breaks -- city officials refused to release the names and addresses of the people hired under the program, citing a concern for their privacy.
But the officials acknowledged that because of the way the state measures impoverished communities, the tax breaks meant for residents of California's most economically distressed neighborhoods can also be claimed for white-collar professionals living in upscale neighborhoods where homes sell for millions.
One census tract is just south of the Bel-Air Country Club. It includes UCLA's Westwood campus, where unemployed students drag down the median income.
JJS: The present market makes some rethink betting on real estate (actually, location values).
- Housing Fades as a Means to Build Wealth
Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion price tag put on housing+sites that has been evaporated since 2005.
The slide has chopped off as much as 30% in home values.
In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, new buyers said what new buyers always seem to feel. At the boom’s peak in 2005, they said prices would go up. When the market was sliding in 2008, they still said prices would go up.
For 50 years after World War II, real home prices increased 1.1% a year after inflation, according to Shiller. By the late 1990s, however, the rate was 4% a year. Homeowners were taking about $100 billion a year out of their houses.
JJS: Those land prices were padded by subsidies.
- Housing Crisis, System Failure
Over the last 75 years, the US has partially bridged the gap between home+site costs and workers' earnings by guaranteeing loans and/or subsidizing buyers. This system provides opportunities for excessive home prices, diminished wages and salaries, and excessive quantities, risks, and costs of housing credit.
Even the richest get subsidized: The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit [New York City] Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5% in a building where apartments are listed at $820,000 to $3 million.
JJS: Yet the writer wants more subsidies, just for public housing. At least apartments for workers might not add to sprawl. BTW, funny to me how the left opposes capitalism yet likes to use the root word.
- Suburban Sprawl and the Decline of Social Capital
Sprawl prevents the development of closer relations between residents of suburbs who spend more time commuting to jobs, and suffer from living within "subdivisions" with little in terms of civic cultural experiences.
The Gallup polling organization reports that "lengthy commuters are more likely to experience severe health problems," such as neck or back pain (especially for those commuting more than 20 minutes) and higher cholesterol and larger "body mass index(es)," due, no doubt, to over-consumption of fattening fast foods.
Those with longer commutes are generally less likely to "experience enjoyment for much of the previous day or to say they felt well-rested" in their daily routines.
To allow more time for individuals to ensure their physical and emotional health, integrate shopping, community civic life, and residential living within individual communities.
JJS: There is a way to win those results, and it’s not to insist but to allow. That is, when you shift the property tax off buildings, onto locations, you spur owners who'd been under-using their land to get busy, especially owners of the pricey parcels who have to pay more. Their new development makes places more compact. It’s a tax reform that one leader calls for.
- Burnham calls for higher taxes on land
Labour leadership candidate Andy Burnham has called for higher taxes to help pay off Britain's record deficit.
The shadow health secretary said that he would split the burden of tackling the deficit between 60% spending cuts and 40% tax increases, rather than the 80%-20% split the coalition Government was planning.
One option in the manifesto was for a land value tax based on the estimated value of the land an individual owns -- for most people the value of their homes, less the buildings and fittings.
Burnham said that introducing the measure could enable other unpopular taxes to be scrapped.
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Editor Jeffery J. Smith runs the Forum on Geonomics.
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Also see: Home builders' index & Jobs numbers Both down
New-home sales drop to record low in January
Homes are cheaper, but not necessarily affordable |
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