Will The Housing Market Bubble Burst?
Steve Greenhut, of the Orange County Register, wrote an interesting piece on his concerns about what will happen if housing prices take a big hit, which some say is inevitable and others say won't happen. I happen to think it can't go on like this forever, with fewer and fewer people being able to afford to rent, much less own a home. I know the place next door to us is renting for $1000 a month, too pricey for me, and that's about the norm. It might be good to see the bubble burst in that respect although, of course, those that have bought homes in the recent past would be taking a hit.
I had one other concern about the high prices, though: With the increase in home values, also comes an increase in property taxes, since homes are reassessed when bought and/ or sold. The person buying the property may pay many times more in property tax than the previous owner who benefitted from Prop 13 tax increase protections. So, should the housing market bubble burst, and home prices drop as dramatically as they've gone up the last few years, what will happen to the revenues that local governments have enjoyed as a result of the past increase in housing prices?
I'm not really sure how the reassessment of property works and I'm sure it would take a few years to actually take place and make an effect. Seems to me, though, it might be like the state's .com boom of a few years ago in smaller scale. Sure, the county doesn't have a big surplus, but it seems to be making do. You can rest assured, though, that local governments will spend every penny of the increased property tax revenues and, when that bubble bursts, will have set the prior year's budget as the baseline on which to build so screams will be heard around the state because of lack of property tax revenue.
We'll see if I'm right, assuming the bubble bursts. I e-mailed Steve Greenhut and told him of my concerns. Wonder if he'll respond? He has before.