Real Estate in the Eye of the Storm

The domino effect is still fully in play and housing prices are on average still falling, effectively blocking the economy from recovery.

The question is stones or rocks. Prices are still falling.

There are now new fears in the world of economics.  Falling home prices continue and that is causing a lot of uneasiness among some economists.  It is simply amazing to me how these topics, in the news, and presented to the American public come and go.  The spins that are put onto them and how the back peddling starts when predictions don’t go the way they were predicted.  I remember just a week or two ago, the evening news and the news papers telling me that the housing market is back.  It was telling everyone to take a deep breath and enjoy this bit of great economic news.  It was also reported that home prices were again on the upswing.

Now there are fears that the housing crisis is not over and that there could be a “double dip” as values continue to fall.  A double dip?  There can only be a double dip if we truly hit bottom and were rebounding, which we haven’t.  In my opinion this recession is still ongoing, getting deeper and the key to all of it is housing.  Real Estate values continue to drop and as long as that is happening it is fueling the recession even more.

Today in the Florida Times Union it was telling how property values have created a tremendous fall in property taxes which has led to a short fall in city and county budgets.  The city of Jacksonville had a tax revenue of $61.18 billion in 08, now their tax revenue is down to $55.43 billion, a short fall of over $5.6 billion.

I have only one question? Didn’t local governments see this coming until now?  When you have a budget short fall there are only two ways to balance it, increase revenues or decrease expenses.  It seems decreasing expenses is something that is foreign to local leaders though, they all try to keep the status quo.

We have not seen the bottom of Real Estate yet, believe me there is more to come.  You and I have talked about this in the past.  The values of commercial properties is getting ready to take another fall in values.  There will be more foreclosures and defaults on loans, banks will do what they seem to do best, tighten even more on lending which will continue to choke businesses to the point of default and closing.  This will only lead to more foreclosures and higher unemployment.  We must remember one important aspect of this entire mess; these same banks just three years ago were throwing money around like drunken sailors in a bar.  Now all of a sudden they have all put on their stern, frowned faces and all but put signs up that says no lending, to anyone for any reason.  How quickly they circled the wagons.

We will all see changes in our local and state governments, if not this year then next year for sure. Nassau County’s Clerk of the Court cut 11% out of his budget and is widely “attacked” for doing the inevitable. Yes, I am saying this economic crisis is far from over and will be around for a long time to come.  I really hope I’m wrong on this one though but I do agree with my friend Dr. Ramakers, our publisher, that we’re in the big eye of the hurricane. We fought the credit crisis with massive bailouts and now we’re facing the currency crisis of too much government debt on the other side of the eye-wall.

5 Comments

  1. tommylee

    Always interested in the origins (not the meaning of it) of the term real estate I finally did some research on it and it is quite amazing to see the evolvement I call the “Fathom of the Opera”.

    The two most discerning explanations for the term still have one common ground. Both are founded in the Latin language. The earliest meaning being that “real” means matter, thing. The second meaning of “Real” refers to Royal or King.

    Now we most certainty we can believe that the British brought along this term to the US and I will for brevity sake only refer to the US and its meaning. The second meaning “King” is in this case the most interesting one, since historically all land was owned by the King and appropriations of land was bound by a Tax to be paid to honor this ownership of the King and the right to use it. Although the “fee simple” was introduced allowing transfer of the Land to heirs in the late 13th century (before the land and all above, below and on the earth added fixtures upon death would resort back to the King) one “habit” was left over from the Royal ownership and has withstood even the pressures of a republic…. Property Tax.

    Hummm, if we are to claim to be our own Master on our land as described in the current legal system of ownership of Real Estate, Property Tax must be concluded to be an Illegal Tax since it would mean that you DO NOT own your property but ultimately the State does.

    It would be interesting to see, seeing the far reaching authorities the Legal system in the US has granted Governments in confiscating “Real Estate” if thought to be used for illegal activities, that ultimately a “government” could reclaim all property under the assumption that if you pay “Property Tax” you willingly and knowingly accept that the ultimate ownership of the land is still a Feudal system and thus the legal representative of the people, the Government or the King.

    It may be a far fetched idea but historically it can be proven that if you pay Taxes on Property you acknowledge that you are paying for the right of use and thus defeating the right of ownership!!!

    I would like to hear the “undressed” bare bone thoughts on this.

  2. Ameliaprivateeye

    Wow – interesting thought. I, too, would like to hear more opinions, maybe even those of qualified “real estate” attorneys on this theory.

  3. publisher_sa

    Owning is an interesting word, philosophically and legally. Since real property outlives any of us, we can never really own it. We can use it, be made responsible for it, we can even sell these rights of use and responsibility to someone else, but we never can make it an inalienable part of us for ever. Right of ownership per definition is directly at odds with TIME.

    The Property Taxes you pay have less to do with the value of the property as it has to do with the use (or simple availability) of amenities and services pertaining to that property in relation to other properties. Of course you can turn this around and make a case for appraising the “value” of the property as the base for taxation, whether or not you ever make use of the available amenities and services.

    Most property taxes show the Schoolboard (Board of Education) as the largest recipient of property tax revenues in a county or city. Even though I do not have children and therefore will never have to use the service of school buses, school libraries, sporting accommodations and buildings, police attendance etc. etc. about 70% of the property taxes I pay go to that cause.

    Philosophically I only own my thoughts, even my inventions, products of my thoughts and fruits of my labor, are not mine anymore the moment I give birth to them and make them public.
    Legally however we have created a system that protects the right to own (for awhile) under normal circumstances. Make the circumstance abnormal (a ruling power's prerogative) and the right to ownership quickly changes.

    If you ever struggle with the ownership concept, consider this: the sidewalk in front of your house is your responsibility, you don't own it and neither do you own the pipes and wiring that lies underneath the surface.
    If you take the long view, ownership is very overrated, on the short term however it is a commodity with trading value that ultimately defines your “value” in our society.

    Undressed? Bare bone?
    1. Change Property Tax into Domestic Service Tax?
    2. Pay as you use the service and amenity and that includes hard surface roads, street lighting etc. etc.?

    It's all academical since a progressive society will create wealth and circumstance, so being born into a progressive society automatically implies interaction and common services. Services and their infrastructure cost money and to make sure that everyone pays their “fair” share, the collection becomes an enforceable tax.

    Do you own real estate?
    I think you own the right to enjoy and trade. That's about it.

  4. tommylee

    Philosophically I can follow and agree with your point of view, however intentionally I cannot. The word Property Tax has been unalienable related to property as a “use right” a type of Rental agreement dating back as far as the Pharaohs and the first British Kings. Only in 1287 was it established that property, land and unmovables, by birthright or by Will, was transferable to the Heir(s) and thus the resorting back to the “King” was abolished. however what was not abolished were the Property Tax nomenclature making it still the right of the “King” (Read government) to expropriate your “ownership”. Thus the “higher Supervision” hinges on the Terminology of the Property Tax's historical meaning.

    Thi is further supported by you, Publisher, in the article about Civil Forfeiture providing the “King” the right, without compensation, to reclaim ownership and the burden of Proof that you OR those you allowed to live on your “Property” did not “violate” Use Right. This is in violation of the “perceived ownership” granting the owner of the property to leverage this “ownership” as collateral to enter into a Loan agreement (for whatever reason) or invests this as a retirement policy. If the burden of Proof resorts to the “suspect”, civil rights under the Habeas Corpus become questionable since this would also mean that The Miranda Rights are also suspended.

    Your suggestion to call it a “Communal Use Tax” makes more sense but there is no way that the Communal Use Tax can be based on a “Percentage of Value” but must be based on “how much of the services you use”. This would be a “Fair share use” that restores the value of “hard work” rather then “the richer you are the more you pay”.

    Personally I still question the bureaucratic right to levy “Property Tax” because it remains inherit to a one sided expiring “lease” giving the government the right to terminate the lease at any time without fair compensation.

    Nothing against the ideology of communism, but that is what the governments are using to justify their actions and somewhere it STINKS. Boy, the high word is out!!!!

  5. tommylee

    Would love the hear some legal insight on this as well.

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