30% of All Cars Purchased In California Made With Home Equity Loans (16% in Florida)

Discussion in 'Economics' started by ByLoSellHi, Apr 7, 2007.

  1. http://www.nytimes.com/2007/04/08/us/08housing.html?hp

    Housing Slump Pinches States in Pocketbook

    Published: April 8, 2007

    MIAMI, April 7 —
    State tax revenues around the country are growing far more slowly this year and in some cases falling below projections, a result of the housing market slowdown that has curbed voracious spending on real estate, building materials, furniture and other items.

    Nowhere is the downturn more apparent than in Florida, where tax revenue is projected to drop this year for the first time since the energy crisis of the 1970s.

    But other states, especially those where housing prices soared in recent years, are also seeing their collections slow, especially in the sales and real estate transfer tax categories. While the economy remains generally strong and it is too early to predict whether the housing slump will have long-term effects, some states will have to adjust their wish lists.

    For example, New Jersey could face a $2.5 billion shortfall by mid-2008, Gov. Jon S. Corzine has said, and may lease its turnpike or its lottery to a private company to raise money. In California, where income tax receipts in January were $1 billion less than forecast, a nonpartisan legislative analyst has urged Gov. Arnold Schwarzenegger to cancel more than $2 billion in spending.

    “It’s the year of the housing hangover,” said Sean M. Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

    New home sales nationally fell in February to the lowest rate in seven years, and homeowners who tapped into plentiful home equity and spent extravagantly during the real estate boom have started to cut back.

    Those events not only threaten revenue streams for things like building materials and labor, but also affect spending on big-ticket items like cars and furniture, which many homeowners financed with home equity lines of credit.

    Chris McCarty, survey research director at the Bureau of Economic and Business Research at the University of Florida, said it would be foolish to “underestimate the effect that the inability to extract equity from homes is going to have.”

    In one hint of how much Floridians were relying on property wealth during the real estate boom, 16 percent of new car purchases here were being made with home equity loans in 2006, compared with 7 percent nationally, according to CNW Marketing Research, an automotive research firm in Bandon, Ore. In California, the percentage was even higher — about 30 percent, said Art Spinella, president of the research firm.

    Mr. McCarty said consumer confidence in Florida dropped markedly last month, especially willingness to buy expensive items.

    Some budget watchers say that Florida, whose housing boom was prolonged and intensified by the rebuilding frenzy after a series of hurricanes, could be the canary in the coal mine for other states anticipating housing-related economic woes. Last spring, 9 of the 20 metropolitan areas that saw the sharpest home price appreciation were in Florida, according to the Office of Federal Housing Enterprise Oversight; many of those now watching home values plummet are in Florida, too.

    Arizona, California and Nevada — the chief beneficiaries of the housing bubble, along with Florida — are also expected to suffer disproportionately from the slump. From late 2005 to late 2006, existing home sales fell by 27 percent in Arizona, 31 percent in Florida and 36 percent in Nevada, the steepest drop in the nation.

    Maryland’s real estate transfer tax revenue has tumbled by 22 percent this fiscal year, suggesting that fewer homes are being sold, prices have fallen or both. Connecticut’s real estate transfer tax revenue, which state budget analysts predicted would fall by 3.6 percent, is down by 13.3 percent so far.

    Healthy reserves built up over the last few years and stable economic conditions outside the housing sector could cushion the blow for many states, at least for now.

    “The tendency is for people to say, ‘Wow, things look pretty good, except for housing,’ ” said Richard Nathan, co-director of the Nelson A. Rockefeller Institute of Government in Albany. “But that is a very big exception, because it has a large impact on people’s perceptions of what they feel their asset capability is.”

    Some economists fear the situation will worsen as credit standards tighten and more recipients of subprime loans — typically people with bad credit, who obtained such loans easily during the housing boom — default on their payments.

    But others expect the revenue lag to last two years at most, because with the exception of industrial Midwestern states like Michigan and Ohio, the economy remains relatively healthy.

    “Real estate is going to be a drag on the rest of the economy,” said Ryan Ratcliff, an economist for the Anderson Forecast at the University of California, Los Angeles, referring to California’s situation. “But previous recessions have always had construction plus something else combining to create job loss. Without a second source of weakness, we’re predicting sluggishness, but not a recession.”

    Or, as Mr. Snaith described the cooling of the housing market: “It’s not a portending of doom; it’s just part of an overall soft landing.”

    Even if that is true, a growing national movement to reduce local property taxes could leave local governments short of the amount they need to provide services at a time when home values are falling, some economists said.

    Property tax relief is the Florida Legislature’s top priority this spring. A new package of bills in New Jersey will give a tax credit of up to 20 percent to homeowners and cap annual local tax increases at 4 percent — despite the predicted deficit.

    “People are reacting to the large increases in assessments that took place over the past few years and looking to cut property taxes,” wrote Iris J. Lav, deputy director of the Center on Budget and Policy Priorities, a liberal research and advocacy organization. “If assessments stagnate or decline, however, the cuts could seriously overreach.”

    Gov. Charlie Crist of Florida is among many officials around the country who dismiss that notion, saying that reducing property taxes would create a “sonic boom” in his state’s economy by fattening consumers’ wallets and dissuading them from leaving the state.

    Census data show that fewer people than usual moved into Florida last year. And other hints — like an abrupt halt in the growth of public school enrollment this year — suggest that families are leaving. Despite dropping prices, communities like Naples, Miami and Sarasota still have some of the most overvalued real estate in the nation, according to Global Insight, a research firm in Waltham, Mass.

    “People are packing up the equity and moving to North Carolina and Tennessee,” Mr. Snaith said.

    About 3.7 million existing homes were on the market in February, according to the National Association of Realtors, compared with about 3 million a year earlier.

    Georganna Meyer, chief economist for the Arizona Department of Revenue, said both sales and income tax receipts had slowed there. Ms. Meyer attributed the change partly to the many people who jumped into the real estate business in recent years and who are making less money now.

    “I’ve heard stories about real estate broker income going up 50 percent year after year,” she said. “So a large part of why the income tax is not what it used to be is related to the real estate market tightening, no doubt.”

    It is still too early to know how most states’ fiscal years will end — this month’s income tax filings will be crucial. But Florida, which does not have an income tax, has $303 million less than anticipated for its $70 billion budget, thanks to slowing sales tax and real estate transfer tax collections. Florida also expects to have $653 million less than anticipated in 2007-08, but Amy Baker, coordinator of the Office of Economic and Demographic Research at the State Legislature, said that was not a sign of long-term trouble.

    “We saw double-digit price appreciation for several years in a row, so the atmosphere here was very charged,” Ms. Baker said, adding that the state’s housing market should bottom out by summer and pick up again by January.

    “We are just returning to normal levels of growth,” she said.
  2. I wonder what percentage of breast augmentation surgeries were purchased with home equity loans ?
  3. In California and Florida?

    At least 50%. Although I'm sure they had 'no payments for 18 months/0% interest' plans.
  4. Daal


    I wonder when was the last time tax receipts dropped by a similar amount. 02 and 92 maybe
  5. Great way to spend 3X on a car, supreme morons.
  6. The repossess your jugs. It's quite a sight.
  7. "Great way to spend 3X on a car, supreme morons."

    Another thought, most people wanted the tax deduction that the home equity loan offered. An act of desperation to get a deduction.
  8. How about BOTH a tax deduction, AND a way to buy without having to actually ever pay.

    Remember that you are going to sell the house for more in the future as housing prices appreciate, so the end result is when you sell the house, the profit pays for the SUV.

    Sounds like people were just fooling themselves into thinking Uncle Sam was going to pitch in and help them get SUV's for free.
  9. The big question is: How will everyone get out of this mess? If interest rates won't help, extend the terms. How about a 50 year refi, lower payments, suck out some more equity, repeat the cycle. Hock the next generation with visions of global warming, the sky is falling wtf.
    #10     Apr 7, 2007