From The Ramparts

The Ripple Effect of the Housing Fiasco

The Ripple Effect of the Housing Fiasco

“Municipalities will start to feel the pinch with a decline in the property tax growth rate. Some places could even experience an outright decline in collections. The housing decline will also affect state coffers, as transfer taxes plummet along with home sales volumes. Florida, according to the mayors, could lose $589 million loss in property tax, $148 million loss in sales tax and $99 million loss in transfer tax. Gross domestic product, the group projects, will contract by $166 billion. The heaviest burden will fall in New York, the nation's largest metro area, where the gross metropolitan product (GMP) will go down by about $10.4 billion, according to the organization. Los Angeles's GMP will drop by $8.3 billion and Dallas and Washington will each experience $4 billion declines.” Foreclosures Mayors See Major Hit To Economy http://money.cnn.com/2007/11/27/real_estate

As more and more people wake up to the reality of the mortgage/credit/housing industry meltdown , they are beginning to connect the dots and see the consequences of this expanding financial disaster and the negative impact on all of our lives. At a recent US Conference of Mayors the assembled mayors of AmeriKKKa’s cities expressed major concern about the negative economic consequences of the escalating housing crisis. With housing construction at a standstill, large inventories of vacant houses, home prices in decline, defaults and foreclosures sky rocketing mayors around the country are worried their tax base/revenues will also see a decline in the coming months. “Standard & Poor's said Tuesday that its S&P/Case-Shiller index of home prices declined at a record pace in the third quarter. Meanwhile, the year-over-year fall tied the record for the 21-year-old index. Falling home prices and the related rise in foreclosures are not only hurting homeowners and investors. They threaten to sink local governments that rely on property taxes. The U.S. Conference of Mayors said that the ‘foreclosure crisis’ would result in a potential loss of $6.6 billion in tax revenues in the 10 hardest-hit states next year. The declines will come as the national economy creates 524,000 fewer jobs, increasing state costs for unemployment insurance and other assistance. The report, prepared by the economic and financial analysis firm Global Insight, forecast that 128 metropolitan areas would experience ‘sluggish’ economic growth of less than 2 percent in 2008—a full percentage point lower than would have occurred without the mortgage meltdown.” Housing Takes It on the Chin, Again by Mark Stein Nov 27 2007 http://www.portfolio.com/news-markets/
Just as homeowners are struggling to make ends meet during this period of stagflation (stagnant wages or rising wages that fail to keep pace with escalating costs of living), local governments dependent on real estate assessments and property taxes as a major source of revenue are going to be hard pressed to make ends meet, balance their budgets and continue providing vital services. While the Bu$h administration repeats its mantra the economy is ‘resilient’, residents of many areas around the nation are hard pressed to keep their heads above the proverbial water. “With energy costs rising quickly, up 1.4% last month and 14.5% over the past year, inflation accelerated in October, up 3.5% compared to last October. If higher overall inflation like this persists, what impact is it likely to have on wage growth and consumer spending? The hourly wages of most workers—blue-collar workers in manufacturing and non-managers in services—have been growing at around 4% per year in recent months, and this has been fast enough wage growth to consistently beat inflation and boost these workers' buying power. Last month, however, faster price growth caught up to hourly wages, and real hourly wage growth was essentially flat-up 0.2%, when adjusted by the Consumer Price Index for All Urban Consumers (see Chart). Since average weekly hours worked have also held steady or fallen slightly, real weekly earnings were also flat in October (no change on a yearly basis). Though job market reports have been mixed, the consensus among economists is that unemployment, which has begun to increase, is likely to continue rising in coming months. It is certainly unlikely that wage growth will accelerate in this climate, and more likely that both hourly wage growth and average weekly hours will slow. If so, the combination of faster inflation and steady or slowing wage growth will reduce the buying power of many workers. This, in turn, has the potential to slow consumer spending, a key factor that has been driving the economy forward in recent quarters. In other words, last month's lack of real wage growth may be a harbinger of where this important indicator is heading in future months.” When steady wage growth meets faster inflation http://www.epi.org/content.cfm/webfeatures_snapshots_20071128
The rising cost of living will hit home in a very real way for most AmeriKKKans as they are forced to tighten their belts and make do with less, but they will also see their state and local governments forced to cut costs, curtail services, lay people off and take other drastic measures such as increasing fees and tax rates in order to balance their budgets. “The housing bust will also affect state coffers. During the past two years, the number of homes sold has dropped some 40%. That has sent state transfer fees and deed and mortgage registration taxes plunging. That will have an indirect impact on city governments. ‘Any time there's fiscal stress at the state level, that channels down to local levels as well,’ said Diffley. What foreclosures and the housing bust do not reduce is the cost of services to heavily impacted communities. And many new costs arise along with foreclosures. For example, the suburban city of Shaker Heights, Ohio, will spend $500,000 this year just to maintain empty properties. The cost to Cleveland Heights merely to keep lawns trimmed at abandoned homes has risen to $75,000 annually from a mere $6,000 three years ago.” Foreclosure impact: Next stop, tax drop Soaring foreclosures will result in lower tax collections for hard-hit cities. http://money.cnn.com/2007/11/29/real_estate/foreclosure
What we are seeing is an economic pincer squeeze whereby working class folks are being stressed by both the rising costs of living and at the same time being forced to compensate for the loss of tax revenues from a deflating housing industry (rising unemployment, huge inventories, falling home prices, escalating defaults and foreclosures) as it adversely impacts state and local governments’ abilities to stay afloat and provide the needed services for their citizens. The corporate mind control apparatus is beginning to provide a glimpse of the stark realities facing many local governments and their citizens as the housing meltdown ripples throughout the US and global economy. Even though their homes may not be at risk, citizens in areas where there are large numbers of defaults and foreclosures will still pay a heavy price. Foreclosures indirectly impact the revenues of cities and municipalities and communities that are experiencing large housing stock inventories and falling prices. They will be forced to reassess properties and adjust their tax rates accordingly which will put more pressure on municipalities to raise the needed money. “Even if lenders sell off still viable homes to new owners, those homes could still bring in lower tax revenues. Many of these homes will turn over only at fire-sale prices and the new owners will want assessments redone. Existing homeowners in areas with plunging values will ask for reassessments too. At a town meeting in Cuyahoga County this week, the first question residents raised was, ‘How do I get my property revalued,’ said Rokakis. Rokakis reported that his county has already fielded 14,000 requests for reassessment in 2007 and he predicted between 20,000 and 25,000 more next year. The housing bust will also affect state coffers. During the past two years, the number of homes sold has dropped some 40%. That has sent state transfer fees and deed and mortgage registration taxes plunging. That will have an indirect impact on city governments. ‘Any time there's fiscal stress at the state level, that channels down to local levels as well,’ said Diffley.” Foreclosure impact: Next stop, tax drop Soaring foreclosures will result in lower tax collections for hard-hit cities. http://money.cnn.com/2007/11/29/real_estate/foreclosure
Falling revenues and rising costs will put more strain on local governments, strain that will not be alleviated by the states because state governments are also facing revenue shortfalls of their own. For many municipalities the only option remaining are: raising taxes, cutting services or both. And this doesn’t even begin to address the investment crisis where many cities’ pension funds or surplus funds were invested in Wall Street’s exotic investment schemes that are now unraveling. Once the smoke clears, they’ll discover their pension funds are short, that they are holding billions of dollars in devalued (worthless) bonds and “collateralized debt obligations”. Unfortunately many folks may soon wake up to the reality large portions of their pension funds, IRAs and investments were wiped out in the financial tsunami, thus putting their retirement nest eggs in jeopardy. So if you think the mortgage crisis doesn’t/won’t impact you, think again.

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posted by Junious Ricardo Stanton @ 8:18 AM