Update: California homes lost to foreclosure in the first quarter surged 327 percent from year-to-date levels — reaching an average of more than 500 foreclosures per day — DataQuick reported, warning that the widening foreclosure problem could “spread beyond the current categories of dicey mortgages, and into mainstream home loans.”
From DataQuick’s report on California foreclosures in the first three months of 2008: “Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. … Last quarter’s total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007.” That translates into 517 foreclosures every day in the first quarter of 2008.
Imagine a California wildfire destroyed 500 homes a day since Jan. 1?
DataQuick president Marshall Prentice: “The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006 and that’s working its way through the system. The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans.”
From The L.A. Times’ Peter Hong: “Sinking home values and the collapse of flimsy mortgages sent a record number of California homes into the foreclosure process in the first three months of this year, a real estate information service reported today.”
Default notices — which mark the beginning of the foreclosure process — increased sharply, but not as rapidly as outright foreclosures. From Bloomberg News: “California mortgage defaults more than doubled in the first quarter to the highest in 15 years as a drop in sales and prices prevented some homeowners from selling their properties to pay debt, DataQuick Information Systems said.
More: “Homeowners received 113,676 default notices in the first quarter, up 143 percent from a year ago, La Jolla, California- based DataQuick said today in a statement. The level was the highest since at least 1992, when DataQuick’s statistics begin.”
Despite well publicized federal efforts to reach out to homeowners in default, the odds that they will ultimately lose their homes appear to be increasing. DataQuick reports that, of the homeowners in default, “an estimated 32 percent emerge from the
California’s taxpayer revolt, Proposition 13 , is turning 30 this June. The mainstream media will begin to write their politically charged attacks on the subject in the coming weeks. But you will see some glaring omissions. For example, property values had continued to grow steadily in the Golden State until the real estate bubble swelled to what may be remembered for a hundred years as a time of irrational greed, and insane speculation. None of it reported by the major newspapers until after the bubble burst.
The law was passed by consumers before the state turned liberal, a time when there was a strong economy and bright future. Now it’s known as the Left Coast and has an historic flight of educated, intelligent middle class families who have seen real estate value take a blood bath. The people fleeing are the core taxpayers. They are moving to Texas at such a high rate, that last year, four Texas cities were in America’s top 10 fastest growing metropolitan areas. Texas has no state income tax; California’s is close to 10 percent. But the argument has been that California had low property taxes thanks to Prop 13. Not any more.
The famous voter initiative in 1978, the time of Ronald Reagan, that rolled back property tax assessments and sparked a wave of tax revolts across the country has helped real estate prices climb for a generation. But the real estate bubble burst and property taxes are averaging $800 a month, on par with rent. Now property taxes will fall with the home value and lower sales price. What will Big Government do? Raise taxes everywhere else. Cut expenses? No way, (San) Jose!
To Republicans, Prop. 13, as it is known, amounted to a revolution by The People against Big Government. No longer would homeowners, particularly elderly people on fixed incomes, have to watch their property taxes skyrocket just because land values soared. No longer would governments grow wildly, their treasuries swollen by soaring real-estate prices. The people had finally had their say: ”Enough!”
Insofar as Prop. 13 did benefit homeowners, it did so by picking the pockets of wide-eyed yuppies buying new houses.
Current home buyers still get slammed on property taxes, because their rates are pegged to current land values. By contrast, people who bought their homes before 1978 (retirees) pay taxes based on their home’s 1975 assessment, which can be hiked by no more than 2 percent a year. This is what helped Prop 13 pass, elderly could stay in their homes without being taxed out of them.
Since the median price of homes in California has multiplied by 10 times or more since 1978, the disparities between identical homes can now be huge. According to Jeff Reynolds, head of research for the state’s Board of Equalization, pre-Prop. 13 homeowners pay one-tenth the tax rates of more recent home buyers.
The local government solution, instead, has been to charge vastly higher ”impact fees” on new homes. Theoretically, impact fees cover the cost of new streets and sewers associated with new homes. When tax revenues financed these costs, impact fees were minimal or nonexistent. Since Prop. 13, though, they’ve been soaring. In 1983, they averaged about $5,700. By 1987, they had zoomed to $11,807, according to a survey by the National Association of Home Builders. In 2007 they were averaging $19,000 a year on a new single family home. On top of that, cities now frequently demand that developers also foot the bill for new parks and schools. Big deal, the builders put the parks and schools in flood zones.
Now what? Who can afford $1,500 a month in property taxes on top of a $4,500 a month mortgage? Not many. The Democrats have hiked up every other tax available. Now what? Both the husband and wife not only have to work, they have to earn $100,000 or more each.
What a dream it was, what a nightmare it has become.