Feeding off what I was talking about yesterday, I want to explain some things that I didn't include for reasons of that post was already long-winded enough and I needed to shut up already.
See, houses are going to crash again.
There's a reason for it.
Our government is addicted to spending, spending vastly in excess of revenue, and spending that's by and large merely a series of handouts to all and sundry.
No mention is made at any point of the fact that the federal government has, and can have, no authority to use tax dollars for handouts.
But the primary way they attempt to pay for their spending is through taxation.
Some of you are wondering what this has to do with housing.
Don't worry, I'll get there.
At the federal level, this affects the housing market by allowing Fannie Mae and Freddie Mac to buy up - and then extend - mortgages made for houses that their owners could not afford, using tax dollars.
At the state level, it comes from the other end; but I'll get there too.
States have budgets, just like the federal government, and just like the federal government, they have constituents who have been taught from birth that handouts are ok.
Think I'm kidding? Explain, then, how you have Republicans who fight bailouts to the death but scream bloody murder at the very idea that someone might touch "their" Medicare or "their" Social Security?
What did you think those programs were?
When the government gives you more money than you put in - and that's overwhelmingly true - it is a handout, and the money comes from someone else's pocket.
So, "no more bank bailouts!" and "don't touch my BadgerCare!" from the same folks in Wisconsin, just as an example.
The problem is that the states have to pay for their own local handout programs.
How do they do it?
Mostly by property taxes.
See, when you buy a house, you pay - or get a loan for, usually - the amount the "market" says the house is worth.
This is a false notion.
The market doesn't assign values to individual properties through some kind of sinister alchemy; the "worth" of a property, strictly, is determined by a single factor: how much you can convince someone to pay for it.
We'll come back to this, trust me, and quickly.
There are over two million homes vacant in the United States today, thanks to foreclosures and new home construction.
So, why are they vacant?
Well, if you believe some, it's because homeowners are so ridiculously picky that they don't want to buy a house that was previously owned by someone else.
That's so ludicrous it's almost comical.
The reason people aren't buying houses is because they can't AFFORD houses.
Well, why not?
...We're creeping back up on it...
Because the housing prices haven't significantly dropped.
Well, why not?
...Closer, now...
Because the banks and realtors are trying to list them for the same inflated prices as before, despite the limits on the buying power of the people shopping for houses.
Well, why is that?
...Almost there...
After all, the banks have to make money on them, right? And they're sure not making any money on houses that are sitting vacant, so what exactly are they thinking that might make them keep the prices high, thus pricing the overwhelming majority of potential homebuyers out of the market?
Well...
...That's the value the houses are appraised at...
...By the state property tax assessors.
!!!!!!!
See, the state property tax assessments are SUPPOSED TO be somewhat reasonably close to the value of the house. That's why they get reassessed, periodically, so that the taxes on those properties can be adjusted based on the houses' relative worth.
But a couple of decades ago, the tax assessors quietly stopped EVER adjusting ANY tax assessment DOWN.
Property tax REVENUE began to climb - a bonanza the states quickly spent - without raising the actual tax RATES, because even with a static tax rate, the actual assessed tax amount grows every time the property is reassessed as having a higher value than before...
...Even if you can't get anyone to pay that much for it.
This is where the notion of "underwater" mortgages comes from; with the slight downward adjustment in home prices over the last year - and I do mean slight, although I will explain in a minute - many homeowners were left owing more on their mortgages than they were able to sell the houses for, thus becoming stuck in a downward spiral of mortgage payments they couldn't afford, for homes they soon lost to foreclosure.
So.
Realistically, the homeowners were ultimately at partial fault here. No matter how you point the finger at the banks, and scream "predatory lending practices," the fact is that you know your own finances better than anyone; if you cannot afford payments on something, and you buy it anyway, whose fault IS it but yours if you later - surprise! - cannot afford it?
Now, underwater mortgages are only a problem for one group of homeowners: those who cannot meet their existing payments. To anyone who can continue to make their mortgage payments, being "underwater" doesn't matter a bit; they can still make their payments, and then own their home free and clear.
But wait!
If a house is assessed by the appraiser as having a higher value than anyone can or will realistically pay for it, how does the bank sell it?
The two million empty homes littering the landscapes of our cities should be proof positive that they don't.
What SHOULD have happened, realistically, is that there should have been two waves of foreclosures; the first, when the ARMs started to hit their balloon payments and the homebuyers couldn't make them, and the second when, after having their mortgages go underwater, the set who couldn't make their payments and had been counting on selling their homes to pay off the mortgages decided foreclosures were a better bet and walked away.
Following that second wave, the price of homes throughout the country should have taken a far more massive writedown than it in fact did, and - this is important - the property tax assessments should have dropped with them.
But they didn't.
And thus, the banks couldn't realistically lower their prices too much, either.
The result is that instead of a steady, but smaller, stream of tax revenue from property taxes, states are rapidly seeing their tax income dwindle, as more and more homes wind up vacant, and therefore generating revenue for...
...No-one.
You can't tax property that no-one buys; you can't tax businesses that are losing money; you can't tax income people don't have.
And in their rush to generate revenue support for their ever-expanding spiral of social programs - handouts - the states have sowed the seeds of their own bankruptcies, by pricing homebuyers out of the markets.
Who would pay $50,000 for a house, and then pay taxes on it as if it were worth $250,000, after all?
No-one.
And so, just like big city sports arenas, movie theaters, and music stores, the housing industry has become another casualty of a basic, fundamental misunderstanding of the simplest law of economics:
Nothing has a value beyond what people will pay for it.
This is the single determining factor that sets prices for any product or service: what will people pay for it? If they will pay more than it's worth, that's "profit." If they won't, that's "impending business failure."
Raise ticket prices? Fewer people show up to your football games or movies.
Raise the price of CDs? Fewer people will buy those, too.
Raise the price of houses?
Well, this isn't a game of "one of these things is not like the others."
And when fewer people buy, there are fewer people you can tax.
The SMART thing to do - they won't do this, but it's an interesting exercise - would be to determine what portions of the government budget are handouts at both the state and local levels, then eliminate them entirely.
The government is not, and is not intended to be, responsible for caring for you, cradle to grave, as though you were a helpless toddler that votes.
Follow that up by reducing your tax rates such that your revenue meets your new, revised budget obligations.
Watch, as the economy revitalizes itself like magic, and people get employed (and you can tax them again!) and buy houses (and you can tax them again!) and buy crap from Kmart (and you can tax them again!) and do lots and lots of other things that you already have taxes in place to take advantage of - because you stopped taking so much of their money away in taxes.
This is the point where everyone holds up a flag for their chosen "special" form of communist income redistribution, and tries to tell me I am a heartless wretch for denying people something they have a right to.
No, you don't.
You don't, and cannot, have a right to one single penny of my money, nor I of yours. If I buy into Nigerian 419 scams and send every penny I've ever earned to some clown who insists that he has a dead rich relative with my same last name and can we PLEASE use your bank account to launder the money, that isn't your fault; why should you be punished because I'm stupid?
Notice how this makes total sense when I paint myself as the dumbass here, right? You certainly should NOT have to pay for me, especially if it was my OWN fault I went broke.
Notice how the left tries to argue that the same, identical situation is "special" or "different" because the names of the actors change.
"But we have to take care of the old / sick / bums / insert_racial_group_here / illegal immigrants!"
No, no we don't, and for the same reasons you don't have to pay for me if I stub my toe.
It's not any more my fault, or responsibility, than it is yours.
And when the government takes your money, and mine, to pay for...
...whatever...
...They're saying it IS your fault, and your responsibility.
