Chico Real Estate – Tax Revenues Skid

by Jack

27th week of 2012: Recent [solds] indicate that home values continue to weaken under a stalled economy and lack of local jobs.

The homes that have taken the biggest losses are generally newer and priced over $400k. You could also say, the more expensive they were originally, the more the sellers are likely to lose. This trend means less tax revenue for the city. I think the Chico City Finance Director should be watching these numbers very closely. If they are not in line with projections, then the City better start making adjustments or risk being caught underfunded again.

Take a look at the stats shown below. Those outlined in red are homes sold for less than their purchase price. Homes in blue are sold for more, but it does not take into account improvements and it could be that these are homes are bringing in less than what the owners invested. Taking out the 6% commission, they are almost certain to be upside down at sale time. I’ve also included a couple of pending sales, take a look at the huge hit the seller is taking on that million dollar home! Ouch!!!

This is a horrible real estate market and home owners are losing their shirts! And this list does not take into account those homes sold by other than a realtor, so it could be worse. How much more of these tax revenue losses can the city take and what can be done about it? That’s the sort of questions that should be before the Council, not diddling around with a plastic bag ban!

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13 Responses to Chico Real Estate – Tax Revenues Skid

  1. Toby says:

    “I think the Chico City Finance Director should be watching these numbers very closely”. That would require responsible leadership, sorry to say, Chico is lacking that in spades.

  2. juanita says:

    thanks Jack.

  3. Soaps says:

    home owners are losing their shirts!

    No. Not home owners, home sellers. If you still own and live in your home, you have not lost a penny, and you still have a place to live.
    Why do you think you should be able to sell your house for more than you paid? Can you sell your clothes or your car for more than you paid? Maybe, if it is a 1967 Shelby Mustang.

  4. Post Scripts says:

    Soaps, the Mustang is a great analogy! It held its price well because it’s what people want, supply and demand determine value once again.

    There was a time when you could have said that about your old Levis, when Japan was paying big money for them. It’s all about supply and demand, even for old pants.

    Initially we must conclude a home is sold for exactly what it’s worth, then we make certain improvements, to create a better home, which in theory would increase the demand.

    The home is a great hedge against inflation too and if it’s in the right location, location, location, that too ups the price, again all driven by that original supply and demand ratio. Most homes do appreciate for that precise reason. In fact, I can’t recall a time when real estate didn’t appreciate over the long haul say 15-20 years. Maybe this will be the first time?

    I seem to recall that about 2% is the typical return on a house and the longer you own it the more likely you are to get that 2%. But, it’s actually better than that if you factor in the depreciation schedule that you deduct on your income tax.

    The good news is that certain areas are showing signs of recovery. Chicago is one of them and they were really hit hard. However, maybe their recovery is only due to an oversold situation and it’s merely finding the proper level, I dunno, time will tell.

  5. Libby says:

    “The homes that have taken the biggest losses are generally newer and priced over $400k.”

    Jack, say it after me … “bubble”.

    In my own way, I’m going quite conservative. Anybody who, in the last twenty years, plunked down (or contracted a mortgage for) a $400K house in Chico … can just take their lickin’s. No way on God’s earth anything in Chico is worth $400K. Think WWII … or even the War of the Roses … collaborators should be pilloried.

    Back in ’09, there was a teeny, tiny, one-bedroom bungalow on Delaware in Berkeley going for $725K. Somebody actually plunked. We’ve never seen them. They hide. And small wonder. They’re likely eternally at work. Psychos.

    Alas … that still leave the citizens of Chico to figure out … are they going to do without public services … or raise revenue some-how-else.

  6. Post Scripts says:

    Libs you know what they say, a fool and his money are soon parted.

  7. SEO Melbourne says:

    Great reading, thanks! Sometimes I just happen to stumble over info that arrives in a timely manner. Spot on 😉

  8. Tina says:

    Libby repeat after yourself…Bubble! Bubble!!

    Government regulation and involvement, whether the insane CRA, collusion between politicians and lenders, or regulators asleep at the wheel/looking the other way, encouraged home buying which created increasing demand which artificially pushed prices higher and higher. The house of cards ultimately crashed the housing market and destroyed the property tax base.

    The average home buyer “plunked” in good faith. Buyer beware is always the bottom line, however there is no way the average buyer would or could have anticipated the tangled mess that stupid government regulation, enacted by ignorant, opportunistic, pandering politicians, had wrought.

    Government at all levels has been living beyond its (our) means and mismanaging the peoples hard earned money for decades. Most have lied to the people about the real reasons for budget woes and shamelessly used the threat of ending services as a way to extract even more tax dollars which they then use on fun projects and payback for votes to stay in power.

    If business managed as cities (all government) have we would be living a permanent depression (think North Korea). As it is we are working (those of us who still are working) until mid-July to pay for government.

    Only idiots think that government can continue to take more and more from private sector producers without affecting the tax base and collapsing the economy and governments. WAKE UP!

    Here in Chico the progressive tendency to spend for votes (including public sector benefit packages) and pretentious, trendy goodies rather than services, has our city mirroring the failure of others across the country.

    Progressives had better learn how to have a healthy respect for wealth producers and money management or get the he** out of the way so that others who do know how can step forward to manage the difficult task of digging out of the hole.

    Look to governors in states that are digging out successfully for clues.

  9. Libby says:

    “The average home buyer “plunked” in good faith.”

    No. They plunked in delusion. How could anybody, in their right mind, ever think, for a moment, that a residence in Chico, even a McMansion, could ever be worth $400K. No. I’m sorry, not ever, not for a hundred years.

    You’d have to be deluded by the workings of a reckless financial sector to believe any such thing.

    And many people were.

  10. Tina says:

    My how you do protect those big government manipulators.

    Of course Real estate goes up…even in Chico..along with everything else!

    Creating artificial market demand (BUBBLE) is a specialty of dumb-assed government intervention at the federal, state and municipal levels. In addition to the CRA it turns out urban planning also plays a significant role:

    http://www.cato-at-liberty.org/blame-urban-planning/

    So it all started with the bubble. But what caused the bubble? The answer is clear: excessive land-use regulation. Yet while many talk about re-regulating banks and other financial firms, hardly anyone is talking about deregulating land.

    The housing bubble was not universal. It almost exclusively struck states and regions that were heavily regulating land and housing. In fast-growing places with no such regulation, such as Dallas, Houston, and Raleigh, housing prices did not bubble and they are not declining today.

    The key to making a housing bubble is to give cities control over development of rural areas a step that is often called growth-management planning. If they have such control, they will restrict such development in the name of stopping urban sprawl an imaginary problem while their real goal is to keep development and its associated tax revenues within their borders. Once they have limited rural development, they will impose all sorts of conditions and fees on developers, often prolonging the permitting process by several years. This makes it impossible for developers to respond to increased housing demand by stepping up production.

    In contrast, when cities do not have control of rural areas, developers can step outside the cities and buy land, subdivide it, and develop it as slowly or rapidly as necessary to respond to demand. The cities themselves respond by competing for development in other words, by keeping regulation and impact fees low. The Houston metro area, for example, has been growing at 130,000 people per year, yet it was readily able to absorb another 100,000 Katrina evacuees with virtually no increase in housing prices.

    Before 1960, virtually all housing in the United States was affordable, meaning that the median home prices in communities across the country were all about two times median-family incomes. But in the early 1960s, Hawaii and California passed laws allowing cities to regulate rural development. Oregon and Vermont followed in the 1970s. These states all experienced housing bubbles in the 1970s, with median prices reaching four times median-family incomes. Because they represented a small share of total U.S. housing, these bubbles did not cause a worldwide financial meltdown.

    In the 1980s and 1990s, however, several more states passed laws mandating growth-management planning: Arizona, Connecticut, Florida, Maryland, Rhode Island, and Washington. Massachusetts cities took advantage of that states weak form of county government to take control of the countryside. The Denver and Minneapolis-St. Paul metro areas adopted growth-management plans even without a state mandate. As a result, by 2000, prices of nearly half the housing in the nation were bubbling to four, six, and in some places ten times median-family incomes.

    In the meantime, Congress gave the Department of Housing and Urban Development (HUD) oversight authority over Fannie Mae and Freddie Mac. While this was supposedly aimed at protecting taxpayers, Congress knew that HUDs main mission is to increase homeownership rates, and Congress specifically pressured HUD to increase homeownership among low income families. So HUD responded to the housing bubble by directing Fannie and Freddie to buy increasingly high percentages of mortgages made to low income families, eventually setting a floor of 56 percent. This led Fannie and Freddie to significantly increase their purchases of subprime mortgages, which legitimized the secondary market for such mortgages.

    The result of all this this government intervention and manipulation is ugly:

    …median California housing was twice median family incomes in 1960, four times in 1980, five times in 1990, and eight times in 2006. In the next bubble, it will probably be at least ten times. This means homeownership rates will decline (as it has declined in California since 1960), small business formation (which relies on the equity in the business owners homes for capital) will decline, and education will decline (children of families that own their homes do better in school than children of families who rent).

    Those of you interested in Chico politics will want to read the entire article.

    Libby the American people are just doing the best they can to save, invest, and make a decent nest egg for themselves. Government intervention is mucking up every opportunity at every turn. It’s time to expose all of the shenanigans.

  11. Libby says:

    “Government intervention is mucking up every opportunity at every turn.”

    “Countrywide” was not a government entity.

  12. Tina says:

    Countrywide was colluding with government officials…Democrats like Chris Dodd.

    I refuse to go over the insane government laws and regulations that made the housing bubble and melt down inevitable, including government regulators that failed to do their jobs and politicians that refused to heed warnings from President Bush. Now we find that land-use regulation also contributed.

    Every problem we face today can be traced directly to government intervention.

    Now that idiot Obama is out saying that if Americans have started a business “they didn’t do that on their own; somebody else did that.”

    What an A**H**E!

  13. Libby says:

    “Every problem we face today can be traced directly to government intervention.”

    I suppose, … Clinton’s ill-advised repeal of Glass-Steagall is probably the root of both the bubble and the crash.

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