Renowned housing analyst who predicted the 2008 home price crash weighs in on the current market

[PWMDMD]

In South Carolina, the millage rate is applied to the tax value, which can only go up 3% a year by state law. The guy next to me bought his house two years ago. His actual tax bill will be twice what mine is. So the Millage rate is only half the story.

If your state has no property tax increase cap, then it will work differently.

I'm not following. Your increase is capped but his is not? What is the value of the two homes?

We have prop 2 ½ but everyone pays the same rate:

Proposition 2½ places constraints on the maximum amount of the tax levy raised by the Town and on how much the levy can be increased from year to year. It allows a town to annually increase its levy by 1) 2.5% of the prior year's levy, and 2) an additional amount based on the valuation of new construction and other allowable growth in the tax base (new growth) that is not the result of revaluation. The annual levy limit may never exceed the overall levy ceiling, which is 2.5% of the full and fair cash value of a town's total taxable value.

With Proposition 2½, a minimum 2.5% tax increase can be expected each year. Subject to voter approval, Proposition 2 ½ allows communities to raise funds for certain capital projects above the amount of their levy limit. An exclusion for the purpose of raising funds for debt service costs is referred to as a debt exclusion. The additional amount for the payment of debt service is added to the levy limit for the life of the debt.

 

[ecotourist]

V
I agree. This is a false economy. I am not against reverse mortgages for people late in life who need it - but how does it help someone not so late in life? What do I take a reverse mortgage to pay my insurance and taxes?

You will be late in life eventually. That's when you could take advantage of the increased home value.

I won't be taking out a reverse mortgage but for some folks it can be a life saver. They get to stay in their own home and eat regularly too.

 

[TheOilWizard]

Ok, but come back to reality, the inflated home values are here, so instead of longing for an alternative universe where home prices are lower, learn to work within reality. You've made two very different statements here. One statement was you see no value in high home appreciation and the other statement now is you wish it hadn't happened. I and others have clearly shown there IS value in home appreciation IF you're smart about it. As for your wish for lower home prices, you can wish in one hand and poop in the other and see which one comes true first. I don't waste time wishing reality was different, I accept it and learn to work within it.

That's correct. I've made a statement that I don't utilize equity in my home, personally. Some people, like yourself do, and that's great. The price we're paying with rocketing home prices is that middle class folks are struggling to own homes. Is it worth it? My position is that no, it's not.

Not sure what the rest of the rant is even about.

 

[PWMDMD]

That's correct. I've made a statement that I don't utilize equity in my home, personally. Some people, like yourself do, and that's great. The price we're paying with rocketing home prices is that middle class folks are struggling to own homes. Is it worth it? My position is that no, it's not.

Not sure what the rest of the rant is even about.

The rest of the rant is simply the state of real estate is what it is...you do you.

 

[SC Maintenance]

I'm not following. Your increase is capped but his is not? What is the value of the two homes?

We have prop 2 ½ but everyone pays the same rate:

Proposition 2½ places constraints on the maximum amount of the tax levy raised by the Town and on how much the levy can be increased from year to year. It allows a town to annually increase its levy by 1) 2.5% of the prior year's levy, and 2) an additional amount based on the valuation of new construction and other allowable growth in the tax base (new growth) that is not the result of revaluation. The annual levy limit may never exceed the overall levy ceiling, which is 2.5% of the full and fair cash value of a town's total taxable value.

With Proposition 2½, a minimum 2.5% tax increase can be expected each year. Subject to voter approval, Proposition 2 ½ allows communities to raise funds for certain capital projects above the amount of their levy limit. An exclusion for the purpose of raising funds for debt service costs is referred to as a debt exclusion. The additional amount for the payment of debt service is added to the levy limit for the life of the debt.

No. When he bought his house two years ago, the sale price was his tax value. Since he paid twice as much as I did 10 years ago, his tax value was twice mine approximately.

It’s actually 15% cap every five year for reassessment. so it’s not exactly 3% but close enough. Next reassessment, which happens to be next year, both of ours will likely go up 15%. Well, mine will for sure. But since the 15% increase is based on your original basis, his will still be double what mine is approximately. As long as we both still stay, he will just about always pay approximately double the tax that I do, until one of us sells.

There are a whole bunch of other convoluted things, like any improvements get added at current value to the assessment. And there are a number of line item things where everybody pays a few bucks for each one irrelevant of property value, but the gist of it is he’s paying twice as much in taxes that I am for the same services and approximately the same property value.

 

[ecotourist]

Did you walk through streams to school to buy your first house?

No but we built our first house (I was the general contractor) while I was a medical intern (ie working 90 hours a week). My wife was working too. That was some tiring; we both lost weight that year.

Our mortgage was 11 1/4%. We burned that mortgage after 5 years by paying off as much as was permitted every year, and lived in that house for 10 years.

Me moved so I could take 4 more years of medical training in another city. My wife had to leave her dream job. We bought a larger, nicer and more expensive house with cash. Had a 3 year old Volvo (bought new) at the time too.

We didn't get to where we are by taking it easy and eating out a lot. A career is hard work.

 

[alarmguy]

I never said the pricing would come down. I said the cycle will continue as it always has. The 70's saw this type of housing price increase. Then wages caught up. Before the wages increased there was hand wringing and housing concerns. Then, the wages caught up and people started buying again - even with high interest rates in the 80's.

As I've said in other threads as well, my parents bought a nice suburban home in 1970 for 38K. 10 years later it was worth 114K. And way more now.

It's just a normal event in the cycle of economics. Things go up in price, then wages go up to "catch-up". And don't forget that location matters too.

People from the NE are moving south because of the "value" of their dollar (so to speak). So we have economic migration underway. No different than people from less fortunate US states retiring to lower cost countries elsewhere (where their dollars will go further).

Well said and as I keep pointing out to others, there is no housing crisis. That crisis is only in mass media and social media, including this forum.
Anyone can do a search (even though I already posted the charts) and see there is the same amount of homeownership in the USA as there has been for the last 40 years. SO how can we have a so called "crisis" ?
Mass media, social media, social hysteria ... is all.

 

[97K15004WD]

No. When he bought his house two years ago, the sale price was his tax value. Since he paid twice as much as I did 10 years ago, his tax value was twice mine approximately.

It’s actually 15% cap every five year for reassessment. so it’s not exactly 3% but close enough. Next reassessment, which happens to be next year, both of ours will likely go up 15%. Well, mine will for sure. But since the 15% increase is based on your original basis, his will still be double what mine is approximately. As long as we both still stay, he will just about always pay approximately double the tax that I do, until one of us sells.

There are a whole bunch of other convoluted things, like any improvements get added at current value to the assessment. And there are a number of line item things where everybody pays a few bucks for each one irrelevant of property value, but the gist of it is he’s paying twice as much in taxes that I am for the same services and approximately the same property value.

And don't forget the Bailey Bill:

https://www.masc.sc/uptown/11-2020/economic-development-tools-bailey-bill

Especially relevant for historically designated areas and homes.

 

[PWMDMD]

FWIW...there is an orthodontist in MA who owns and manages $350M in real estate. He started with flipping properties because he could only afford small fixer uppers. When he accumulated enough cash he started buying better properties that needed less rehab and holding them for rentals. As values increased, he used equity and leverage to purchase more properties. He now has a constructions company that builds new rental properties and a management company. I spoke with him not long ago and even with rates where they are he is full steam ahead and still building and buying/rehabing. This may be an extreme example of how appreciation can be used for good but he's also not the only person I know who does this successfully. There is a pediatric dentist in NH who has done similar except his construction company builds his rentals/rehabs and he also does dental office design and construction. He too uses the equity from capital appreciation and has hundred of millions of dollars of real estate.

 

[PWMDMD]

No. When he bought his house two years ago, the sale price was his tax value. Since he paid twice as much as I did 10 years ago, his tax value was twice mine approximately.

It’s actually 15% cap every five year for reassessment. so it’s not exactly 3% but close enough. Next reassessment, which happens to be next year, both of ours will likely go up 15%. Well, mine will for sure. But since the 15% increase is based on your original basis, his will still be double what mine is approximately. As long as we both still stay, he will just about always pay approximately double the tax that I do, until one of us sells.

There are a whole bunch of other convoluted things, like any improvements get added at current value to the assessment. And there are a number of line item things where everybody pays a few bucks for each one irrelevant of property value, but the gist of it is he’s paying twice as much in taxes that I am for the same services and approximately the same property value.

Ah...here the assessed value does not change with the history of the sale and there is typically a significant negative difference between the assessed value and the market value.

 

[SC Maintenance]

No but we built our first house (I was the general contractor) while I was a medical intern (ie working 90 hours a week). My wife was working too. That was some tiring; we both lost weight that year.

Our mortgage was 11 1/4%. We burned that mortgage after 5 years by paying off as much as was permitted every year, and lived in that house for 10 years.

Me moved so I could take 4 more years of medical training in another city. My wife had to leave her dream job. We bought a larger, nicer and more expensive house with cash. Had a 3 year old Volvo (bought new) at the time too.

We didn't get to where we are by taking it easy and eating out a lot. A career is hard work.

Yes it’s not supposed to be easy. But not impossible either.

I bought a fixer upper and worked on it every waking hour for 2 years - and I have never slept much anyway. Drove my wife nuts.

And that’s actually another problem. There are no fixer uppers for sale anymore. The contractors, or realtors scoop them off the market before they even list, paint and flip.

 

[alarmguy]

FWIW...there is an orthodontist in MA who owns and manages $350M in real estate. He started with flipping properties because he could only afford small fixer uppers. When he accumulated enough cash he started buying better properties that needed less rehab and holding them for rentals. As values increased, he used equity and leverage to purchase more properties. He now has a constructions company that builds new rental properties and a management company. I spoke with him not long ago and even with rates where they are he is full steam ahead and still building and buying/rehabing. This may be an extreme example of how appreciation can be used for good but he's also not the only person I know who does this successfully. There is a pediatric dentist in NH who has done similar except his construction company builds his rentals/rehabs and he also does dental office design and construction. He too uses the equity from capital appreciation and has hundred of millions of dollars of real estate.

Land the opportunity, all it takes is a drive to achieve.
Even if somebody doesn’t need 350 million. Someone can buy a modest fixer-upper instead of a new boat motorcycle or $40,000 car.
Real estate is one thing that anybody with limited resources can make money off of should they want to.

 

[ecotourist]

There are no fixer uppers for sale anymore. The contractors, or realtors scoop them off the market before they even list, paint and flip.

Then build new.

I did. Lived in that house for cheap and eventually made a bit of money on it too.

You have to take advantage of the situation as it actually is, not how you wish it was.

 

[Highlander 1459]

Land the opportunity, all it takes is a drive to achieve.
Even if somebody doesn’t need 350 million. Someone can buy a modest fixer-upper instead of a new boat motorcycle or $40,000 car.
Real estate is one thing that anybody with limited resources can make money off of should they want to.

also worth pointing out that a person with resources can underperform the SP 500 over the long haul
I am thinking of a rather famous person who inherited 200 million from his real estate tycoon father in 1972 and now has a net worth somewhere between 3 billion and 9 billion depending on who you listen to
who would have more than that if he simply threw that 200M in a SP500 index fund all those years back.

 

[SC Maintenance]

Then build new.

I did. Lived in that house for cheap and eventually made a bit of money on it too.

You have to take advantage of the situation as it actually is, not how you wish it was.

I could but I have a house and make double digit returns on investments so construction is not my thing.

I’m talking about a young person. Just a lot is probably difficult to afford now, and hard to get a loan for. Not impossible maybe?

 

[PWMDMD]

Then build new.

I did. Lived in that house for cheap and eventually made a bit of money on it too.

You have to take advantage of the situation as it actually is, not how you wish it was.

This is why the two I mentioned earlier transitioned from rehab-only companies to building new construction.

 

[PWMDMD]

also worth pointing out that a person with resources can underperform the SP 500 over the long haul
I am thinking of a rather famous person who inherited 200 million from his real estate tycoon father in 1972 and now has a net worth somewhere between 3 billion and 9 billion depending on who you listen to
who would have more than that if he simply threw that 200M in a SP500 index fund all those years back.

That $200M would be worth $10B today sitting in an S&P500 index fund.

 

[Highlander 1459]

That $200M would be worth $10B today sitting in an S&P500 index fund.

exactly,,, without working.. or speculating and building and buying and selling, or being inlawsuits and all the other nonsense he has been involved in.

 

[GON]

also worth pointing out that a person with resources can underperform the SP 500 over the long haul
I am thinking of a rather famous person who inherited 200 million from his real estate tycoon father in 1972 and now has a net worth somewhere between 3 billion and 9 billion depending on who you listen to
who would have more than that if he simply threw that 200M in a SP500 index fund all those years back.

exactly,,, without working.. or speculating and building and buying and selling, or being inlawsuits and all the other nonsense he has been involved in.

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

 

[BMWTurboDzl]

Sure, personally, I love having the option of taking massive equity. But it's a huge price to pay for unaffordable housing for everyone else. Given the choice, I'd rather not have inflated home values.

Until you retire and move south into a more comfortable home owned free and clear.