Nov 18, 2009 | No Comments | Sean Mills
After reading some of the commentary regarding the housing starts report this morning, it might be useful to reiterate these three points:
Residential investment is the best leading indicator for the economy.
Residential investment is reported quarterly by the Bureau of Economic Analysis (BEA) as part of the GDP report. We can also use monthly housing starts [...]
After reading some of the commentary regarding the housing starts report this morning, it might be useful to reiterate these three points:
Residential investment is the best leading indicator for the economy.
Residential investment is reported quarterly by the Bureau of Economic Analysis (BEA) as part of the GDP report. We can also use monthly housing starts and new home sales as indicators of residential investment. I’ve written extensively about how residential investment is an excellent leading indicator for the economy (also see Dr. Leamer’s paper: Housing and the Business Cycle)
This morning several commentators suggested that housing starts were depressed in October because of the expiration of the tax credit (new home buyers had to close by Nov 30th to get the tax credit), and also because of the weather. Probably. But the key point is that housing starts will not increase rapidly because of the large overhang of existing vacant housing units (see 2nd graph here). And that suggests that the economy will not recover quickly either.
Another key point is that existing home sales are largely irrelevant for the economy. This is an important point to remember next week when the NAR announces that existing home sales surged to 5.8 million units or so in October (seasonally adjusted annual rate). Some reporters and analysts will jump on the existing home sales report as evidence of a housing recovery. Others will point to it as showing that the first-time home buyer tax credit is helping the economy.
Both points are wrong.
The only contribution from existing home sales to the economy are some commissions and fees. That is good news for real estate agents and mortgage brokers, but not for the overall economy.
The good news is the level of inventory for new and existing homes is declining. The bad news is the inventory of rental units is at record levels – as is the combined inventory of vacant single family homes and rental units. Residential investment will not increase significantly until this overhang is reduced.
The key to reducing the overall inventory is new household formation (encouraging renters to become buy prescription drugs with no prescription owners accomplishes nothing in reducing the overall housing inventory). And the key to new household formation is jobs. And usually the best leading indicator for jobs is residential investment. Somewhat of a circular trap.
And that suggests the recovery will be sluggish and unemployment will stay high for some time.
Residential investment will not recover rapidly because of the large overhang of existing vacant housing units.
Existing home sales are largely irrelevant for the economy.
Source Article
Nov 18, 2009 | No Comments | Sean Mills
Article from Globe Street definitely worth a look and it is probably going to take hold this time in light of how mucked up the economy is.-Sean
SACRAMENTO-Two new potential ballot initiatives are afoot that would drastically change how commercial properties in California are assessed and how much they are taxed. One calls for a 55% [...]
Article from Globe Street definitely worth a look and it is probably going to take hold this time in light of how mucked up the economy is.-Sean
SACRAMENTO-Two new potential ballot initiatives are afoot that would drastically change how commercial properties in California are assessed and how much they are taxed. One calls for a 55% increase in the current property tax rate for commercial properties while the other wants commercial properties’ fair market value appraised more frequently. Currently, under Prop. 13, properties are taxed annually at 1% of their appraised value when purchased and may only have its fair market value adjusted after a majority stake is sold.
Attorneys from the San Leandro-based law firm Remcho, Johansen & Purcell LLP filed title and summary language for the proposed 2010 ballot initiatives earlier this month. They are the “Protect Homeowners and Close Corporate Tax Loopholes Act” and the “Education and Taxpayer Fairness Act.” In order to qualify as a potential constitutional amendment for the November 2010 ballot, each initiative would have to garner 700,000 signatures by the spring.
The latter initiative would add 0.55 percentage points to the current tax rate of 1.0% of the assessed value upon a sale, with the extra revenue diverted to a fund for K-12 schools, community colleges and state universities. The former would require that all non-commercial, non-public properties have their fair market value assessed every three years, beginning with properties that have gone the longest between appraisals. It would also exclude $1 million in personal property tax for businesses “in order to give small business owners immediate tax relief,” double homeowners’ property tax exemption and increase the tax credit for qualified renters.
The initiative claims that the lack of more frequent fair-market-value appraisals is a “gigantic loophole” for commercial properties that places the burden of paying for things like police and fire services more heavily on homeowners. “Unlike single-family residences, commercial buildings produce income for their owners,” the initiative finds. “It makes sense, therefore, to tax commercial real property at a higher rate than private homes. Furthermore…it makes sense…to reassess commercial real property at current market value and use the increased revenues to restore vital services to our seniors and health care to our kids, protect funding of public safety, and also improve the funding prescription drugs online without a prescription of California’s public schools.”
The initiatives are two of three that would institute a split roll property tax system where in single-family residential properties are treated differently than non-residential properties. In mid-October, Chula Vista-based attorney Frank D. Walker filed language for an initiative that calls for all land having rental value to be taxed monthly at 75% of its assessed rental value instead of the 1% tax upon sale.
Matthew Hargrove, SVP of government affairs for the California Business Properties Assoc. tells GlobeSt.com he has looked at all three proposals. “We have for years been seeing these types of split roll property tax proposals come forward and they are just not a good idea,” he says. “It would not raise the revenue that the proponents say they would and would really hurt both the commercial and residential real estate industries because business owners would raise their prices to offset the increased property expense and homeowners would end up paying more for services.”
Hargrove directs any interested persons to a study on the SBPA web site titled “The Economic Effects of California Adopting a Split Roll Property Tax.” The Remcho, Johansen & Purcell law firm that submitted the latest initiatives referred calls to Sacramento-based Kaufman Campaign Consultants, which was not immediately available Monday for comment. Walker, the attorney for the third initiative also was not immediately available.
