Recovery Providing Diminished Benefit for Urban Housing Markets

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As we’ve witnessed throughout the last two quarters, America’s real estate market has traced an impressive recovery. The rebound in the property sector has played out most impressively throughout urban markets, as hard-hit regions recuperated with exceptional health while less heavily hit markets like Washington, DC managed to keep pace. As a greater trend, the median price of an American home grew at the greatest rate year over year in November 2012. While market observers are clearly glad that the housing sector has recovered with such fortitude, there remain lingering questions as to its impact on the U.S. economy as a whole. In all likelihood, for the housing recovery to stay strong and growth figures to persist throughout the rest of the decade, it’s necessary that it grow in tandem with the rest of American enterprise.

According to a new report from the international business section of India’s Economic Times, recent analysis suggests that regional growth in the housing sector is having minimal impact on the revenues of the municipalities they’re tied to. The greatest area of concern seems to be in the area of property tax revenues, as newfound heat in the housing sector seems not to be translating into municipal tax income. Citing a report from the National League of Cities in particular, the Economic Times report notes that concern is largely focused on negligible changes in the national sum of property tax revenue.

While this might not seem like a national affliction, it’s a particular area of concern for urban markets whose economic downturn was spread beyond the deflation in property values. Despite home values going under, major cities like Washington, DC and Houston in particular experienced relative economic health despite the recession. However, for markets like Phoenix and Detroit whose broader economies struggle in tandem with diminished property values, it’s a cautionary sign that property market health remains in a silo.

Caution in Numbers

As the Economic Times report details, there’s often a lag between economic cycles and the time it takes for tax collection and revenue accumulation to build steam. While nationwide property tax revenues tallied at $117.4 billion in Q4 2011, they barely rose to $117.6 billion during the same quarter last year. There remain questions as to whether newfound consumer confidence in the housing market will endure, or if the upswing in purchases might be so drastic that it might represent a spike that’s restricted to a limited timeframe. If local municipalities and investors alike alter their financial intentions based on what may quickly decelerate, we could be slated to ednure fiscal hiccups based on poor forecasting.

So What’s the Takeaway?

These caveats in the housing recovery beg certain other questions, such as whether current market trends mimic those that preceded the 2008 housing crash. There’s a chance that much of the rapid purchase of urban property is being orchestrated by hedge funds, and is not a sign of organic consumer interest. Financial conducting is a flimsy platform for sustaining a recovery, and if market activity is a result of situational factors and not a result of consumer demand, the consequences could unfold in complex forms. Even if recent naysaying proves to be unduly pessimistic, it only serves to emphasize that health in the housing market will likely be determined by a stable accumulation of infrastructural factors rather than transient growth metrics.

Photo: stevecadman

About Author

Harrison Stowe is a writer for NVR Inc., a prime developer of Baltimore new homes. Addressing a range of topics including investing, mortgages, and real estate, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.

1 Comment

  1. Interesting article, here in the City of Brotherly love our elected officials have solved this tax lag problem.

    What has been done is the AVI or Actual Value Initiative taxes will now be assessed based on perceived market value.

    About 15 years ago or so to spur development the city allowed a 10 year property tax abatement on all new residential construction. The taxes in the now “hot” areas of the City were pretty low as these areas were a vast wasteland. Today these areas are booming, but with the owners of expired or soon to expire abatements there is some concern as their taxes are in some cases going up 500%.

    My little niche of paradise, a low income stable area has been valued at 3 times the actual valve, witnessed by my efforts to sell with a Realtor for over a year with no offers.

    The real boon with this initiative is to the legal profession who is poised to collect fees ranging from 25-50% of the savings they win via a tax appeal.

    I would deal with the appeal myself except I just don’t have time to deal with the bureaucracy (idiocy) that is the City government. The cost whatever it becomes will be worth it.

    I will just need to calculate the total cost into the coming rent increases. When will tenants take a hand in the government, maybe when they understand businesses do not pay taxes. We simply collect them from the populace by passing them through to the end user.

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