Florida's Tax and Budget Reform Commission Places New Proposal on November Ballot

The commission that convenes every twenty years is taking its stab at addressing Florida's inequitable property tax system. If approved by 60% of the voters, this amendment will do several things

1. Starting in 2009, limit assessment increases to 5% a year on all non-homestead property. This is down from the 10% included as part of Amendment 1 passed in January, and keeps it permanent (Amendment 1’s cap lasted only for 10 years.)


2. It requires the Florida Legislature in 2010 to abolish the state’s required local effort for schools. It will be somewhere between $9-11 billion dollars, and that money can be made up in any combination of 4 ways:

• An increase of up to one percentage point to the sales tax (The Florida statewide sales tax is currently 6%)


• Spending reductions for other components of the state budget and revenue increases resulting from economic growth attributable to lower property taxes


• The repeal of sales tax exemptions, but not including food, health services, prescription drugs, the sale of real property, and items for resale


• Other revenues identified or created by the Legislature.

While not perfect, this proposal would provide a significant transition of our deeply flawed property tax system toward a more equitable position. Substantial relief for 'non-homestead-protected' property is crucial for the return of a robust real estate market (upon which much of the entire state's economy depends). It will be an interesting political season as the various groups with interest in this issue (which is almost everyone) begin to take up sides.

Real Estate Prices-Still Some Distance to Go

In a speech yesterday (Tuesday, 22 April); Yale University Economist, Robert Shiller predicted the percentage decline in real estate prices will exceed that experienced during the Great Depression in the 1930s (which was a 30% decline nationally). According to Shiller, Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history. "Basically we're in uncharted territory," Shiller said. "It seems we have developed a speculative culture about housing that never existed on a national basis before." Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy. Shiller, who admits to being bearish, says that real estate cycles take years to correct.

Keep in mind all real estate is LOCAL and our experience in South Florida will have larger numbers. Our price appreciation from 1997 to 2006 was 106% (for single family homes) so if we apply Dr. Shiller's formula our correction should be in the neighborhood of 37% or more.

Tenants, the Forgotten Victims of Foreclosure

That great bargain rental rate in the fabulous new condo could become a major headache for the tenant if the property goes into foreclosure during the term of the lease. It is wise for anyone renting property in the present market to keep the possibility of foreclosure in mind when shopping for a place to live. Certainly, if the tax record for the property contains a lis pendens reference; the matter should be questioned and resolved by the landlord prior to executing a lease. Keep in mind that mortgage and other obligation delinquencies may not be reflected in the tax record so it shouldn't be relied upon as the sole source of due-diligence. Renters may find that engaging an attorney to help protect advance rents, security deposits and lease-obligations is money well spent, especially in these turbulent times.

Value Declines of 'Expensive Homes' Slower than Lower Price Points

The Case-Shiller Value Analysis is a well-respected study of housing values in several major markets in the US. Shiller's Standard & Poor's/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month. I've plotted their single family home values (selling price) for the Miami/Fort Lauderdale market and found that value declines have been greater for homes with lower price points. Based on Case-Shiller's data; homes selling for less than $267,899 have declined by 19% since the peak in December 2006. Homes selling between $267,900 and $393,966 declined 18% from peak and homes selling for more than $393,966 have declined by 11%.

Keep in mind, Gentle Readers, these data reflect actual SALES within these price points. Hanging on to inflated asking prices will not necessarily result in slower decline! It is still important to price property consistent with what buyers are willing to pay in the present marketplace.

A Reason to Buy Now?

According to projections by PMI Mortgage Insurance Company, rates for thirty-year fixed mortgages should bottom out in the second quarter of 2008 and begin a steady rise from that point. According to PMI’s projection, rates could increase by 12% between 2nd quarter 2008 and the end of 2009. Even with further price declines likely, this change should urge reluctant buyers to step forward and make their purchases as increases in their monthly mortgage payment could outweigh purchase price savings.