Tax policy and its relationship to housing is a big topic. This post will not be a comprehensive treatise on the subject. I will look at several areas of tax policy and see what incentives they create and how changes in these areas would impact housing prices. This includes three broad areas: ownership taxes and subsidies, debt subsidies, and appreciation taxes. Ownership taxes and subsidies include property taxes, special tax levies, and the impact of proposition 13. Debt subsidies include the home mortgage interest deduction and its relationship to the personal exemption. Appreciation taxes are capital gains and income taxes from the profitable sale of residential real estate. Ownership Taxes and Subsidies Property taxes have long been a source of…[READ MORE]

I do not like government paternalism. When Ronald Reagan came to power and began our 25 year experiment with government deregulation, I thought it was a good idea. It used to really annoy me when I would see paternalistic politicians who believed they knew what was good for me and for society, and that their ideas of right and wrong should be legislated. Government intrusions into the lives of citizens should be kept to a minimum, and citizens should have the right to make their own decisions and live with the consequences. Well, maybe not. I used to believe all of that, but based on what I have witnessed during The Great Housing Bubble, I see good reasons to bring…[READ MORE]

Much of the analysis of the housing bubble has focused on the fundamental measures of price-to-income and price-to-rent. These are valid statistical measures of what the market should do, and they reflect the fundamental valuations to which prices ultimately return. However, debt-to-income ratios are very revealing of the buyer/borrower activity due to kool aid intoxication and irrational exuberance. There was a significant price bubble in residential real estate in the late 1980s crashing in the early 1990s. This coastal bubble was concentrated in California and in some major metropolitan areas in other states, and it did not spread to housing markets nationwide. When comparing this previous bubble to the Great Housing Bubble, the macroeconomic circumstances were different: Prices and wages…[READ MORE]

On January 1, 2008, I wrote a post titled Predictions for 2008. You can go back and review it to see how well I did. As a recap, I would like to share with you a couple of charts from 2008 for Irvine and OC:   Click for larger image Most of the macroeconomic conditions I made in 2008 are still operative, and several of the predictions I made which came true will likely repeat in 2009. These are: 2008 will see the worst single-year decline in the median house price ever recorded One or more of our major financial institutions and one or more of our major homebuilders will fail A severe local recession I predict we will see…[READ MORE]