Time for The Tax Fights to Begin

There was a time when real estate values where on an endless escalation, household net worth was expanding, government coffers were getting fat, and all had no income restraints… or so it seemed.
Well, that was then and now is now. Consumers and homeowners know the reality of today but government is just now waking to reality.
One of the first skirmishes is about to begin on a local level - city and county sales and property tax bases. Sales and property taxes are the base line of local governments' budgets. Historically, local government has had little difficulty in meeting budgets. If they needed money they could just raise taxes, thus even if they were short this year their bonds were golden in the credit markets. But, oops something happened.
Their budget base lines increased with the property tax valuations of real property during the boom years. Many of these entities increased their sales taxes to cover expansion and debt service at the same time and now their baseline is falling faster than low tide at full moon.

SALES TAX

The first income stream to fall off is sales taxes… consumers who are losing income and net worth through job loss or shrinking home equity are not able or willing to spend as freely now as during boom times, so sales tax income is shrinking.

PROPERTY TAX

Secondly, the housing boom came to a screeching halt and values began to recede. Real Property tax income is tied to property values as the sale is recorded, triggering a reassessment of tax for that property. Thus, government spending increased in line with the increase tax valuation of properties and commitments were made against anticipated higher income streams.
While lower sale tax revenues are felt immediately. Property taxes revenues can lag for several months or even years, but they will also shrink. The tax revenue is tied to either the sale of a property or a reassessment is triggered by property owners who feel the values are lower than the earlier value used.
If the property value has truly fallen then it will benefit the owner to appeal the assessment with the appropriate agency and reduce their property tax bill. Sufficient time, nationally three to four years, has elapsed to establish a lower value for many property owners and the wave of appeals is about to begin.
This will further exacerbate the financial conditions of government and this time they cannot resort to raising property or sales taxes to raise revenue. We will soon be seeing the effects of cut spending, raising "fees" and the skirmishes in the property tax arena.

Market Activity

As winter continues its streak of cold and snow, sales activity in the Twin Cities housing market is moving along at a pace you'd expect for the season and at about the same pace as a year ago. Pending sales for the week ending January 30 came in at 650, down very slightly from the mark of 673 seen during the same week last year. Over the last three months, there have been 7,038 signed purchase agreements, up a sliver-sized 0.7 percent from a year ago.

Despite the tax credit being made available to current homeowners, new listing activity has yet to show any noticeable jump. The 1,584 new listings for the most recent reporting week represent a dip of 3.1 percent from a year ago. Total inventory of available homes is still down from last year by 16.5 percent.

In related news, Days on Market Until Sale is still dropping while the Percent of Original List Price Received at Sale is still growing. While that's good news on both fronts for home sellers in general, different price points and neighborhoods are experiencing dramatically different market conditions.

The Skinny on the Twin Cities Real Estate Market

Get up to the minute information on the Minneapolis & St. Paul Real Estate Market right here:
http://bit.ly/bD7Zw7

New Home Buyer Credit Form Released

If you were a new home buyer and are looking where to go to get the forms for your tax credit, go here: http://bit.ly/9TXpVe

Tax Credit Extension is Approved!

Here is everything you need to know about the $8000 & $6500 Tax Credits Now Available: http://www.edina-realestate.com/Nav.aspx/Page=Http://www.edinarealty.com%2fContent%2fContent.aspx%3fContentID%3d522920

Extension Passed For 1st Time Buyers

Here is a nice comparison between the old & new tax credit:
http://www.realtor.org/fedistrk.nsf/files/government_affairs_tax_credit_ext_chart_110409.pdf/$FILE/government_affairs_tax_credit_ext_chart_110409.pdf

Update- Tax Credit For First Time Home Buyers

There has been some encouraging news on the extension of the $8000 tax credit… however, it is NOT a done deal, as it still must be reconciled between the House and Senate and then voted on for final approval.
It is not only looking good for the extension, but there are some additional enhancements to the credit in the works as well. Yesterday, the Senate reached an agreement to extend the $8000 tax credit for first-time home buyers. They also added a $6,500 tax credit for other primary home purchasers, meaning that it is not just limited to first time home buyers.
They also raised the qualifying income limits in a very meaningful way – singles were increased from $75,000 to $125,000, and joint taxpayers from $150,000 to $250,000. Buyers must have executed purchase agreements in hand by April 30th, and then will have until June 30th to close.
More details are likely to come, and changes could be made as reconciliation and voting takes place.
I will keep you posted, but if you have any immediate questions, please feel free to contact me.