I wanted to cite a very real example of what could just as easily happen to the Bay Area if more reasonable forms of housing are not found, which is the total drain of it’s future think tanks and young professionals which ultimately spells economic death. I assume all of you would scoff at the idea, but let’s use what many consider to be San Francisco’s East Coast twin. Boston.

I lived there for 3 years so I’m very familiar with it. Just like here, it has a fairly liberal, progressive populace and higher incomes. Just like here, it too has excessively high home prices. The difference is that their boom went for far longer. The results are that MA and Boston are now suffering from economic fallout and an increasingly aged population; those who ” got in” when it was cheaper.

I think anyone who thinks that high home prices can’t have an ultimately disastrous outcome should read this report.

The Boston Globe from Massachusetts. “Are high prices a sign of Boston’s success, or a damper on that success?”

“An opinion piece in the latest issue of Banker & Tradesman that argued Massachusetts needs more home construction — even now, when the market appears glutted — because housing prices are too high and only a lot more homes can change the situation.”

“The writer is Benjamin Fierro of the Home Builders Association of Massachusetts, which has a professional interest in the debate.”

“The basic argument is certainly correct. The current drop in housing prices is extremely modest compared to the climb that preceded it. The middle of the Massachusetts market is still roughly twice as expensive as it was a decade ago. And while prices are likely to keep dropping in the coming months, almost no one thinks we’re on our way back to 1997 prices, even adjusting for inflation.”

“Are Boston’s housing prices sending young professionals to other cities? A recent editorial in the Salem News tells the story of Maureen Hentz, a recruiter for a company based in Danvers, who says that job candidates routinely reject her offers of six-figure salaries because they’d rather buy a larger house in another state.”

“‘I can’t get somebody to move from Cleveland to here,’ the paper quotes Hentz as saying.”

“The mayor of Salem is quoted as responding, ‘I’ve been to Cleveland, and you can’t touch what we have here.’”

But the truth of the matter is that problem is much deeper than that and yes- home sales play a huge part in that for none other than the fact that Californians invested so much of their incomes into housing. In other words, we got to such a make or break situation where families and investors were counting on it’s non-ending rise that when the rise finally stopped and the declines set in, it did exactly that. It broke the system and effectively put a huge damper on income for the state.In summary, the California economy was heavily reliant on Real Estate. The state was only too happy to spend, spend, spend during that time period while failing to realize that much of the wealth stemming from the economy was in fact perilously reliant on a gigantic bubble. So the state had already spent a majority of their income by the time the crisis began to rear it’s head.

I found this article which does a pretty good job of explaining what’s going on:

http://tiny.cc/hy4mx

Take a look at the graphs there. Very interesting information.

Ed - Is cut & paste too hard? - If I could not glean a reasonable explanation the first time, I obviously need it pointed out if it is there. At this point since you post so often… it’s pointless waste of MY time to look.

If you meant this as your reply (from #36):

“When that happens, the state loses property tax. As mentioned, California just like most other states counts on future home sales and the subsequent taxes that come afterwards. Tax that they can no longer count on or get. So the results are the same, which is a massive budget shortfall…..”

I repeat my question “Don’t you get it? - Ca is not going to get $ from new developments - please review the rest of #39 for the explanation on how that money goes to Re-D, not to the CA Treasury!!! If you are simply agreeing that the State’s shortfall is in a large part due to Re-D, then we agree, ‘Nuff said.

But in any case, I’m a full believer in cause and affect economics. Look at it this way. In the early 70’s, Americans drove massive cars that got an avg of 10-12MPG. Then came OPEC and the oil crisis. So what happened? Did everyone stop driving? Did the country go to hell in a hand basket? Not exactly, but as a result, smaller more fuel efficient cars became popular and the avg family car went from going 12MPG to 25MPG in less than 3 short years.

The same would in effect happen to Homeowners. Right now, homes here are very much like those dinosaur cars of the 70’s, with high prices that don’t match economics. This, as pointed out is unhealthy and in mine and many other leading economists minds one of the main cause for the financial issues of the state.

With taxation, this would create an element of liability with homeowners. This would serve to equilibrate the balance. You can’t have it all one way, with existing homeowners being protected under an umbrella where their home values can go into the stratosphere with no taxable consequence. With taxation, the natural inclination will be to keep this in check, which in turn is actually good for not only homeowners, but for future home buyers and the general economy as well since the severe swings in booms and busts would probably be solved by such implementations of liable taxation attached to value.In reality, this would create stability for both. As it is now, buyers who want to get a decent deal must wait until a bust occurs, as the one we’ve just started and therefor must wait until the prices fall sufficiently as I am doing. On the other hand, this is also bad for sellers since during times like these, they must either accept increasingly lower amounts for their property, which could be problematic if they have to sell for any number of reasons, or wait for the usual 5-10 years for the return of an up tick market.

If anything, the financial situation in the state must be addressed lest we keep right on hemorrhaging money

If you’re right, Edvard, when you say: “We have about the richest people in the country in terms of paper but about the poorest as well, and both from the same source: Their homes.”, why is it you want to make the already poor poorer by raising the taxes on their “paper” wealth? Whether it’s by rescinding prop 13 or adding another parcel tax the result would be subtracting already scarce “real” money from the pockets of poor people with little but quickly disappearing “paper” in their pockets.

That’s the problem with the Bay Area. We have about the richest people in the country in terms of paper but about the poorest as well, and both from the same source: Their homes.

Does actually knowing WTF I’m doing mean I have “room to talk” in willyworld?

Here’s a link, but for those too lazy to look, I’ll post the juicy tidbits for you: http://www.dqnews.com/ZIPSFC.shtm

Alameda, 94501,Jan,08:
sales declines: -40.7% YOY
median: $552,500; -16.3%

To put this into perspective, the declines in the Bay Area from 1989-1997 was approximately 10-15% spread over the course of 8 years. That was mostly attributed to stagnation and the effects of inflation. On the other hand, less than a year out, we’ve already breached that number.

I admit that yes- some areas will fare better than others. But Alameda didn’t escape the same kinds of lunacy that everywhere else did and also got heavily overvalued, which as I’ve mentioned countless times was only supported by phony financing that is no longer available.

Mellisa and Dave… I’ve never claimed that CA will ever be as cheap as TN. I’ve only used it as an example to show the severe quality of life differences between here and there. Don’t get pissed just because something that I’ve been talking about on this blog for years, which is that prices are eventually going to come down- and now are is now coming entirely true. and Dave,I know you for a fact bought at the peak. I’m not sure if you have room to talk.

Regardless, you all can either keep right on pretending that your homes are still worth 650k and that some idiot is simply going to pay what you want for it, or you can accept the reality that the atmosphere that created those prices was totally bogus and that you will not be able to count on your home to simply defy basic economics and remain unaffordable to basically anyone not making 200k or more per year. I for one will not be giving any of you the pleasure of paying anything close to what these homes ‘were’ worth. I have a realistic price range in mind, which I assure you will be coming back sooner than later.

And about the taxes… DK, please re-read my reply again. The answer was stated quiet plainly and I don’t like retyping something that should have been entirely obvious.