When I was a kid, I would always tell my dad how much my favorite baseball cards were worth, basing my valuation on what a magazine said or the prices at the local card shop. My dad would always come back with one phrase that countered my overly optimistic assessment that rings true for more than just baseball cards:
“It’s only worth what someone will pay for it.”
When it comes to real estate & property taxes, this axiom has some sobering implications.
Image credit: Akron News
This week, the “Keybank Center”, a 23-story 475,000 square foot office building in fine condition in prime downtown Cleveland, sold at auction for only $7.15 million.
The building was on the tax rolls with an assessed value of $44 million. That’s a far cry from it’s actual sale price and thus, its actual cash value.
Here in Elgin, we see the same trend in action.
The house directly across the street from mine is selling for about $90,000. It’s the same size and layout as the house I live in, except it’s brick, has a brand new roof, and is on a bigger lot on a corner. The house I live in (the lesser house in terms of quality) sold in 2006 for just north of $210,000.
Over the last year, I’ve watched the sellers slowly reduce their list price from $179,000 to the current one of half that, which has sat for months. Its property tax assessment is listed at about $67,000. However, based on the way Kane County makes assessments, that amount implies a sale value of over $200,000.
The county can only keep up such a disparity for so long before taxes decline to a level that match true housing prices, at which point, our local taxing districts will be in a pinch far beyond what we’ve already experienced in The Great Recession.
Unfortunately, government bodies haven’t been setup to face declining revenues. Pensions need to be paid, a growing student population needs to be educated, and of course we still need police, fire, sewer, water, and pothole-free, snow-free roads.
So, why not just raise rates?
Beyond any issues of over taxation, should taxing bodies decide to raise taxes instead of letting them come down, some houses could even become a net liability as they often do in Detroit. And although several potentially positive parallels have been drawn between Elgin and the Motor City, the potential for a glut of vacant housing is not one of them.
Sound far fetched?
Here’s a house in Elgin that sold for over $167,000 5 years before it sold for $17,259 just a few months ago. When it comes to houses, $17,000 is not that far from $0.
Image credit: zillow.com
The bottom line is this—if we do accept the likely reality of declining revenues and steady needs, we best start cutting and saving now for what looks to be a coming rainy day, before it turns into an oncoming storm.
Excellent post. I often wonder when we’ll hit the “bottom” of the housing bubble – I was reading from Chris Martenson’s “Crash Course” just this morning (highly, highly recommended), and he predicts we’ll see bottom in 2015, which means we’re not there yet. Whether or not he’s accurate, the same concerns hold: how can government continue to function as prices continue to drop? I bought in 2006 – in retrospect, the very worst possible time – and have felt my stomach turn as houses on my block have sold for less than 1/5 of what I paid, yet their tax assessments are sometimes higher than mine. This certainly can’t be sustained – which means government’s current spending can’t be sustained, either.
Just as Americans have had to (re)learn to live within their means during this Great Recession, so too must government. There’s no shame in saying “no” to projects that may create a few jobs now but will cost us far too much in the long run, like Artspace.
And thanks for linking to my Detroit post. I have more coming…
Thanks Crysta—Yes, it’s going to be tough times. From my amateur perspective, it doesn’t look like housing prices are stabilizing yet. People have been telling me for the last two years it’s a good time to buy…but I keep watching the prices fall.
You hit the bottom line: we all must learn to live within our means. Governments (and citizens to a lesser extent) are still under the impression that we can continue on with business as usual, but if the money and resources just aren’t there, there’s no way to live any other way in the long run when reality catches up to us.
We are still in the tempest. don’t forget one little problem that still hasn’t finished it’s cycle, the infamous 5yr balloon mortgage. People were still being duped into strange mortgage products into 2007.
The recent shenanigans of raising the debt ceiling is similar to the arguments of the housing market, “home values will continue to rise – the American Economy will continue to grow, your income will continue to increase over time- there will be more wealth in this country hence more revenue, in 5 years you can refinance- social security is not an immediate problem. Many people who have purchased over the last decade have little or no equity in their home, the US is in debt that is incomprehensible-hence not realistic for many Americans. Many 2 income families are down to 1 income supporting the household – Over 40 percent of Americans today receive some type of transfer payment and are living off the labor of everyone else…and expect to be taken care of for life!
this is too depressing because as Americans, we did not value the resources and strength of our country and we have allowed ourselves to be snookered into following failed economic policy.
As for Elgin, tighten the belt. Sometimes a project just doesn’t make economic sense. Artspace appears to be one of those projects. If we continue to make investment with funds we don’t have in a project that won’t or can’t support itself, we will be looking at another vacant building in a matter of time, in the mean time, we get to attract new people to our community who can’t support themselves. Which means no disposable income, but a possible drain on our social services-which are already strained to the limit.