GAINESVILLE, Fla. – March 9, 2007 – Hopeful homebuyers in Florida should act now: The price is right as the state’s single-family residential housing market bottoms out, according to a University of Florida study released today.
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
The quarterly survey of experts in the real estate industry completed in January shows that the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation, Archer says.
“We see that as a benchmark,” he says. “When prices maintain the same level as inflation, then we’re probably in some kind of equilibrium. It indicates the market is stabilizing.”
The exception is condominiums, which are overbuilt and prone to speculative and naïve investors, he says.
This is the first time in the UF survey’s five-quarter history that the buyers’ investment outlook for residential development has brightened. It declined for the first three surveys and remained flat for the fourth survey at the end of October, starting to rise only in this latest survey.
Because of the dominance of single-family housing, the findings have far-reaching and potentially optimistic implications for the state’s real estate industry, Archer says.
“You can’t get away from the fact that the single-family housing market is the single largest driver of the real estate market,” he says. “Most brokers and real estate agents are dealing with single-family housing. Most lending is for single-family housing. And single-family housing drives home furnishings. So when it stabilizes, that’s important.”
One possible explanation for the housing market turning the corner is a restricted supply of land for residential development, Archer says. The shortage meant there was less overbuilding than there might otherwise have been, he says.
Condos did not have this land restraint, which is one reason they are overbuilt, Archer says. At the same time, condos are prone to strong speculative swings because they are considered a relatively easy commodity to exchange; it’s not difficult to acquire them in multiple units or to buy contracts on them, he says.
The stabilization of the single-family housing market came earlier than anticipated and is not expected to affect all parts of the state equally, Archer says. The quieter markets likely will take longer to rebound than those in Central and South Florida, where growth has been explosive.
Jacksonville typically has been a slower and steadier market than Orlando, Tampa-St. Petersburg, Miami and other cities in South Florida, but that is changing, Archer says. Recently, the Jacksonville housing market has picked up momentum.
Even with a turnaround, Archer says he does not believe Florida’s real estate market is likely to reach the same level that it did at its peak in 2005-06. “I don’t think any thoughtful person would expect sales to go back to where they were a year or so ago,” he says. “That was probably an overheated condition and it was extraordinary.”
On a positive note, nearly all other markets, including apartments and commercial rental markets, appear to be remaining steady or even experiencing robust growth. “They did not experience a downturn in the same sense that the single-family development market did and they’re continuing to be strong,” Archer says.
Optimism about Florida real estate seems to be particularly apparent among foreign investors. Many respondents commented that foreign investors and lenders are aggressively trying to invest more capital in the state’s rental markets.
“They apparently have no fears about the future of these markets, despite what we perceive as our problems with hurricanes, taxes and other concerns,” Archer says.
For the survey, UF’s Survey Research Center asked a series of questions of 318 industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other experts in the field, an increase over the 183 respondents in the last survey.
More information is available on the center’s Web site, www.cba.ufl.edu/fire/realestate/cres/findings.asp
Tuesday, March 20, 2007
MLS Statistics for January 2007
2006 2007 %+/-
Listings in January 1856 2320 +25%
Listings to date 1856 2320 +25%
Contracts in January 241 287 +19%
Contracts to date 241 287 +19%
Sales in January 319 249 -22%
Sales to date 319 249 -22%
As we expected, the number of listings are still going up - +25% January 07 compared to Jan 06. However, the number of contracts also increased - by +19% January /January. Neverthless, the ratio between number of listings and number of sales continues to increase although at a slower pace. It is still a buyers market and will likely continue to be for the next 3-6 months.
Listings in January 1856 2320 +25%
Listings to date 1856 2320 +25%
Contracts in January 241 287 +19%
Contracts to date 241 287 +19%
Sales in January 319 249 -22%
Sales to date 319 249 -22%
As we expected, the number of listings are still going up - +25% January 07 compared to Jan 06. However, the number of contracts also increased - by +19% January /January. Neverthless, the ratio between number of listings and number of sales continues to increase although at a slower pace. It is still a buyers market and will likely continue to be for the next 3-6 months.
How Sub-prime Crisis Could Hurt Home Sales
The sub-prime crisis has turned into quite a nightmare for some homeowners and the lenders who originated those loans. Now, the $64 million question is: if and how will it affect the housing market.
"Delinquencies and foreclosures are going up because rate re-sets are kicking in on exotic arm loans -- the interest-only and negative amortization arms -- the very aggressive type of mortgages," says economist Zoltan Pozsar, of Moody's Economy.com
The problem, Pozsar says is that borrowers were not properly qualified for these mortgages.
"The way lenders have qualified these borrowers is by saying, "let's look at the teaser rates—it's two percent for the first two-years of the loan'—and sure [borrowers] could qualify on that. Lenders were basically not looking at whether the same borrowers could qualify when the rates re-adjust to six or seven percent," says Pozsar.
Pozsar says that even a two to five percent rate increase can translate into a few hundred dollars increase in a monthly mortgage payment—something he says many of these borrowers did not completely understand nor are they prepared for.
"Especially for these low-income households, who were mainly targeted for these loans, a few hundred bucks is a lot," says Pozsar.
As homes are foreclosed on, the original mortgage loans on those homes are not being paid to the investors who bought them as investments. So the investors are looking for the money from the original lender.
"The reason these lenders are going bankrupt is that investors [to whom] they have sold these mortgages are now forcing them to buy these "junk" loans back, so to speak, and [the lenders] don't have the cash to do so," explains Pozsar.
As this happens, a domino effect is set in motion.
"The issue here is that lending standards are tighter, the funds that flow to lending institutions to make mortgage loans are drying up, there's less [money] going into that part of the financial system, there is a mini-credit crunch developing especially in the sub-prime market," says Pozsar.
The scenario creates a very volatile situation for not only potential borrowers, homeowners, lenders, and investors but also the entire housing market.
"One predication I would make is, once all these mortgage lenders go out of business because they are choking on these losses, this firewall that exists between investors and originators is going to go away," says Pozsar.
He says, that leaves investors in a far more vulnerable position.
"The next act of the sub-prime mess is going to be investors and hedge funds getting [financially] hurt, especially the ones that hold the riskiest of these sub-prime-mortgage bank securities.
But Pozsar says the real threat may still lie in the future.
"Now, if that happens, through contagion, the fear could easily spread from the sub-prime market to the prime MBS (mortgage-backed securities) market and that would further reduce the funds that are available for mortgage lending out there and that could translate back into the real economy by even the good borrowers not being able to find the money and get a mortgage. So that could force an extra round of decline in home sales and home construction," cautions Pozsar.
Before you think it is all doom and gloom, Pozsar says about this hypothesis, "This is a risk that we are very carefully monitoring; it's not happening yet but it could."
However, some mortgage and real estate organizations don't believe the situation is quite that ominous. Credit tightening rather than defaults may have a more substantial effect. But these associations still point out that we have a strong, solid economy in which people are being employed, not laid off. It's this sound financial environment that some experts say makes today's housing market different from the last housing crisis in the 1990s -- and gives them reason to expect a brighter picture on the housing front.
Published: March 19, 2007
"Delinquencies and foreclosures are going up because rate re-sets are kicking in on exotic arm loans -- the interest-only and negative amortization arms -- the very aggressive type of mortgages," says economist Zoltan Pozsar, of Moody's Economy.com
The problem, Pozsar says is that borrowers were not properly qualified for these mortgages.
"The way lenders have qualified these borrowers is by saying, "let's look at the teaser rates—it's two percent for the first two-years of the loan'—and sure [borrowers] could qualify on that. Lenders were basically not looking at whether the same borrowers could qualify when the rates re-adjust to six or seven percent," says Pozsar.
Pozsar says that even a two to five percent rate increase can translate into a few hundred dollars increase in a monthly mortgage payment—something he says many of these borrowers did not completely understand nor are they prepared for.
"Especially for these low-income households, who were mainly targeted for these loans, a few hundred bucks is a lot," says Pozsar.
As homes are foreclosed on, the original mortgage loans on those homes are not being paid to the investors who bought them as investments. So the investors are looking for the money from the original lender.
"The reason these lenders are going bankrupt is that investors [to whom] they have sold these mortgages are now forcing them to buy these "junk" loans back, so to speak, and [the lenders] don't have the cash to do so," explains Pozsar.
As this happens, a domino effect is set in motion.
"The issue here is that lending standards are tighter, the funds that flow to lending institutions to make mortgage loans are drying up, there's less [money] going into that part of the financial system, there is a mini-credit crunch developing especially in the sub-prime market," says Pozsar.
The scenario creates a very volatile situation for not only potential borrowers, homeowners, lenders, and investors but also the entire housing market.
"One predication I would make is, once all these mortgage lenders go out of business because they are choking on these losses, this firewall that exists between investors and originators is going to go away," says Pozsar.
He says, that leaves investors in a far more vulnerable position.
"The next act of the sub-prime mess is going to be investors and hedge funds getting [financially] hurt, especially the ones that hold the riskiest of these sub-prime-mortgage bank securities.
But Pozsar says the real threat may still lie in the future.
"Now, if that happens, through contagion, the fear could easily spread from the sub-prime market to the prime MBS (mortgage-backed securities) market and that would further reduce the funds that are available for mortgage lending out there and that could translate back into the real economy by even the good borrowers not being able to find the money and get a mortgage. So that could force an extra round of decline in home sales and home construction," cautions Pozsar.
Before you think it is all doom and gloom, Pozsar says about this hypothesis, "This is a risk that we are very carefully monitoring; it's not happening yet but it could."
However, some mortgage and real estate organizations don't believe the situation is quite that ominous. Credit tightening rather than defaults may have a more substantial effect. But these associations still point out that we have a strong, solid economy in which people are being employed, not laid off. It's this sound financial environment that some experts say makes today's housing market different from the last housing crisis in the 1990s -- and gives them reason to expect a brighter picture on the housing front.
Published: March 19, 2007
NAR Market Forecast March 2007
WASHINGTON – March 15, 2007 – Unusual weather patterns and problems in the subprime lending marketplace are creating challenges in assessing housing market conditions, but a recovery is likely this year, according to the latest forecast by the National Association of Realtors®.
David Lereah, NAR’s chief economist, says there is some ambiguity about the current housing market. “Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he said. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”
Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared with 6.48 million last year. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low,” Lereah said.
“Lending problems in our nation’s subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”
New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year.
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions – the unexpected dip we’re seeing now, and a rise in mortgage applications, are positive signs,” Lereah said. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”
The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1.0 percent gain in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Stronger gains are probable in 2008, with existing-home prices rising 3.1 percent and new-home prices growing 3.0 percent.
For critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah explained we’re likely to be reminded about the consequences throughout this spring. “Here’s what’s happened and how it’s likely to play out. In December, unusually mild weather brought out shoppers and January existing-home sales rose,” he said. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell.
“We have yet to see the biggest weather impact – February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 – that should drag sales down in March,” Lereah said. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”
The unemployment rate will probably average 4.7 percent this year; it was 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent this year, compared with 3.3 percent in 2006. Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from a gain of 2.6 percent last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
David Lereah, NAR’s chief economist, says there is some ambiguity about the current housing market. “Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he said. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”
Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared with 6.48 million last year. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low,” Lereah said.
“Lending problems in our nation’s subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”
New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year.
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions – the unexpected dip we’re seeing now, and a rise in mortgage applications, are positive signs,” Lereah said. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”
The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1.0 percent gain in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Stronger gains are probable in 2008, with existing-home prices rising 3.1 percent and new-home prices growing 3.0 percent.
For critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah explained we’re likely to be reminded about the consequences throughout this spring. “Here’s what’s happened and how it’s likely to play out. In December, unusually mild weather brought out shoppers and January existing-home sales rose,” he said. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell.
“We have yet to see the biggest weather impact – February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 – that should drag sales down in March,” Lereah said. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”
The unemployment rate will probably average 4.7 percent this year; it was 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent this year, compared with 3.3 percent in 2006. Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from a gain of 2.6 percent last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Florida Tax Reform
MANATEE COUNTY, Fla. – Feb. 27, 2007 – Capping government spending. Doubling homestead exemptions. Rolling back property taxes. Repealing the state's property tax system in favor of the nation's highest sales tax. These are some of the property tax proposals flying around Tallahassee with a clamor and discord this state hasn't seen in recent memory.
State officials seem to favor at least some version of property tax reform. But as legislators meet this spring, they'll have to weigh the ire of second-home and business owners with the pressing needs of local governments that contend the expanded waistline of budgets have had to keep pace with the needs of burgeoning populations.
"I like the idea that we're being very bold in how we're addressing the issue," says state Rep. Bill Galvano, R-Bradenton. "This is the first proposal where I've seen somewhere make up the difference, and that's important to me. Having said that, I think more homework has to be done."
Perhaps the first homework lesson could be a brief overview of economic policy-making around the United States. Other states around the country have tried or are currently considering many of the reforms facing Florida today.
Colorado residents learned the hard way how government spending limits can stunt the prosperity of a state, after more than a decade of spending caps that limited the state's ability to fund education, health care and other essential services. Enacted in 1992, the Taxpayer Bill of Rights, or TABOR, awarded taxpayers rebates if more revenue was collected than could be spent under the state spending cap. Revenues were limited, but state-mandated programs such as education and prisons still had to be funded.
"Essentially, we had our foot on the brake and the gas pedal at the same time," said Evan Dreyer, from Colorado Gov. Bill Ritter's office. "In times of recession, it made it difficult to recover from pre-recessionary levels. There was a growing concern from the business community about the unintended consequences on the ability of the economy to grow."
Voters in 2005 narrowly approved Referendum C, which lifted spending caps on a five-year trial, allowing the government more flexibility to pay for essential services.
"We were seeing programs people cared about being squeezed," said Bob Kling, an assistant professor of economics at Colorado State University. "Primary education, higher education, roads. The mandatory parts were suffering. There were some very strange, perhaps unforeseen implications for the way TABOR was written."
Since Referendum C was enacted, the state's budget has been significantly less constrained and there is more funding for essential services, Kling said. State officials will decide in 2010 whether to ask voters to extend Referendum C or return to spending caps. But history shows the measure helped right that state's monetary ship.
"Ref-C was an important step in our economic recovery," Dreyer said.
Comparing solutions
Comparing other state's taxing systems to Florida's is a bit like comparing apples to grapefruit considering the vast differences among state economies and the varying demographics of property-tax payers.
Still, there's much that can be learned from what other states have experienced and are considering, according to Harley Duncan, executive director of the Washington, D.C.-based Federation of Tax Administrators. The federation is a group of state revenue and tax departments that focuses on taxing policies. Property tax reform has been the hottest issue of the year for state governments around the country, Duncan said.
The tax reform proposals from Gov. Charlie Christ and House Speaker Marco Rubio drew both praise and criticism over the past two weeks, but most of their proposals seem to at least borrow from what other states already are considering.
There have been attempts to solve assessment inequities by freezing property tax valuation levels, or limiting the amount they can go up each year. New Jersey, Pennsylvania and South Dakota are each considering some form of limiting property tax assessments, Duncan said.
Homesteaded owners in Florida already receive a 3 percent per year cap, which limits taxable values from skyrocketing along with market values.
Other states are considering controls on local government spending. Perhaps these amendments have the most momentum, since state authorities often shoulder the blame for stifling tax rates.
"It's very frustrating to have responsibility for property tax, but they're not the ones who set the tax rate or determine how much local governments are going to spend," Duncan said. "It adds to the state-local tension -- and that's why you see limits."
Rubio's plan would establish a baseline for taxation by rolling back property taxes to 2000-2001 levels, adjusted by a formula based on inflation and population growth. Local governments could decide to go over the cap with only a two-thirds vote or a simple majority if two-thirds is not possible.
New Jersey, with the nation's highest property tax rates, is considering offsetting property taxes with a 1 percent sales tax implemented last year, according to Stateline.org. The measure would save the average homeowner $1,000 a year and would restrict annual property tax increases to 4 percent.
Some states will consider using state money to "buy down" property taxes, Duncan said. States such as New Jersey, Pennsylvania and New York would provide direct rebates to taxpayers with state money. Duncan said this is the most common approach being considered, but neither of the plans on the table in Florida call for the state to provide rebates.
Florida, Duncan said, seems to be proposing some of the boldest property tax reforms, and he questioned the feasibility of some of the changes. The most drastic piece of Rubio's plan calls for voters to decide whether to abolish property taxes in favor of an 8.5 percent sales tax, which would be the highest in the country.
"I'm not aware that anyone is proposing going as far as Florida. To totally eliminate the property tax and shift to other sources of funding . . . It's pretty hard to replace the whole thing."
Dramatic proposals
Under Crist's plan, homestead property owners would see their exemptions double from $25,000 to $50,000. The homestead exemption also would become portable so that homeowners would be able to buy larger or smaller homes within the state without losing the 3 percent cap. Finally, Crist would make second-home owners and commercial property owners eligible for the 3 percent Save Our Homes cap.
Rubio also has suggested the Legislature approve a rollback of about 20 percent on all property taxes. A second phase that would require a referendum would eliminate property taxes on all homesteaded properties. The Legislature also would increase the sales tax 2.5 cents on the dollar, to implement the nation's highest sales tax. There also would be spending caps imposed on counties and municipalities.
Harvey Duncan pointed to Ohio and North Carolina as two states that have implemented successful tax reform. The state of Ohio simply repealed a homestead-like exemption for commercial and industrial business. Local governments get the money those taxes would have generated, and can allocate the funds for local projects, said Gary Gudmundson, communications director for the Ohio Department of Taxation.
Separately, a Commercial Activities Tax imposes a .26 percent on business revenue over $1 million. The first $1 million is taxed $150 and together the taxes create revenues to reimburse local governments for another tangible property tax that was phased out.
"For decades, the tangible property tax was identified as a troublesome tax for the economy of Ohio," Gudmundson said. "With it going away, the burden has shifted off manufacturing and now there's a greater inclusion of tax on the service sector of the economy."
'Wrong direction'
Jonathan Hamilton, chairman of the economics department at the University of Florida, said the real solution to Florida's tax woes is simply lowering property tax rates.
"The one thing where I'm seeing relatively little discussion, is lowering property tax rates for everybody," Hamilton said. State officials "seem to be talking about a very targeted tax rate reduction, and there are a lot of reasons why it's not the brightest idea."
Moving from property tax collections, considered a particularly stable form of taxation, to increasing reliance on sales tax "seems like a move in the wrong direction" that could eventually hurt the state's bond and credit ratings, he said. To find a real solution to local government spending, Hamilton said, "voters are welcome to elect officials who are going to cut property tax rates for them if they think they're higher than they need."
State representatives say they want to learn all they can about the current proposals being discussed. They also will take into consideration the views of property owners at forums around the state.
Rep. Ron Reagan, R-Bradenton, threw his support behind Rubio's plan. "We're responding to what the people in the state of Florida have said," he said last week. "This is going to allow more people to buy more homes."
Sen. Mike Bennett said Florida's property tax system is "truly out of whack" and he endorses change to prevent business from leaving the state. But he did not endorse the current proposal yet, saying he was "investigating" it.
"Government is not free," he added.
As Galvano said, "I think at this point, what we've done is run it up the flagpole and really start the discussions."
State officials seem to favor at least some version of property tax reform. But as legislators meet this spring, they'll have to weigh the ire of second-home and business owners with the pressing needs of local governments that contend the expanded waistline of budgets have had to keep pace with the needs of burgeoning populations.
"I like the idea that we're being very bold in how we're addressing the issue," says state Rep. Bill Galvano, R-Bradenton. "This is the first proposal where I've seen somewhere make up the difference, and that's important to me. Having said that, I think more homework has to be done."
Perhaps the first homework lesson could be a brief overview of economic policy-making around the United States. Other states around the country have tried or are currently considering many of the reforms facing Florida today.
Colorado residents learned the hard way how government spending limits can stunt the prosperity of a state, after more than a decade of spending caps that limited the state's ability to fund education, health care and other essential services. Enacted in 1992, the Taxpayer Bill of Rights, or TABOR, awarded taxpayers rebates if more revenue was collected than could be spent under the state spending cap. Revenues were limited, but state-mandated programs such as education and prisons still had to be funded.
"Essentially, we had our foot on the brake and the gas pedal at the same time," said Evan Dreyer, from Colorado Gov. Bill Ritter's office. "In times of recession, it made it difficult to recover from pre-recessionary levels. There was a growing concern from the business community about the unintended consequences on the ability of the economy to grow."
Voters in 2005 narrowly approved Referendum C, which lifted spending caps on a five-year trial, allowing the government more flexibility to pay for essential services.
"We were seeing programs people cared about being squeezed," said Bob Kling, an assistant professor of economics at Colorado State University. "Primary education, higher education, roads. The mandatory parts were suffering. There were some very strange, perhaps unforeseen implications for the way TABOR was written."
Since Referendum C was enacted, the state's budget has been significantly less constrained and there is more funding for essential services, Kling said. State officials will decide in 2010 whether to ask voters to extend Referendum C or return to spending caps. But history shows the measure helped right that state's monetary ship.
"Ref-C was an important step in our economic recovery," Dreyer said.
Comparing solutions
Comparing other state's taxing systems to Florida's is a bit like comparing apples to grapefruit considering the vast differences among state economies and the varying demographics of property-tax payers.
Still, there's much that can be learned from what other states have experienced and are considering, according to Harley Duncan, executive director of the Washington, D.C.-based Federation of Tax Administrators. The federation is a group of state revenue and tax departments that focuses on taxing policies. Property tax reform has been the hottest issue of the year for state governments around the country, Duncan said.
The tax reform proposals from Gov. Charlie Christ and House Speaker Marco Rubio drew both praise and criticism over the past two weeks, but most of their proposals seem to at least borrow from what other states already are considering.
There have been attempts to solve assessment inequities by freezing property tax valuation levels, or limiting the amount they can go up each year. New Jersey, Pennsylvania and South Dakota are each considering some form of limiting property tax assessments, Duncan said.
Homesteaded owners in Florida already receive a 3 percent per year cap, which limits taxable values from skyrocketing along with market values.
Other states are considering controls on local government spending. Perhaps these amendments have the most momentum, since state authorities often shoulder the blame for stifling tax rates.
"It's very frustrating to have responsibility for property tax, but they're not the ones who set the tax rate or determine how much local governments are going to spend," Duncan said. "It adds to the state-local tension -- and that's why you see limits."
Rubio's plan would establish a baseline for taxation by rolling back property taxes to 2000-2001 levels, adjusted by a formula based on inflation and population growth. Local governments could decide to go over the cap with only a two-thirds vote or a simple majority if two-thirds is not possible.
New Jersey, with the nation's highest property tax rates, is considering offsetting property taxes with a 1 percent sales tax implemented last year, according to Stateline.org. The measure would save the average homeowner $1,000 a year and would restrict annual property tax increases to 4 percent.
Some states will consider using state money to "buy down" property taxes, Duncan said. States such as New Jersey, Pennsylvania and New York would provide direct rebates to taxpayers with state money. Duncan said this is the most common approach being considered, but neither of the plans on the table in Florida call for the state to provide rebates.
Florida, Duncan said, seems to be proposing some of the boldest property tax reforms, and he questioned the feasibility of some of the changes. The most drastic piece of Rubio's plan calls for voters to decide whether to abolish property taxes in favor of an 8.5 percent sales tax, which would be the highest in the country.
"I'm not aware that anyone is proposing going as far as Florida. To totally eliminate the property tax and shift to other sources of funding . . . It's pretty hard to replace the whole thing."
Dramatic proposals
Under Crist's plan, homestead property owners would see their exemptions double from $25,000 to $50,000. The homestead exemption also would become portable so that homeowners would be able to buy larger or smaller homes within the state without losing the 3 percent cap. Finally, Crist would make second-home owners and commercial property owners eligible for the 3 percent Save Our Homes cap.
Rubio also has suggested the Legislature approve a rollback of about 20 percent on all property taxes. A second phase that would require a referendum would eliminate property taxes on all homesteaded properties. The Legislature also would increase the sales tax 2.5 cents on the dollar, to implement the nation's highest sales tax. There also would be spending caps imposed on counties and municipalities.
Harvey Duncan pointed to Ohio and North Carolina as two states that have implemented successful tax reform. The state of Ohio simply repealed a homestead-like exemption for commercial and industrial business. Local governments get the money those taxes would have generated, and can allocate the funds for local projects, said Gary Gudmundson, communications director for the Ohio Department of Taxation.
Separately, a Commercial Activities Tax imposes a .26 percent on business revenue over $1 million. The first $1 million is taxed $150 and together the taxes create revenues to reimburse local governments for another tangible property tax that was phased out.
"For decades, the tangible property tax was identified as a troublesome tax for the economy of Ohio," Gudmundson said. "With it going away, the burden has shifted off manufacturing and now there's a greater inclusion of tax on the service sector of the economy."
'Wrong direction'
Jonathan Hamilton, chairman of the economics department at the University of Florida, said the real solution to Florida's tax woes is simply lowering property tax rates.
"The one thing where I'm seeing relatively little discussion, is lowering property tax rates for everybody," Hamilton said. State officials "seem to be talking about a very targeted tax rate reduction, and there are a lot of reasons why it's not the brightest idea."
Moving from property tax collections, considered a particularly stable form of taxation, to increasing reliance on sales tax "seems like a move in the wrong direction" that could eventually hurt the state's bond and credit ratings, he said. To find a real solution to local government spending, Hamilton said, "voters are welcome to elect officials who are going to cut property tax rates for them if they think they're higher than they need."
State representatives say they want to learn all they can about the current proposals being discussed. They also will take into consideration the views of property owners at forums around the state.
Rep. Ron Reagan, R-Bradenton, threw his support behind Rubio's plan. "We're responding to what the people in the state of Florida have said," he said last week. "This is going to allow more people to buy more homes."
Sen. Mike Bennett said Florida's property tax system is "truly out of whack" and he endorses change to prevent business from leaving the state. But he did not endorse the current proposal yet, saying he was "investigating" it.
"Government is not free," he added.
As Galvano said, "I think at this point, what we've done is run it up the flagpole and really start the discussions."
Snowbirds seek voice over property tax issues
BOYNTON BEACH, Fla. – March 12, 2007 – Canadian snowbird Dory Kilburn is determined to get Florida legislators’ attention. She joined a Boynton Beach group collecting signatures for a petition calling for tax reform. Most of the 2,500 condominium owners in the Boynton Intracoastal Group are seasonal residents overwhelmed by rising property taxes.
“Don’t get me wrong; I want to pay taxes,” she said. “But I don’t want to pay 17 times what my neighbors pay.”
Kilburn and her husband saw property taxes on their Ocean Ridge condo jump 41 percent from 2005 to 2006. Taxes also skyrocketed on their investment property in Boynton Beach.
“I put on hold the remodeling of my kitchen because I don’t know how high taxes are going to be next year,” Kilburn said. “I need to save money.”
But among snowbirds, Kilburn’s organizing efforts are rare in Palm Beach and Broward counties. The seasonal owners may have a great deal at stake as the Legislature debates property tax reform, but their voices appear to be largely absent.
Major homeowners associations – from the Alliance of Delray Residential Associations, which represents 64 communities west of Delray Beach, to the Broward Coalition, which represents more than 100 condominium and homeowner associations – haven’t created committees or appointed board members to lobby specifically on behalf of snowbirds. Small-scale efforts have sprouted up, but nothing on the scale of those by permanent residents.
Seasonal residents, let alone Canadians, don’t vote in Florida and lack the political power, said Dominic Calabro, president of Florida TaxWatch, a nonprofit government watchdog and research center for taxpayers.
“They are not involved in the political process,” he said.
Unlike Florida’s permanent residents, snowbirds don’t qualify for a property tax break and a cap in the annual increase in property taxes. Full-time homeowners receive a $25,000 reduction in the assessed value of their primary homes, known as the Homestead Exemption. Also, their annual increase in assessed property values and taxes is capped at 3 percent.
A variety of proposals to revamp the property tax system are now under scrutiny in Tallahassee. One would roll back tax rates to 2001 for all Florida homes, including those owned by snowbirds, and essentially limit future tax increases to what’s needed to keep pace with population growth and inflation.
The Florida League of Cities, which lobbies on behalf of 412 municipalities in the state, is pushing for a 10 percent cap increase on the part-time residents’ homes, said John Wayne Smith, the league’s assistant director of legislative and public affairs. Smith said he traveled the state attending town hall meetings on property taxes but didn’t encounter any organized movement by snowbirds.
“It is very difficult to get organized,” said seasonal resident Gil Lachow, who lives west of Boynton Beach. Lobbying efforts in Tallahassee are costly, he said. “Besides, they have no interest in listening to us because we don’t elect them.” Lachow is a founder of the Palm Beach Snowbirds Umbrella Organization, aimed at exchanging ideas on social events.
“The two-tier tax system is very unfair,” said Lachow. He pays $7,431 in taxes, up from about $3,600 in 2000, when he bought his home. His next-door neighbor, who bought his house at the same time for about the same price, pays $3,826 in taxes because of the Homestead Exemption, according to public records.
Florida had about 818,000 seasonal residents in 2005, according to the University of Florida’s Bureau of Economic and Business Research, and their economic contributions are substantial. Seasonal residents in Broward County were expected to pay $227 million in 2006 to help cover the costs of county government, area schools and municipal services, compared with $97 million in 2001, according to a South Florida Sun-Sentinel analysis of county tax data.
Of the states popular among Canadian snowbirds, including Arizona, Texas, Nevada and California, Florida is the only one where members of the Canadian Snowbird Association complain about a disparity between property taxes paid by full-time and part-time residents, said Gerry Brissenden, the group’s president.
The inequality is rooted in a 1992 constitutional amendment that sets a 3 percent cap on property tax increases for primary homes, he said. During the hot real estate market in the last four years, the cap saved a lot of money for many homeowners, but snowbirds saw their tax bills in some cases double and triple.
Part-time resident David Shafer says many of his Coconut Creek neighbors can no longer afford winters here.
“People in my community are saying that when the market picks up, they are selling,” said Shafer, who has been coming to his condo in Coconut Creek for 22 years. He and his wife, Ruth, also talk about selling and buying a winter home in Arizona or California.
Snowbird Phyllis Turek, who lives part-time in Davie, said she doesn’t expect the same concessions as full-time residents, but believes snowbirds should get some credit for owning a home and paying year-round for services they use only a few months.
“Nobody cares about us,” said Turek, who recently attended a town hall meeting on property taxes to complain about the tax burden.
Todd Bonlarron, the Palm Beach County legislative affairs director, said county commissioners listened to snowbirds, and he will lobby for an up to 10 percent cap on the increase of property taxes on nonexempted properties.
State Sen. Ted Deutch, D-Boca Raton, said snowbird groups haven’t approached him, but he is aware of their situation.
“The tax burden has shifted and a lot of snowbirds are leaving Florida at a time when baby boomers are considering where to move,” he said.
“Don’t get me wrong; I want to pay taxes,” she said. “But I don’t want to pay 17 times what my neighbors pay.”
Kilburn and her husband saw property taxes on their Ocean Ridge condo jump 41 percent from 2005 to 2006. Taxes also skyrocketed on their investment property in Boynton Beach.
“I put on hold the remodeling of my kitchen because I don’t know how high taxes are going to be next year,” Kilburn said. “I need to save money.”
But among snowbirds, Kilburn’s organizing efforts are rare in Palm Beach and Broward counties. The seasonal owners may have a great deal at stake as the Legislature debates property tax reform, but their voices appear to be largely absent.
Major homeowners associations – from the Alliance of Delray Residential Associations, which represents 64 communities west of Delray Beach, to the Broward Coalition, which represents more than 100 condominium and homeowner associations – haven’t created committees or appointed board members to lobby specifically on behalf of snowbirds. Small-scale efforts have sprouted up, but nothing on the scale of those by permanent residents.
Seasonal residents, let alone Canadians, don’t vote in Florida and lack the political power, said Dominic Calabro, president of Florida TaxWatch, a nonprofit government watchdog and research center for taxpayers.
“They are not involved in the political process,” he said.
Unlike Florida’s permanent residents, snowbirds don’t qualify for a property tax break and a cap in the annual increase in property taxes. Full-time homeowners receive a $25,000 reduction in the assessed value of their primary homes, known as the Homestead Exemption. Also, their annual increase in assessed property values and taxes is capped at 3 percent.
A variety of proposals to revamp the property tax system are now under scrutiny in Tallahassee. One would roll back tax rates to 2001 for all Florida homes, including those owned by snowbirds, and essentially limit future tax increases to what’s needed to keep pace with population growth and inflation.
The Florida League of Cities, which lobbies on behalf of 412 municipalities in the state, is pushing for a 10 percent cap increase on the part-time residents’ homes, said John Wayne Smith, the league’s assistant director of legislative and public affairs. Smith said he traveled the state attending town hall meetings on property taxes but didn’t encounter any organized movement by snowbirds.
“It is very difficult to get organized,” said seasonal resident Gil Lachow, who lives west of Boynton Beach. Lobbying efforts in Tallahassee are costly, he said. “Besides, they have no interest in listening to us because we don’t elect them.” Lachow is a founder of the Palm Beach Snowbirds Umbrella Organization, aimed at exchanging ideas on social events.
“The two-tier tax system is very unfair,” said Lachow. He pays $7,431 in taxes, up from about $3,600 in 2000, when he bought his home. His next-door neighbor, who bought his house at the same time for about the same price, pays $3,826 in taxes because of the Homestead Exemption, according to public records.
Florida had about 818,000 seasonal residents in 2005, according to the University of Florida’s Bureau of Economic and Business Research, and their economic contributions are substantial. Seasonal residents in Broward County were expected to pay $227 million in 2006 to help cover the costs of county government, area schools and municipal services, compared with $97 million in 2001, according to a South Florida Sun-Sentinel analysis of county tax data.
Of the states popular among Canadian snowbirds, including Arizona, Texas, Nevada and California, Florida is the only one where members of the Canadian Snowbird Association complain about a disparity between property taxes paid by full-time and part-time residents, said Gerry Brissenden, the group’s president.
The inequality is rooted in a 1992 constitutional amendment that sets a 3 percent cap on property tax increases for primary homes, he said. During the hot real estate market in the last four years, the cap saved a lot of money for many homeowners, but snowbirds saw their tax bills in some cases double and triple.
Part-time resident David Shafer says many of his Coconut Creek neighbors can no longer afford winters here.
“People in my community are saying that when the market picks up, they are selling,” said Shafer, who has been coming to his condo in Coconut Creek for 22 years. He and his wife, Ruth, also talk about selling and buying a winter home in Arizona or California.
Snowbird Phyllis Turek, who lives part-time in Davie, said she doesn’t expect the same concessions as full-time residents, but believes snowbirds should get some credit for owning a home and paying year-round for services they use only a few months.
“Nobody cares about us,” said Turek, who recently attended a town hall meeting on property taxes to complain about the tax burden.
Todd Bonlarron, the Palm Beach County legislative affairs director, said county commissioners listened to snowbirds, and he will lobby for an up to 10 percent cap on the increase of property taxes on nonexempted properties.
State Sen. Ted Deutch, D-Boca Raton, said snowbird groups haven’t approached him, but he is aware of their situation.
“The tax burden has shifted and a lot of snowbirds are leaving Florida at a time when baby boomers are considering where to move,” he said.
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