Monday, April 30, 2007

E-mail from Rep. Domino

I thought I would pass along an e-mail I got from Rep. Carl Dominos campaign. They have been pushing for SOH protability for some time. I think it's a mistake as it will only further the problems for those who aren't protected.



While no one can ever know for sure what is going to happen, things are moving
quickly on the Save Our Home Portability front.

The Governor has now publicly joined us in calling for both full SOH Portability
and a Special General Election to implement it as soon as possible.

The Florida Association of Realtors (FAR) have released a major call to action
asking for, among other things, allowing for the portability of SOH savings, with
retro-active portability. Remember until early 2006, portability was opposed by FAR.

I have personally spoken with leadership on both sides of the aisle in the House
and with one possible exception, they are very very supportive.

I remain optimistic that we will obtain necessary votes to get property tax relief
for our citizens without a Special Session. I think portability is an important
element in allowing people to live in the home of their dreams and vital in
helping to invigorate the real estate market.

Your legislative contacts have been most helpful in getting us this far and we need
to keep up the effort to get this matter on the ballot.

Already we have started discussions to get supporters in the Special General Election,
so that we can obtain 60% of the votes necessary to get portability passed. As part
of this effort we need to increase our e-mail data base. Please send us any e-mail lists
you have, which we can add to our updates data bank and advocacy messages.

Rep. Carl J. Domino
District 83

Saturday, April 28, 2007

Sentinel Article

Interesting article in the Sentinel. This was another look at some of the challenges. The problem, again, is that no one seems to be addressing the long term effects of Save Our Homes.

Volusia leaders beg lawmakers to hold off on tax cuts - Orlando Sentinel : Volusia County News Volusia leaders beg lawmakers to hold off on tax cuts - Orlando Sentinel : Volusia County News

Market chills, tax bills won't

I found this article in the St. Pete times and I think it gets to the heart of the tax issue much more effectively than most of the articles I've seen locally. In particular it raises the very important point that your property is assessed as of January 1. As the market continues to slow we won't see that in our tax bills for 2006. Actually, in Volusia and Flagler Counties, property prices peaked in the middle of 2006 and the year ended at about the same level as they began. In theory, property taxes won't change. While we saw a drastic decline in transactions starting in the beginning of 2006, prices held rose through the first quarter and then declined slowly. This chart shows the average price and number of transactions.

State: Market chills, tax bills won't

Friday, April 27, 2007

Article about rising taxes forcing foreclosures

This is an interesting article that discusses rising taxes forcing foreclosures. I think the majority of these issues are associated with second homes, investment properties and the like. Rising taxes on primary residences are only slightly affected as any homesteaded property is protected. However, there are instances when a buyer purchases a home which is being taxed at the former owner's rate and the following year they are no longer eligible for the protection and it can have a tremendous impact. This scenario is an example:

The Jones' have a house that they have lived in for ten years. The house is appraised for $300,000 and they sell the house to the Smith's for $400,000. Because the Jones family have been protected, they were paying taxes on $200,000. They sell in February. For the remainder of that first year, the Smith's pay on the Jones' protected value of $200,000 or $4,000 annually. Each month, they pay their mortgage principal and interest plus their tax and insurance. They have calculated their monthly payment to be:

$1000 - Principle and Interest
$ 292 - Property Taxes
$ 150 - Insurance
$1442 - Total monthly payment

At the end of the year, they receive their notice that their property has increased in value to $400,000 (their purchase price). Because they no longer qualify for the tax savings under the protection that the Jones' enjoyed they now pay on the full price (minus $25,000 for homestead). Their new payment will be:

$1000 - Principle and Interest
$ 625 - Property Taxes
$ 150 - Insurance
$1775 - Total Monthly Payment

The difference in property taxes is more than double. The effect on a working family can be catastrophic. If a family earns $30,000 per year before income taxes (well above our average), this represents a $4,000 per year increase in expenses. The "Save our Homes" amendment effectively pushes them out.

This article discusses those effects.

Front page news -

Wednesday, April 18, 2007

Tax reform article

News -

I don't think this represents anything new but I wanted to include it as un update.

Monday, April 16, 2007

Chamber Alliance Meeting

This morning there was a meeting of the board of directors of all seven Volusia County chambers:
1. Daytona Beach/Halifax area Chamber of Commerce
2. Ormond Beach Chamber of Commerce
3. Holly Hill Chamber of Commerce
4. South Daytona/Port Orange Chamber of Commerce
5. South East Volusia Chamber of Commerce
6. DeLand Chamber of Commerce
7. West Volusia Chamber of Commerce

The meeting was very interesting and included about 70 people from the various boards.

Frank Bruno, Chair of the Volusia County Council, spoke about two topics. The first is the rail system. His opinion is that with the impending tax reform there won't be money in the budget to commit to $3.5 million per year for 30 years. Reaction in the room was mixed. Several people felt that it could increase home values as more people from Orlando commute into West Volusia. An argument was raised that it won't effect the East side of the county but they would still share in the cost. Further, the current agreement includes a number of counties plus state and federal funding. This type of arrangement will not be offered again.

In addition, he discussed tax reform. He pointed out that roughly half of all property tax goes to the school system. He would like to fund the school system with a 1% sales tax and remove them from the property tax budget thereby cutting everyone's property tax in half. His point being that 1% is small enough not to have a substantial impact on tourism or other spending but could raise substantial money. Resistance was raised as sales taxes are not stable from year to year and that could effect planning for the school board.

My opinion is that it may be a good idea but we would still have the disparity that is created by the Save our Homes (SOH) amendment. I do consider it a very positive mix to the discussion that has been taking place. One consideration may be to repeal SOH, apply the 60% rule that Morgan Gilreath mentioned (in a previous post) and implement a 1% sales tax to offset the overall property taxes. General millage rates could be set in advance and then reduced based on available property tax income. I'm curious about opinions.

Friday, April 13, 2007

State Senate set to introduce final tax plan

Front page news -

I read this story in this morning's paper and it seems very interesting. The highlights from the article are:
· Roll back city and county tax rates to 2005-06 levels adjusted for growth in population and income, freeze them for one year and then cap them going forward using the same formula.
·Double the $25,000 homestead exemption for first-time homebuyers until the value of the Save Our Homes cap on taxable value increases reaches the $25,000 level. The exemption only applies to homes valued at $100,000 or more.
· Provide "portability" of the Save Our Homes benefit. Homesteaded property owners who move could take the value of the cap with them, though their initial annual assessments would increase by more than the 3 percent allowed under the current cap.
The plan also includes a $25,000 exemption for tangible personal property for businesses. This includes such items as computers and office furniture.
The plan also calls for clarification of state law regarding assessments and a break for affordable housing.
It would require local governments to post some tax and spending information on their Web sites.

My concerns are:
1. How does it address the concerns of renters who can't afford to buy a home at current tax levels? I don't think that a larger homestead expemtion is sufficient.
2. What about businesses? A $25,000 exemption is nothing when they are facing enormous tax burdens. It also doesn't address the continuous increases that they will see as more properties are protected from taxes.

We can't expect our businesses and renters to bear the entire tax burden. Ultimately, if you have the majority of properties protected, the minority will be dramatically effected. Providing additional protections for that majority simply increases the effect that the minority will feel.

I look forward to reading and hearing more about this new plan to understand it more completely.

Thursday, April 12, 2007

Florida Property Tax Reform

This morning I attended a meeting at the Ormond Beach Chamber of Commerce. Morgan Gilreath, Volusia County's Property Appraiser was speaking. Tax Reform has been such an important topic recently and I thought it warranted a post. I also recognize that it is a very contentious issue so I welcome your comments.

Save Our Homes Amendment
There are a number of things to explain regarding our current situation. Florida has an amendment to the constitution (amendment 10) called the "Save Our Homes" amendment. On the surface it seems like a fantastic solution. The concept is that we will limit our property taxes on homesteaded property to 3% or the consumer price index, whichever is smaller. The amendment was promoted in order to avoid people being taxed out of their homes. As property values increased in value, we would prevent the taxes on those homes from rising. The result, however, is not what was being promoted.

The Problem
Over the last several years property values have increased dramatically. The taxes on homesteaded property have been held relatively steady. When cities or counties in Florida increased taxes over the years it didn't affect the vast majority of people since they were homesteaded. The effects that the increases had were limited to non-homesteaded property. Because of that limitation most people didn't object as our tax base increased each year. The problem is that as taxes went up and the majority of people (homesteaded property owners) were unaffected the remaining group was dramatically affected. In fact they were affected at an exponential rate. If you've ever seen a chart of exponential growth, you'll realize that it doesn't take long for a number to grow entirely out of control. In fact, in 2006, non-homesteaded properties paid 96% of the annual increase in property taxes in Volusia County! That's exponential growth in action.

The people who were affected are very straight forward:

  1. Anyone who had to move
  2. People moving into the community
  3. Commercial property
  4. Non-homeowners (renters)

The first group often is the same people that the program was designed to protect. One of the original concepts was to protect the retiree who's property tax increases grew out of control and effectively taxed her out of the home. Under the new plan, though, the retiree who wanted to downsize from the large home with substantial maintenance costs would likely be looking at an increase in property taxes to move into a smaller home. In addition, the existing home may have a reduction in value since the new homeowner will be assessed a MUCH higher tax once it is out from the protection. The person who is forced to move is losing substantial potential equity because the new owner must factor the tax differential. For example, it is not uncommon for a new owner to pay four times what the previous owner was paying for the same house. From a real estate perspective this reduces the frequency of moves. People typically move every three to five years based on changes in their lives or economic status. That is not happening and is having a negative effect on the real estate industry (Realtors, mortgage companies, furniture companies, builders, contractors, etc.).

The second group of people is moving into the community whether from out of state or not. This group is being assessed at much higher taxes than the people who have been here. Many local people aren't concerned about these new people but I should mention that, as in the example above, it has a negative impact on home values. It also has a negative impact on economic development. If you were considering relocating a business to a new community you may be hard pressed to choose a place that is going to charge you much higher income taxes on your personal residence as well as those of all of your employees. These are certainly factors that will be considered. In addition, this creates an inequality as people move into a neighborhood or community and realize that they are paying substantially higher taxes than their neighbors. These problems infuriate and confuse new homeowners and cause unnecessary friction.

The third consideration is commercial property. This is one of the most important because these are the job providers. We are taxing our job providers at such an incredible rate that it will have a negative impact on our ability to attract strong industry. Further, small business represents the bulk of the employers in the United States. When your tax bill is increasing as quickly as ours are it is very difficult to consider growth and tough decisions need to be made. In Florida our job providers are facing increased taxes, insurance, and health care expenses such that wages will have to be considered as a source of future savings which will mean job loss if we can't control our spending.

Lastly, we are taxing the poorest of our people. If you can't afford to buy a house in Florida you can not benefit from the homestead exemption and you can expect your rents to reflect it. Investment property, apartment complexes, and other rental property are part of the properties that are bearing 96% of our tax increases. Landlords who typically collect very small profits, if any, from their investments today will have no choice but to continue to raise rents. This will apply pressure to the people that need to feel it least of all in our community. While we all talk about the importance of affordable housing we are applying one of the most egregious regressive taxes of all time on our citizenry.

A number of solutions have been put forth and are currently being discussed in the legislature. Both houses of congress and the Governor have all put forth potential solutions. I'll not claim to be an expert on all of them but I will list a few of the most commonly discussed.

1. Increase the homestead exemption from $25,000 to $50,000. - I'm not certain what effect this will have except to exacerbate the problem. It doesn't address commercial properties or renters. It simply reduces the amount of money coming into government, thereby forcing government to raise the millage rate and increase taxes across the board.

2. Extend the 3% property tax cap to commercial, industrial, and investment properties. - This one seems on the surface to be a good idea. My concern is that the remaining properties where tax increases are available would be dramatically effected. Moving either into the community as either an individual or as a business would be catastrophic. It would simply eliminate the ability to attract new business to the state of Florida as this tiny minority would be responsible for all new taxes.

3. Portability - The concept of portability is that you can use all or a portion of your current savings when you move to a new home. This will help with the groups who would like to downsize their homes or move to larger homes as their families need. This will also help to alleviate the negative effect felt by the real estate industry. Given that your author is in the real estate industry you might think I would favor this concept. However, this solution will cause a number of problems. It will dramatically increase the costs to businesses and to the poor. It could have such a negative impact on economic development that the long term prospects are not positive at all. Further, there are challenges to Counties like Volusia and Flagler. We are the lowest priced coastal property in Florida. If someone was to move from a higher priced are (Naples, Sarasota, Miami, or Ft. Lauderdale) to our area, their savings (based on how the law was written) could substantially reduce, and possibly eliminate) the property taxes they pay in our Counties.

4. Sales tax increases - Similar to "The Fair Tax" concept, one proposal is to either dramatically reduce property tax or eliminate it entirely and replace it with an increase in sales tax ranging from 2.5 to 4 cents. Opponents to the concept say that sales tax is a regressive tax while property tax is not. I would encourage them to reexamine our system. There are also concerns that this could have a negative impact on commerce. Particularly with regards to larges purchases where it may make sense to buy out of state and save the tax difference. I don't think I can see all of the potential impacts of this change but it does seem interesting.

5. Replace our current solution - One opportunity is to replace our existing cap with a flat tax across the board. This seems very interesting. Rather than having a homestead and a cap on top of it, we would levee a tax of 62% of the just value of the home. According to Morgan Gilreath, the result would be revenue neutral. The taxing authorities would generate the same amount as they otherwise would and property tax would not change much for property owners. In fact, it would be slightly down (on average) for people whose homes are assessed at under $400,000 and slightly up for people whose homes are assessed at higher prices. Interestingly, 96.5% of residential property in Volusia County is assessed at under $500,000. Further, houses priced at up to $1,000,000 would see property taxes of about $12,000 per year compared to a current average of about $10,000. Owners of those homes would likely see a fantastic increase in property values as there is a general reluctance to purchase a home whose taxes are likely to run $40,000 under the current system. The approach is similar to our neighboring state of Georgia who uses 60% of just value as a starting point. This system, too, has a flaw though. I think it highly unlikely that any elected official will propose a repeal of the Save Our Homes amendment which would be necessary to pass this legislation. The amendment as it stands is so confusing to the average individual that they don't understand the negative impact that it has on their property value, our economic well being as a community, our businesses, and our poor.


In addition to any recommendation regarding our taxing solution, we also can discuss limitation of government spending. It is very clear that local government spending is out of hand. However, if we can find a solution that puts everyone back on a level playing field rather than having most homeowners “locked-in” at a particular rate, we should start to see homeowners exert themselves to keep spending in check. Our current solution only taxes businesses and those who have recently moved. These are not the vocal majority that will exercise their power in the polls to ensure that spending is appropriate.

More than anything I hope that we can find a solution to this problem. There is one certainty with regards to exponential functions. The impact gets worse every day. The Save Our Homes amendment offers a real challenge to the future of Florida's economic health and is a topic which is too confusing for most people to have a strong understanding.

Monday, April 9, 2007

Manufactured Home Article

This is an interesting article about manufactured housing in the area. Marge Allison from Adams, Cameron & Co. is quoted. I think the long and short of the market is that it follows the general housing market very closely.

Business -

Friday, April 6, 2007

Quick market update

Everyone keeps asking me what's going on with the market. I did some quick numbers and contracts seem to be up about 25% in the first quarter of 2007 over the forth quarter of 2006. That's across the Volusia/Flager county area.

I also reviewed the number of inbound buyer inquiries. They are up almost fifty percent in a quarter over quarter comparison. That's really good news.

Closings were better in the first quarter but didn't even begin to compare with where we were at the peak of the market (I don't think anyone expected it to). Still, up is good.

Also, prices on new contracts seem to be trending upwards. I'm a little surprised because I expected a continued small slide in pricing but I'm certainly pleased. Let's hope we're seeing the market pick up.

Thursday, April 5, 2007

Stocks Edge Up amid Housing, Merger News

Interesting article. This was also in the local News-Journal on Tuesday but it was bookmarked on Monday and Wednesday by negative articles about the housing market.

Stocks Edge Up amid Housing, Merger News

Wednesday, April 4, 2007

Sub-prime lenders

I've heard many questions about the troubles with sub-prime lenders and speculation regarding the impact on the housing market overall. My biggest concern is that the secondary market will become more cautious and generate an increase in interest rates across the board but I'm looking for articles that will speculate on the various impacts. There was a good article in the Economist. I'll see if I can post it here.