patrick.net

Surfer X,

Right on bro! I have done re-fi's and the whole process felt exactly as you describe. You're basically "buying" your house all over again, that's why they do another appraisal! So what do we do with this new higher appraised value? We sweep it under the rug and pocket the cash of course!

HARM,
you hit it right on the nose. Indeed, there are places in parts of the country that still are almost stifflingly conservative, but at the same time, a place that is more liberal is never that far away. I can recall going to Asheville, NC and seeing on the people walking around with lip rings, tie-died shirts, bumper stickers, etc. Just about any metropolitan area is somewhat liberal, and forward thinking, hence my only requirement is that the place I move to must either be in or near a metropolitan region.

Ray W,

Don't you mean buying Top Ramen with your credit cards?

SQT,

As far as I remember, only one spouse needs to get past 65.

http://www.boe.ca.gov/proptaxes/faqs/reappraisal.htm

Well, a lot of us stay for psychological reasons. I stay for three reasons. First, my wife's family is here. My in-laws are 80 and 81 (wife is 10 years older than me -- hmm, she'll qualify for prop 13 relief in only 21 years, I'll have to factor this into our purchasing decision :) and I don't want to move away and deprive them of the opportunity to see their grandchildren.

Second, while I can get a job that pays about the same, or maybe just a little less, in other cities, having practiced all over the country I am firmly convinced that the best lawyers in the US are here in CA. The quality of work here is head and shoulders above that in Chicago, for example. Becuase the quality of your opponents is so high here, work is more interesting and challenging. I am sure that this is true for people in many other lines of work as well. For example, the smartest tech people are still in the Silicon Valley, the best creative people are in Hollywood, etc. There are excellent tech people and creative people outside of CA, of course, but CA is still the mecca for these fields.

Third, if I am going to leave, I want to do it on my own terms, not becuase I have been driven out.

Anyway, can't speak for Nomadtoons and HARM, but that's my reasoning.

As an owner, I am for amending prop 13 so that the tax base gets reassessed when HELOC / refinancing happens. As surfer-x stated, it is effectively a sale. If a senior needs to refi to get by, perhaps it is in his best financial interest not to retire here.

However, I do appreciate the fact of locking in 2% gain each year, and it doesn't matter at this point when I am still young. I would like to retire near Silly Valley if I can help it, and expecting every senior to be able to come up with cash to pay the reassesed tax driven by nouveau riches is ridiculous.

I also think the reassement of value should be based on financing, not on cash transaction basis. For example, there are somethings that I would like to do to my house, but I am not doing it because of the fear or resetting the assessment base at the top. However I don't need financing and can pay out of pocket. Why should I be punished by *saving* money and doing touch-up work on my own property? If someone doesn't save up, and obtain financing to remodel, then he is essentially banking on the current value of his home to obtain financing, so he is also effecting putting his home on market. Therefore, he should be punished, not me.

Joe,
Seems like you have good reasons for staying. Family is one reason I am not totally tied to this area. As far as creativity goes, I expect this to change since most people who are creative cannot afford to buy anything here, thus I expect other regions of the country to dillute California's industries sooner or later. Perhaps those of us who move will be the new Bohemians that make the change.

Politically, taking out prop 13 will be very hard, I can imagine every homeowner voting against it. People are selfish, as simple as that, when you become a homeowner, you will think and act the same.

However, there is a very good chance of getting it amended, like what surfer-X susggested. Define MORE events at which tax base needs to be re-assessed. Currently, we are already facing such events, like remodeling, adding space, etc. So adding such events will be much easily accepted by the existing homeowners.

Honestly some existing homeowners are also disgusted by the run-up in price, especially if they are not the refi type. We don't treat our residence as ATMs, and if the ATM "owners" go to hell, let them. So adding HELOC/refi to the tax reset events can at least win some support from the existing homeowner base, help release more inventory to the market in established neighborhoods, and provide more tax revenue.

I think this is politically doable.

HARM Says:

> Of course I agree with the negative sentiments
> here on Prop. 13,
> I don’t buy all that crapola about “it’s keeping grandma
> from being evicted” or “forcing government to spend less”.

I feel that Prop. 13 is totally unfair, but it is keeping seniors in their homes and forcing government to spend less. For this to be "crapola" HARM will have to agree that all the old ladies in the Marina and inner Richmond have an extra $1,000 a month or so to pay market rate taxes and that the government would not spend every extra penny of tax money that got (like they have throughout US History with few exceptions).

@Joe Schmoe,

I can certainly understand not wanting to leave bc you have family here (not an issue for me --mine bailed out years ago), and wanting to practise in a high-caliber law/tech/creative hub. I'm not a lawyer and don't know where you practised, but I don't know that I'd be so quick to write off the other 49 states. Surely, there have to be some excellent law firms outside of CA.

As to leaving on one's own terms, I'd have this to say:

The housing bubble-market is something completely beyond my direct personal control. I cannot keep greedy idiots from flipping or buying overpriced properties with monopoly money. If I am going to buy, then I want to do it on my own terms, not because I have been "forced" to purchase a $750K crackhouse with an NAAVLP.

If getting what my family wants/needs means leaving this state then I shall do so of my own free will and without regret. No one is "forcing" me against my will.

FormerAptBroker

the problem of our tax law is, it promotes spending and borrowing. Prop 13 is supposed to help careful, conservative seniors staying at their homes and not driven out by events beyond their control, like neighbors bidding up the price of comps in the neighborhood. Nobody should be blamed for events beyond his control.

However, if a senior is carefully planning his financial future, he should save towards retirement and plan his ongoing fixed cost, which in no circumstances should prompt him to refinance from time to time to draw money out. Or, he should perhaps do a reverse mortgage after all. Or better still, he should sell out, pocket the profit and move to a place with much lower cost of living.

Until you start to punish borrowers with tax law, they will continue treating their home as ATM.

I feel that Prop. 13 is totally unfair, but it is keeping seniors in their homes and forcing government to spend less. For this to be “crapola” HARM will have to agree that all the old ladies in the Marina and inner Richmond have an extra $1,000 a month or so to pay market rate taxes and that the government would not spend every extra penny of tax money that got (like they have throughout US History with few exceptions).

Well, this isn't a Prop. 13 thread, so I don't want to get too heavily into debating its pros/cons here (see NIMBY Laws and California Housing Prices). So I'll just make a couple of quick points:

I'd feel bad if old ladies in the Marina were evicted from their homes solely due to tax reassessment. However, I have yet to see a valid case where this has actually occurred --either before or after Prop. 13-- and I suspect it's something of an urban legend used to justify bad public policy.

And even if it were true, then I have a simple solution: sell your house and move somewhere cheaper. If you're a retired grandma, then why exactly are you entitled to live in the heart of a major metropolitan area at a steep discount, while young struggling families (with bills/problems of their own) must pay their fair share of taxes PLUS yours? Most retired people I know (including my dad) have done exactly that and did quite well.

That being said, I'm not against amending Prop. 13 to apply only to retired low-income seniors. I just don't see any societal benefit to giving Rich McBoomer a free ride at my expense.

My last point is that Prop. 13 hasn't stopped politicians from spending like drunken sailors, and no proposition ever will. The best we can do as voters/citizens is to stay vigilant, and when you see excessive waste/corruption, vote the bastards out --and convict them if necessary.

HARM,

you just need to look at the reality about proposing any changes. Are there more homeowners or fewer homeowners who are voters? I don't know, but I suspect there are at least just as many homeowners as renters in this state. Now will homeowners vote for getting rid of prop 13 regardless of moral reasons? The answer is obvious. Human beings are selfish. I am not defending it on moral ground, I am defending it on selfishness.

If you want to get something to change, you need to unite the most interest groups as you can. Are homeowners all of ONE single interest group? No. There are many homeowners with different agenda, different financial situation, different age groups. So you need to target those who are cloest to YOU in terms of agenda so that they jump on board. That way, you can chip away prop 13 gradually. And one day after you become a homeowner, you may not want to get rid of prop 13 yourself!

How do we chip away prop 13 bits by bits? You take away the part that is most easily abused, the refi and HELOC part. Do you know that under the current law, refi means you lose your property status of anti-deficiency? That means, if you refi once for a lower interest rate, to extract equity, or whatever reason, if you happen to miss your payment later, you won't be protected by the state's anti-deficiency law (google if you don't know what it means). Therefore, refi is already a significant even in other legal aspects.

So, why can't we just bring in more events to force some marginal buyers who didn't manage their finance carefully to relinquish their residnce, bringing price down for the would-be buyers? A lot of the purchase of homes in CA in the last few years are by people without voting power, so if you target them as the group to be adversely affected, you have a good chance. If you target the established owners who have voting powers, you have a much slimmer chance.

Here's a thought since we're on the whole revolutionary change and action topic, why isn't there a free publication on the streets that is anti-housing? Just like the East Bay Express, and all those plastic boxes full of real esate, wouldn't it be just as noble of a cause to have a publication that counters the pro-real estate craze and helps the general public to be more ecucated on the topic? Perhaps a small newsletter of sorts, but something that voices the 50% of Californians who are priced out. I don't get why local liberals are so antimate about protesting things like the war, bush, ect, yet never protest about housing and lack of affordability. This effects every single person in the state on some level, thus I am really surprise the left hasn't picked up on it.

@Owneroccupier,

All good points --thanks. Eliminating the refi and HELOC part is a great idea, but now that most (virtually all?) CA homedebtors have refi-ed over the last few years, this may not be politically feasible in the near future either. As you said, "Human beings are selfish", and they tend to vote in their self interest.

One idea I had was to propose extending Prop. 13 to ALL homedebtors. In other words, everyone (not just lucky boomers) would have their property tax capped at 1978 assessed values (+2% per year compounded, as allowed by Prop. 13). This would dramatically LOWER taxes for anyone who bought in the last 25+ years and level the playing field at the same time WITHOUT raising taxes a penny for anyone in the state.

This would essentially call the bluff of Prop. 13's backers --it would expose their rationale that Prop 13 is all about "lowering taxes" or "helping poor grandmothers" to be a complete lie. They would vehemently oppose it (of course) because it would mean giving up their "special" advantage over f@cked younger buyers.

Of course, the other side could counter-argue that the new proposition was all about "cutting taxes and wasteful spending in Sacramento" (stealing Prop. 13's thunder) while correctly accusing anyone who opposed the measure as a selfish hypocrite.

Harm, SF Woman,

I think (as an Oregonian) I'm starting to understand just how CA became such a mess.

I'm a senior (sheltered from tax increases) in a desirable area. B/c federal tax law was re-written in the 90's I now have the option to either sell and be exempt from having to pay capital gains and move to a more affordable area or; simply re-fi and do my equity extraction thing, stay exactly where I am at and enjoy not only lower taxes but also write off the interest on my second mortgage to effectively show little or no taxable income?

When we have created a scenario where people could walk away with tax free money but elect to go the equity extraction route, we're bound to have problems.

Owneroccupier,

When you say "miss a payment" are you referring to missing a HELOC/2nd or first mortgage payment or are we talking about the tens of thousands in Orange Cty. that still haven't paid 2005's property taxes but are still writing off all of that mort. int?

DinOR,

what i meant was facing pre-foreclosure and foreclosure situation. In the event of foreclosing on major residence, anti-deficiency law doesn't apply if the homes has been refinanced, in the state of CA.

In at the Rise,

Firstly remain calm! If you move to another state why would you need to buy right away? Even if you stayed in CA at your same job (while it lasts) you shouldn't feel compelled to buy or put anything down if you do. I don't know what rents are going for in your area but I have a nagging sense of dread that if you don't take the money off the table you might regret it. There will be other houses.

NIA

Owneroccupier,

Interesting. I don't know CA RE law but that is along the same lines as I was thinking. If you are behind on your house payments the lender will foreclose. If you are behind on you TAX payments you are in trouble too! I thought if these people go into foreclosure or a "short sale" the lender has the option to issue a 1099 showing the deficiency amount as "taxable income". I'll bet alot of people in OC (for instance) showed that they paid their property taxes, got a refund and then paid the past due taxes.

I will NOT pay a premium (more than 5-10%) over rent for a middle-class (or upper-middle class) dwelling. McMansions count as middle-class pretensions.

My principle: Get the best if I can, but without significant debt, or just live with plain values.

If you don't have the money and social standing to live in a grand house with servants, your house has no significance. This is especially so if you or your children will eventually sell it.

C'mon folks, the middle and upper-middle classes are mind-fucked into slaving all their lives for something so illusory as HOME. Your home is not even yours. The government will tax it away. In NJ, the tax rate is around 2.5%. That means within 40 years, without inflation, all the money you spend purchasing the house will be in the hands of the government.

Nobody is pressuring you to buy a home. BTW, the term "home" just sounds corny. It evokes a sentimental attachment in unsophisticated minds -- which by the way include many so-called highly educated (woops, schooled and mentally-enslaved) people.Give your intelligence some self respect: Call it either a house or a condo.

Consumption in US is driven largely by women. Many men in this country — I would say the majority of men — are of the insecure type. They HAVE to slave all their lives to “win” a wife who in return sucks everything (soul, lofty aspiration, spiritual well being, self respect) out of the poor fellow.

I suspect that except the flippers, most men buy the houses against their better judgement due to the pressure of their women. As pointed out by someone earlier in this thread, women DO compete with each other in the superficial department: my diamond is shinier than yours, my hubby makes more money than yours, my house is bigger and newer than yours.

Only the secure types (true upper class and bachelors by choice) can escape this madness.

"Consumption in US is driven largely by women. Many men in this country — I would say the majority of men — are of the insecure type. They HAVE to slave all their lives to “win” a wife who in return sucks everything (soul, lofty aspiration, spiritual well being, self respect) out of the poor fellow."

Funny, have any of you seen the ad on TV right now for, I believe Coldwell Banker, where the freckly faced wife (who comes across as a total bitch BTW) is having trouble convincing the skeptical husband of plunging into buying a home for the sake of the kids who won't be toddlers forever. On the phone the realtor says something like "you guys can do this". The husband of course relents lest he is shot in the chest by his domineering, controlling shrew of a wife.

@Owneroccupier,

You made a good point about the Prop. 13 refi/HELOC exclusion not being retroactive, however I wouldn't be so sure about the future threat of higher taxes not impacting the voting behavior of current CA homedebtors. Anything that has even hinted at higher property taxes for existing CA homedebtors has always ended up in the crapper as long as I've been voting/paying attention. Plus, there's the fact that so many recent homedebtors are using the refi/HELOC ATM to maintain current consumption, to fill the gap left by incomes.

I'm guessing a large % of f@cked borrowers would strongly oppose any such measure if it were on the ballot today. A few years from now, after the Bubble has popped.... who knows?

@tannenbaum & GentleCheetah,

Yeah, I've seen that commercial too. Actually my wife saw it first and grabbed me the next time it was on, since she knew I'd get a kick out of it. Goebbels/Leni Riefestahl hasn't got shit on Coldwell Banker. Made me physically sick to watch.

There is another amendment that we can propose: houses OTHER THAN main residence cannot be shielded by prop 13, and have to be subject to reassessment every year.

Here is the problem. A lot of investors are taking advantage of prop 13 to build their own investment portfolio, essentially taking inventory off the market (sorry, FormerAptBroker). This is not a fair use of tax money. Rental homes for investment purposes are for commercial uses, nobody should be subsidized when they are making an investment! In the rental home case, it is very easy to argue that it is not an old grandma who needs help, if the landlord cannot cover his new property tax, raise the rent. If he cannot raise the rent, sell. Somebody should be responsible for his own investment decision, not the public.

We can do the following. Once you start to rent your home out, you immediately lose the prop 13 status. You can only designate one of your multiple homes in CA to be a main residence, and to do so, you need to fulfill certain requirement (living in a home for x years in the last y years). This way, we also discourage house hoarding.

Guess I somehow escaped the evil woman that's described above. My wife insists on saving, and isn't neccesarily concerned if we ever buy a house for that matter. She's saved just as much as I have, hence the collective buying power that we potentially have if we do decide to move. She agrees with me that we will only buy a house if we have the funds to do so free and clear, hence preventing us from falling into the typical american obession with mortgages, payments, and jobs to make those payments that suck your life away into oblivion.It's actually a comfortable feeling knowing that we are in no rush, she isn't badgering me about wanting kids, drives a car just as old as mine, and thinks intelligence goes with common sense- hence the lack of value we both see in this state. Guess I was one of the lucky ones.

Oh, and guys, let's not generalize too much about the ladies. Roughly half the population (and bloggers) are women, and we know all the ladies here aren't soul-sucking shrews. They are reasonable clear-thinking individuals just as mystified with this insanity as we are. :mrgreen:

A few years ago during a visit from NC, my mother, a retired teacher, came up with a good measure of value. We were discussing the price (not value) of the condo I used to own and she asked, "where are the teachers supposed to live?".

I am a SW engineer, do OK by most measures, and could not afford to buy my own house at these levels without some creative financing. I accepted an offer on my house last week. I found a nice rental in Mtn View for slightly less than the after tax cost of my mortgage interest + property tax.

@Owneroccupier,

Sounds like a plan to me!
Now, here's what I need for you to do: (1) Write up the proposition in lawyer-speak, (2) file it with the state government, (3) go out and collect a million signatures to get it on the ballot.

Once you've done all that, I'll be delighted to vote for it! ;-)

All kidding aside, I wonder how hard it would be to do it for real.

a gutt-er (not a tear down, but to the studs, is there a name for those?)

Yes, there is a Realt-whore term for this: it's called a "handy-man's special".

Haven't heard the term "shrew" and women combined togther. Interesting concept.

HARM,

I actually have a small plot of beachside land that I am planning to build a cabin on. So I need to be very careful with the lawyer speak so that I don't end up losing my own prop 13 on that :-) I believe many people in power have a vacation property in CA that they rent out for sometime of the year to generate enough maintenance cost. So we need to find a middle-of-the-road approach to take care of these powers as well.

OK, as long as the property is not rented out for more than 180 days of the year, it is classified as owner occupation and therefore are swept under the prop 13 protection. See how selfishness is at work here?

Honestly, with or without me pushing, there will be a very strong backlash on lots of things when this ugly bubble bursts. Prop 13 being one of them. Realtors, mortgage industry, home building, a lot of the free lunches will be gone, as social evolution always goes.

@ HARM

for the 1 million signatures - I wonder if it is possible to do via internet signatures rather than having a clipboard pusher out in front of the Albertsons...

I'd like a vote for prop 13 changes.

Does Prop 13 protect you when your house value is the same but new neighbor houses sell for 50% less in a couple of years and remain like that for another 10 years? - I think Prop 13 will protect you because you will continue paying the up your ying yang taxes you paid earlier while new buyers pay less for the same house.

I've never had much of an active hand in selecting any of our homes or their contents so I'm guilty of being complacent there. It wasn't until the HB started looking more and more hyper-inflated that I got concerned. Like many, I reached a point where co-workers, relatives, friends nor my wife could talk me out of selling.

Prop 13 applies to everyone; you effectively lock your property tax rate at the assessed value of your home. It also statutorially limits the rate at which property taxes can increase every year. It was part of the "Great California Tax Revolt" era (long before I got here). In many other states no such limitations exist, although many states like the Southeastern states self-limit property taxes to an even lower level without having to legislate to control the politicians. In much of the upper Midwest it's the opposite: out of control property taxes. Like I mentioned, in Illinois counties are free to reassess according to their own schedule, and the state raises taxes whenever it gets into trouble (both parties have done this equally).

Getting rid of Prop 13 is currently a political impossibility in the state. A coalition of the CAR, NAARP, and practically every homeowner in the state would be against revisions.

Here's the worst atrocity IMO: companies are also covered by Prop 13 limitations for land they own so long as they use it for "business purposes". There is *no justification* for this, other than they had to do it to get buy-in from interest groups back when they passed it. An attempt was floated to take corporate interests out of Prop 13 legislation. It was DOA. General high-taxation arguments were used. The CA is not competitive stuff. But Prop13 has only managed to shift taxes, not solve the budgeting problem.

If you want my honest opinion, CA is simply too large to be governed responsibly. It needs to be broken into 3 to 4 separate states, representing the proper interests and needs of the regional constituencies.

A bit more back on topic:

The Troll from the last thread responded to my cost/benefit of renting question with very interesting logic. (I asked him to guess my rent compared to the $1200/mo renter in SF):

Randy H, I guess $2,600 / month? And perhaps it should be more like $4,500 / month if someone were to buy it now and rent it out

Does anyone see the fallacy in this logic? The "price" a renter will pay is determined solely by the income needs of the owner based on what he paid for the property? This is ludicrous. The price is determined by both the the demand and the supply. I wouldn't pay $4500 for this place. If that was the going rate, given the current income levels, I'd simply either buy a home myself (because Rent would be = or greater than PITI), or I'd leave the area. And I would be representative of many other potential renters. Thus the going rental rate is much lower.

This is exactly why managing property for rental income is so hard. It's a business, not a hobby. You had better be prepared to make very difficult capital budgeting and operational cost decisions over a long-term planning horizon if you intend to run a free-cash-flow positive rental business. Put up your couple of speculative properties for your PITI (and remember you don't get tax benefits beyond what any business does), and you'll be in for a world of hurt. C'mon, if it were really that easy everyone would be doing it.* **

*Popular books to the contrary excepted.
** Running a business is hard because you only make profit if you create value. At least over the long-term. Luck of timing only gets you so far. And, luck has a nasty habit of running out just when you need it most.

nomadtoons2
See Shakespeare’s “Taming of the Shrew”

Drat, newsfreak --you beat me to it!

@seattledude,

I can't speak intelligently about state RE laws outside CA, but here's how it basically works: It passed in 1978. Anyone who before/up to the proposition's passage has their home's assessed value (for tax purposes) "locked" in at 1% of its 1978 price. Prop. 13 allows the state a maximum of 2% per year increases, which is well below inflation even now --and far below what it was in 1978.

End result: People who bought 28 years ago or earlier now paying a tiny fraction of what new buyers pay in taxes, regardless of income, ability to pay, investment or business property, age (though naturally the lock-in date heavily favors Baby Boomers over Gen-X & Y). Thanks to those other propositions mentioned earlier, Boomers (oops --I mean "Prop. 13 beneficiaries") even get to take their tax advantage with them when they move to a new place of equal or lesser value. The longer you've owned your home(s), the greater the benefit. Corporations also greatly benefit as well. For more info, see Wikipedia:

http://en.wikipedia.org/wiki/California_Proposition_13_(1978)*

*Note: there are some inaccuracies in this article, including this one: "Under Proposition 13, the real estate tax on a parcel of property is limited to 1% of its purchase price, adjusted for inflation, until the property is resold."

Prop. 13 does NOT allow for full inflation adjustment --only 2% max. If the CPI goes up 8%, you can only be assessed for 2% (1/4th).

tannenbaum Says:

“Consumption in US is driven largely by women. Many men in this country — I would say the majority of men — are of the insecure type. They HAVE to slave all their lives to “win” a wife who in return sucks everything (soul, lofty aspiration, spiritual well being, self respect) out of the poor fellow.”

If a man is smart enough and slaves hard enough they will be able to "win" a great wife who not only looks like she belongs on the cover of a bridal magazine, but it a true partner that makes the rest of his life great.

Many guys who are not as smart and/or slave as hard feel like a "winner" when they get a wife that is hot enough to be on the cover of Maxim magazine, but unfortunately many of the unbelievably smoking hot women out there are vacuous and materialistic and will ultimately ruin their lives...

“Consumption in US is driven largely by women. Many men in this country — I would say the majority of men — are of the insecure type. They HAVE to slave all their lives to “win” a wife who in return sucks everything (soul, lofty aspiration, spiritual well being, self respect) out of the poor fellow.”

I'd just like to say I really love my wife. Not only is she gifted in her physical attractiveness, but she is intelligent, engaging, and anything but materialistic. She shares my "Midwestern sensibilities", actually wants to see my insane rent-v-buy HB spreadsheets (even if she thinks the Monte Carlo simulations are a sign I need therapy or more friends to go play hockey with or something), and she even corrects my errors for me. And when she writes an article on my blog, she doesn't even moderate out my comments.