If Deutsche Bank’s predictions for future declines in the values of U. S. residential properties:
NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.
Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
“We project the next phase of the housing decline will have a far greater impact on prime borrowers,” Deutsche analysts Karen Weaver and Ying Shen said in the report.
Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.
are correct, it’s not only homeowners and banks who will be affected.
State and local governments are heavily dependent on property taxes for revenue. Most localities aren’t like California, where property values for purposes of levying taxes are only reassessed when properties are sold. Here in Chicago, for example, property values are reassessed triennially. When property values are rising these reassessment are stealth revenue increases, guaranteeing that revenues continue to rise without increasing the rates at which taxes are levied, doing which is as contentious a process here as it is anywhere else.
However, when property values fall revenues can fall, too. That leaves cities, counties, and states with the unpalatable alternatives of raising the rates, cutting spending, or, if they have the alternative, borrowing to tide themselves over. Generally speaking, that last is not an alternative here in Illinois.
During the Great Depression of the 1930’s many cities chose the first alternative which accelerated the foreclosure rate extending it right into upper middle class neighborhoods and above. I remember my dad telling me, as we drove down Lindell Avenue in St. Louis, of the magnificent homes there that had been sold at auction on the courthouse steps to pay their taxes.
