I've noticed that when many people buy a home they make an assumption that their costs are now fixed. They no longer have to worry about rising rents since many of them have fixed mortgages. What they fail to realize is that there are other property costs that inexorably rise, like taxes, insurance, and maintenance.
Lately, after conversations with several neighbors and acquantices, I can see how these costs may push many into foreclosure. The threat may even be greater than adjustable rate morgages resetting since rising taxes hit everyone, regardless of their mortgage situation.
Despite the fact that property values have declined over the last two years, property taxes continue to increase. On my street, the average house and condo has seen its bill increase by between 30-35% per year. Since the average tax bill is between $4-5,000 that's an increase of between $1,200-$1,700 per year. On a monthly basis its over $100 per month just in increased taxes, none of which is tax deductible.
One woman I know purchased a new condo that had recently been renovated. When she purchased it, the listing sheet showed the old assessed price and the old taxes. After she moved in, the condo was reassessed and because it had been thoroughly renovated, her taxes doubled. She purchased the unit with one set of financial expectations and must now confront a very different set.
I know of another couple that purchased an expensive condo at the top of the market. They are now underwater and have an expensive mortgage to pay. On top of that they recently received an assessment for 15% of the value of the condo. They both have good jobs and are successful, but they aren't sure where they are going to get the money to pay the fee. To them, the once unthinkable thought of foreclosure has become a potential reality.
I've been a bit skeptical about the gloom and doom scenario painted the by the pundits regarding real estate. I think generally most people are going to be okay. But there are certainly pockets of real pain. The gravy train is over and its clear that in a sinking market, there is little to no margin for error.
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The Riskiest Housing Markets by MBANewlyMinted - Jul 20, 2007.
