Municipal Revenue Forecast Update
By Greg L | 26 March 2007 | Local Economy | 13 Comments
Recent major stories of difficulties in the sub-prime mortgage market and the impact that the local residential market is having on the immigrant community have validated to some degree my earlier reporting and projections of the local economy. Now that there’s new local data coming in, it’s time to update these projections. Unfortunately there’s not a whole lot in the way of positive news here.
Instead of seeing a continuation of the downward trend in the number of available homes in Prince William County, there’s actually been an uptick in this number over the past two months which would suggest continued downward pressure on local housing prices. The typical rise in real estate transactions in the spring looks like it’s simply turned into a rush to put more houses on the market, leaving a huge inventory that just isn’t moving yet. My earlier expectation that we would see a gradual improvement in the residential market over the summer does not look like it’s going to happen until at least this fall. With a barrage of bad press, tightening credit, and a market trend that’s keeping some buyers on the sidelines, sales of existing homes will probably continue to lag and exert noticeable downward pressure on real estate prices.
This has hit the immigrant community particularly hard, especially those who have used exotic mortgage products or who entered the sub-prime market, which helps to explain why the effects seem more apparent in Prince William County than many other jurisdictions. Today’s Washington Post article provides some explanation from a local mortgage broker who serves the latino community:
Places where immigrants cluster have been particularly hard-hit. Semidey said that the most calls are coming from Manassas, Woodbridge and Dale City in Virginia and Gaithersburg, Germantown, Capitol Heights and Langley Park in Maryland. But one recent caller was the owner of a $1.5 million home in McLean, a restaurateur who has seen her business slide in recent months as the slowdown in the construction industry pinches the pocketbooks of her Latino patrons. Another was an illiterate carpenter who bought a $750,000 house in Ashburn Village, Semidey said.
While this will not be good news to local homeowners, it is even less welcome news to Northern Virginia municipal governments. Prince William County and the City Of Manassas are already projecting decreasing property assessments in their 2008 and 2009 budgets, and while a gradual improvement in the residential housing market would definitely help restore revenues to budgets which have been tightened significantly, continued weakness is not going to require major changes in their budgets. In Manassas Park, where they are budgeting based on the expectation that housing assessments will actually rise this year, the fiscal problem this presents is much more disturbing. With little in the way of reserves, very little capacity to borrow money, and tax rates that are already significantly higher than in surrounding jurisdictions, if a fiscal crisis happens in Manassas Park due to continued deteriorating in the housing market, there is a real possibility that massive cuts in services will be required in order to avoid bankruptcy. The continuing failure of the Manassas Park government to impose greater fiscal discipline in their budget process could end up destroying the city’s financial position if recovery doesn’t happen in a manner consistent with their optimistic projections.
We’ve seen that the greater Prince William area typically lags Arlington and Fairfax County, and that continues to play out. Fairfax’s improvement in the housing market has flattened, as has Loudoun County, while Arlington actually continues to improve. Since conditions regionally don’t seem to be deteriorating, it’s likely that this will not become a long-term problem in Prince William. Even if this ends up delaying the recovery in the local real estate market in Prince William by about six months though, there will be budget impacts, and local homeowners who need to sell will see little short-term improvement.
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The cynic in me says that the irresponsible actions of Manassas Park has something to do with the Rack & Roll Scandal. Think along the lines of “we have to bring in gambling or we have to raise taxes!”
I’ve seen this coming now for 3 years and I am surprised it has taken this long. The next year in the park should be a real ride. If these illegals don’t clear out after their jobs and houses go bye-bye but instead stick around looking for welfare then this town is done and property values along with it. I was quite honestly flabbergasted when I received my home assessment this year because there is no way that I could sell it for that now in this market.
It is a sad story to see so many people loose their homes. On the other hand, people need to be more careful with whom they do business and how they do it. The old line, “if it sounds too good to be true, it probably is” is a good lesson here.
Now, to dump on the Post, of course, they do not use the word illegal immigrant in the article, or if they did, I did not notice it. The post argues we need illegals to keep the local economy going, well, how is having their homes repossessed good for the local economy? And, of course in the end, we will end up paying for it.
citizenofmanassas, you have to understand how it works.
Follow this:
1)An illegal alien enters the country.
2)That illegal alien gains employment in the construction industry.
3)That illegal alien then gets a sub-prime loan to buy a house.
4)Demand for housing caused by illegals getting loans to buy a house keeps more illegals employed in the construction industry.
5)Rumblings about an amnesty cause more illegals to enter the country, causing more demand for housing (built, of course, by illegal aliens).
That’s how the local economy has kept going, but the party seems to have ended.
Incidentally, Manassas Park’s assessor believes that they will see a downturn in housing values and he also said he’s seeing more foreclosures.
But what do you expect when 1 of 4 loans made in the city are subprime (that is, loans made to people who do not have a good enough credit history to qualify for a normal loan).
Anon,
I’m sure you are partly joking, but that is correct. Of course that is why we need to build more fast food restaurants too, and so on and so on. But, no we see why that is not a great way to build an economy.
Greg-
Since you mentioned budgets in this piece, may we hope that some of the teachers that will be out of a job in Manssas will include ALL teachers? Meaning ESOL teachers and not just REGULAR teachers. Fair is fair. If kids have to suffer it should be ALL kids.
I have noticed that one house in my neighborhood that used to have three families living there now only has one. I wonder how long before that house is on the market.
Oh, BTW, with all of this going on, why would Bank of America extend credit to illegals? It makes no sense to me.
I just read the Post article and it’s hard to feel sorry for someone that buys something that they can’t afford in the first place.
Maybe the reason that all immigrants should learn English, is the fact that maybe they would understand what they were getting into.
When I bought my first house the lender tried to get me to buy more than I could afford at the time and offered me Balloon mortgage rates. Alas I was smarter than the lender and didn’t bite the hook.
Maybe that is why, before you by a house, you might want to pass more than the third grade! Then you would understand what you are signing.
Had to say,
My wife and I saved and rented for years before buying our first house. We also went with a traditional 30 year fixed rate. I wanted to own a home, but not at any cost or measure.
“Maybe that is why, before you by a house, you might want to pass more than the third grade!”
Hey, come on! Be fair! In Mexico public education extends to the 6th grade.
Since I’ve not bought a home in almost 20 years, I’ve forgotten what is needed. However, it is reported to a credit agency, so I’m certain I had to provide my SS#. With that being said, whose’s SS#’s are these illegals using? Can you say identity theft? Do these sub-prime lenders report credit? Are they required by law to report it? Are they operating legally?
I had a friend who sold a house to a “Latino family” who used a “Latino Lender”. They went to settlement and the latino family moved in.
The “Latino lender” came back to my friend, the seller, asking for MORE MONEY for additional “closing costs” that had suddenly arisen (The seller had agreed to pay closing as part of the originial negotiations.) My seller friend knew that a “hud form” had already been filled out by the “lender” and he was trying to imtimidate my friend into giving him more money or the deal would not go through and the people would have to move out.
My friend told the “lender”…I will not give you 1 penny more and I will report you to HUD for filing a false form…the lender finally backed down.
How many people fall for this tactic fearing they will be stuck with two mortgages because the “lender” scares them into it?
“With that being said, whose’s SS#’s are these illegals using?”
I think some lenders allow illegals to supply a TIN, a taxpayer ID number.
According to the IRS, of all of the TINs they’ve issued, only a small percentage have EVER been used to file an income tax return.