Tax changes may boost home sales
Economists caution, however, that an oversupply of houses would prevent a new boom.
By JAMES THORNER
Published June 27, 2007
Florida's proposed "super homestead exemption" would slash taxes by about 70 percent for the owner of a new median-priced house in the Tampa Bay area.
And that, economists suggest, could give a push to a housing market that has spent the past year stuck in the mud.
"My assessment, is, yes, this would help the real estate industry, but it's not going to resurrect it entirely, " said University of Florida economist David Denslow.
Voters will decide in a Jan. 29 referendum whether to approve the super exemption. It would cut taxes statewide by about $15-billion. That's on top of another $15-billion tax reduction already imposed by the Legislature on local government.
Since many people pay their property taxes along with their monthly mortgage payment, the effect on the housing market can only be good. For some people, having a monthly housing payment a few hundred dollars lower can mean the difference between buying and renting.
But the super homestead exemption would be no cure-all to Florida's housing woes.
While tax reform may bring better times for the Florida housing market, economists caution, price declines of the past year stem more from an oversupply of homes than from rising property taxes.
In Pinellas, Pasco and Hillsborough counties, the number of homes and condos listed for sale in May stood at 41, 600, quadruple the inventory of two years earlier. May sales disappointed, Realtors theorize, because buyers wondered how deeply the Legislature would cut taxes.
In what's pegged as the largest tax cut in Florida history, the Legislature proposes an immediate 3 percent to 9 percent rollback in local tax rates. In January comes a voter referendum, required for all constitutional changes, on whether to adopt the super homestead exemption.
The current $25, 000 flat exemption would disappear in favor of a 75 percent exemption on the first $200, 000 in home value. From there the plan becomes less generous: A 15 percent exemption attaches to the next $300, 000 of a home's value.
The changes would benefit primary residences, not second or vacation homes. And it comes with a provision allowing homeowners to choose: Those who have tiny tax bills thanks to the Save Our Homes cap on annual assessments, or think their tax bills would be lower in the long run, would be allowed to stay with the old system.
But if you bought a home in the past year or two, the tax cuts would be substantial.
On a median priced house in the Tampa Bay area - one costing $200, 000 - taxes would drop by 71 percent. If your county charges 20 mills, the tax bill on that $200, 000 home would drop from $3, 500 to $1, 000 a year.
That's $209 off your monthly house payment, enough, if plowed back into your purchase, to afford a $230, 000 home.
Considering that most home purchases require buyers to prepay their first year's taxes, the deal would save buyers substantial closing costs.
"The tax plans means much of the uncertainty in the real estate market is now gone. In my view, that's one of the best things about this: At least they're doing something, " said University of Central Florida economist Sean Snaith. "But I don't think it's an instant cure-all to the glut."
Many supporters of the tax overhaul predict the deal will stimulate the market by making it easier for people to change homes.
Now, many longtime residents cling to their houses because they'll lose their Save Our Homes cap if they move. For these homeowners, buying a smaller, less expensive house might actually lead to higher tax payments.
Denslow said the best evidence about mobility comes from California's Proposition 13.
California allows homeowners over 55 to move without getting whacked by higher taxes, something known as portability. The state found that annual housing turnover rate ticked up from about 10 percent to 12 percent.
"There's a little bit of evidence that the changes in Florida would encourage mobility, " Denslow said. "How people actually respond is the big question."
The governor and Legislature are asking many of the same questions. The tax plan's potential to stimulate mobility, the real estate market and home values is the subject of an upcoming study by two Florida State University economists, David MacPherson and Dean Gatzlaff.
MacPherson said the state has gagged the partners until the study is delivered July 31, but he tentatively concluded the tax cut would be a "wash" economically.
In Denslow's view, the best way to stimulate the economy and make Florida more attractive to high-paying companies is to cut business taxes.
This tax plan, like Save Our Homes before it, could do just the opposite. By sparing homeowners, the state will likely encourage localities to dip into one of the only wells left: business taxes.
"I'm actually disappointed in the plan for that reason, " Denslow said. "My view is that the net affect is harmful. This will increase the business share of taxes."
Many people pay property taxes as part of their mortgage payment. The proposed super homestead exemption would trim the monthly payment on a new, median priced home by about 15 percent. Here's a breakdown:*
Now: $1, 481 a month ($1, 064 principal and interest, $125 insurance and $292 property taxes)
With new exemption: $1, 272 a month ($1, 064 principal and interest, $125 insurance and $83 property taxes)
Monthly savings: $209.
* For a $200, 000 house with 20 percent down at 7 percent interest. Assumes property taxes of 20 mills and $1, 500 in annual insurance.
[Last modified June 27, 2007, 01:06:29]
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