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The Daily Journal

 

December 3, 2007

 

By Dana Yates

 

 

Stalling home sales could hit city budgets

 

 

San Mateo County may be one of the luckiest housing markets to weather the nationwide mortgage crisis, but local finance directors are not counting their blessings just yet — stalling home sales could force cities to readjust their budgets next year.


Rising foreclosures will lead to billions of dollars in lost economic activities throughout the nation next year. In California, property taxes could decline up to $2.96 billion, transfer taxes could drop by $39 million and the state could lose $994 million in sales taxes due to weakening consumer spending, according to a report released Tuesday at the U.S. Conference of Mayors.


How much of that will be felt in San Mateo County is unknown.


“Indirectly, we are not getting hurt ... yet. We are hoping for a soft landing,” said Hossein Golestan, finance director for the city of San Mateo.


Property taxes are based on assessed values determined annually by the San Mateo County Assessor’s Office. The property tax is dependent on the transaction value at the time of purchase. Additionally, the state collects a transfer tax each time property is sold. That tax is passed on to the city in which the property was sold.


The more houses that sell, the more taxes cities collect.


In San Mateo, the combination of property and transfer tax makes up 45 percent of the city’s $80 million general fund, Hossein said.


“We’ve seen some slowdown. We are watching [transfer tax] on a monthly basis. If we find it goes down consecutively for a few months then we’ll be concerned,” Golestan said.


Redwood City budgets $800,000 for transfer taxes. Property tax contributes $31.2 million to the city’s $77 million general fund budget, making it the single largest source of revenue to its general fund, said Redwood City Finance Director Brian Ponty.


“We’re not seeing the robust increases we’ve seen in the past,” Ponty said.


The last few years have delivered approximately 8 percent annual increases in property taxes to Redwood City. Ponty said he is hoping for between 4 percent and 5 percent next year. It is still a far cry from the slim 1 and 2 increases cities became accustomed to during the recession of the early 1990s, Ponty said.


San Mateo County’s housing market is faring better than other counties, but isn’t without trouble. Foreclosures are up 28 percent and the volume of homes on the market is down 30 to 35 percent, said Jeff Craighead, president of the San Mateo County Association of Realtors.


“There is still plenty of money out there, you just have to qualify for it,” Craighead said.


Stricter financing is making it harder for people to qualify for new loans. Gone are the days when people qualified for 100 percent financing with low teaser rates. Those who qualified for loans with low two-year teaser rates are now facing rate adjustments that make a $2,800 monthly mortgage payment jump to $4,300, Craighead said.


Homeowners who received loans on false information that they earned more than they actually do — or would by the time the teaser rate expires — are the one’s most likely to face foreclosure. Middle class neighborhoods in places like Modesto or Sacramento are facing higher foreclosure rates, Ponty said.


Meanwhile, homes are becoming harder to sell.


Homes prices in San Mateo County have dropped slightly to an average of $975,000 to a little more than $900,000 and they stay on the market for approximately 30 to 40 days before escrow, said Sue Walsh, president elect for the San Mateo County Association of Realtors.


The housing market usually picks up in the new year because people are less likely to sell their home during the holiday season. The recent drop in the number of houses on the market may be caused by the mortgage situation or the holidays, Walsh said.


Additionally, the county Assessor’s Office usually releases preliminary assessed property values at the end of January. Any downward adjustment in assessed property values could signal to finance directors that it is time to tighten the city’s budget.


“It’s wait-and-see,” Ponty said.


Dana Yates can be reached by e-mail: dana@smdailyjournal.com or by phone: (650) 344-5200 ext. 106.


What’s happening: San Mateo County home sales are stagnant in the shadow of the nationwide mortgage crisis, forcing city finance director to take a wait-and-see approach to property and transfer taxes.


Why it matters: The majority of city general funds is made up of property and transfer tax revenue. If homes sales drop, cities have to readjust their budgets.