See sfgate:
Like binge drinkers or fast-food fanatics, American urban leaders have had a tendency to run wild when things appear to be going well. But soon they will find that the good times are coming to end.
The prime culprit this time will be deflation of the residential real estate bubble, which has brought about a surge of tax collections and development.
The formula is a recipe for:
By the late 1980s, this boom collapsed along with the stock market. Suddenly stricken, cities paid for their failure to reform their bureaucratic, tax and regulatory regimes by being forced to cut basic services, including police. Critical infrastructure -- roads, transit, power systems -- decayed while crime reached new highs.
Same old stuff.
Oregon is insulated from housing busts
SB100 insulates Oregon's urban areas from serious property value busts. Of course Arizona, California, and Florida won't be but we'll see how that effects our economy here in Oregon (I doubt the sales of Hondas and Hyuandais are going to slow down and either will Nike).
The sudden explosion of condomania might see a flattening out (instead of a million for a two bedroom condo it will drop to a reasonable $750K).
We'll see though. My guess is that Oregon's real tax reform issues deal more with a inept Executive branch (failure to lead) and an unorganized legislative branch (unwilling to work as a team).
What About The Savings And Loan Crisis?
When the federal folks jump in to declare that a financial institution is unsound and therefore may be taken over and an overnight transfer to another bank can take place (with assets of the old one guaranteed by Uncle Sam, as in home loans) does the nature of Oregon's land use planning design and Urban Growth Boundary play even an infinitesimal role in the whole inquiry?
I did not find even a hint of that line of inquiry in the innumerable set of cases I scoured back in the early 1990's.
Just because a financial institution has an "asset" (as in a mortgage-backed "personal" note) that has a high dollar value scribbled into the paper work does not make it so? Still, if one banker can increase their market share or achieve greater concentration and centralization of the banking industry (ala, Bank of America, sponsor of the likes of BCCI) by reason of Uncle Sam guaranteeing the nominal full face value of the "assets" (personal debt that folks cannot really ever pay off if the feds stopped re-infusing cash to "stimulate" the economy via more and even greater amounts of the same sort of personal "DEBT") of another smaller bank why should they look at that gift horse with anything other than joy and celebration?
Think of it as an odd sort of merger where two big - publicly traded -- companies merge and swap stock; stock who's price has been fully divorced from any notions of fundamental valuation.
The primary "intrinsic" or "inherent" thing that should apply to home price valuations is that relationship between wage income of the owners (or rather borrowers, or glorified homeowners, of today) and the price of the home. There is, or could be, an equilibrium, where the very first step in the analysis is to isolate out the variability of interest rates. Wage levels have actually fallen in the last 6 or 15 years. That is to say that notwithstanding the price level increases the "values" remain unchanged or even LOWER.
Bonus inquiry: Is it any surprise that after the S&L Bailout that local and state government, through the issuance sovereign-taxing-authority-backed back bonds have significantly replaced the role previously played by Savings and Loans? Hint: the investors in the Savings and Loans are the same class of folks that invested their political capital in the likes of Silverado [click here too] or Charles Keating's grand investing experiments for the injected-brokered-deposits.
The primary value of the UGB discussion, other than as a political distraction, is that of equitable considerations among folks within the state given, or isolating out for analytical purposes, the nature of the entire real estate manipulation market (or real estate manipulation racket).
The housing bubble is bursting, slowly
The information I'm getting, and the reports from real estate people I deal with, is that the housing bubble has already started to burst in Portland. The puncture is following the same route that it did last time, in 1981-82; the expensive new construction starts to sit on the market, then the expensive resale homes start to sit, and the slowdown works its way down into the middle price ranges. As I see it, right now the expensive new construction, with the notable exception of downtown condominiums, has been slowing down for a few months. The expensive resale houses are starting to slow down. Any nudge upward in interest rates will accelerate this.
Compare to the Pace of Price Adjustments for Bonds
That is precisely the time period when I first got my real estate license. The office was near 190th and stark (in the house on the corner that now has a pool) and I was "farming" an area near 162nd and main. I stopped aiding in any transactions starting late 2002. There is a sort of ethical challenge in putting any young family into a home that is/was already overpriced at that time.
Pretend that it was not a home price that was adjusting to interest rates but rather an existing bond. One has a near instantaneous adjustment in the other has a lag time. The features that cause the lag ought not be confused with the notion that an equilibrium price, in theory, would be just as responsive as in the bond market.
When the bar made note of scammers in the real estate market and the need to confine the scope of ministerial legal acts by real estate related folks (in an article authored by the General Counsel) in the bar's publication I responded with one of my ranting letters that said he needs to instead instruct lawyers to confine the abuses in the mortgage origination business. I don't know if he gave my thought even a glance.
The kind of heartache, extreme and life altering for some in individual instances, could have been significantly reduced, perhaps only if lawyers would demand that the lenders assume some of the risk that a home price is too high at the time of sale. But with the nature of the near-adhesion style federally related documents and processes such injection of continuing lender exposure (written into a contract) to future price declines is virtually impossible, or a deal breaker. So we all seem to ignore it; particularly the professionals that ought to know better. The level of understanding by many participants, not just the home buyers and sellers, is too low to expect it all to have been preventable or even to subsequently assign blame to appropriate parties. It is just sad.
The best I can come up with is the notion of passing an anti-deficiency judgment law for residential homes so that the lenders have some risk when there is a decline . . . and to address the extraordinary harm that some folks will certainly endure.