A little birdie told me there is an impending problem in California. This isn't about the foreclosures the banks are holding on to, but rather the bellwether that something else is about to happen.
It turns out California County tax collectors have a couple of problems this year. First is that property values have fallen. The lawmakers still hungover from the party, some still drunk from all the years of double digit real estate value increases are now crying the blues and asking for tax hikes. Their mismanagement of money is our problem somehow. For years, flippers where the states best friends, bidding up homes and driving up tax revenues. The cities, counties and the state just sat back and spent like a college kid with a new credit card.
Now things are changing. And the state is blaming the banking and real estate industry. The politicians spent the money, not the bankers and real estate industry.
The obvious thing is that home values are falling, and every time a home sells, so falls with it the income to the state, city and county tax collector.
What isn't obvious is the number of delinquent property tax bills. This isn't easy information to dig up and compile without spending a lot of money. It turns out someone did in Orange County California (where I live) and the numbers aren't good.
As the number of homes in tax default increases, the number of foreclosures are not far behind. This is double jeopardy for the tax collectors and the honest tax payers. Somebody still has to pay for all of those schools, roads, firemen and police. It is tough to say out loud but a lot of people took pay cuts and lost jobs. The government sector is going to have to own up soon. Raising taxes won't fix anything. There aren't enough "rich" to solve the problem. It just sounds great on TV to "tax the rich".
Some areas of government can be cut temporarily but my source tells me this isn't an increase that represents a temporary problem, and the government has a very hard time cutting services at any level.
What does that mean for investors and agents? It means keep an eye out for deals. The banks have proven they are terrible at selling homes profitably, and the tax collectors don't have much experience either. The worst case scenario is some back door deals or government giveaway that drags the entire market down further.
Like all crisis there is opportunity if you know what to look for. This one is one that you can see coming which makes it an excellent opportunity for investors who can afford a buy and hold, buy and rent or are also contractors that can do very inexpensive work for a potential buy and flip. The buy and flip will be pretty thin for the next 12-24 months as this settles out. Banks won't keep letting people live in a home for free so deals will be out there. Banks just got fined with a huge payout to the states, which some states are going to skim from to make up for the tax loses, further complicating the ongoing mortgage problem
As funny as it sounds, banks and the county offices need the help of experienced real estate agents, investors and speculators now more than ever. That is really hard to admit for people who think the government should run everything. As they realize the need for help and the need to cut budgets, look for some smoking deals to get put together at every level.
In every crisis there is opportunity. This next 24 months is going to be a big one.
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