Prolonged Housing Market Slump Taking its Toll in Florida, Other States

State tax revenues around the United States are growing more slowly this year and in some cases falling far below projections, a direct result of the housing market slowdown that has curbed voracious spending on real estate, building materials, furniture and other items.

Nowhere is the downturn more apparent than in Florida, where tax revenue is projected to drop this year for the first time since the 1970s.

But other states, especially those where home mortgage loan costs took a new meaning in recent years, are also seeing their collections slow, especially in the sales and real estate transfer tax categories.

While the economy remains generally strong and it is too early to predict whether the housing slump will have long-term effects, some states will have to adjust their wish lists.

“It’s the year of the housing hangover,” Sean M. Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida, said.

Despite continued low mortgage rates, home sales fell in February to the lowest rate in seven years, as many who tapped into home equity and spent extravagantly during the boom have started to cut back.

Those events not only threaten revenue streams for things like building materials and labor, but also spending on big-ticket items like cars and furniture, which many homeowners financed with a home equity line of credit.

Chris McCarty, survey research director at the Bureau of Economic and Business Research at the University of Florida, said it would be foolish to “underestimate the effect that the inability to extract home equity from real estate is going to have.”

In one hint of how much Floridians were relying on property wealth during the real estate boom, 16 percent of new car purchases here were being made with a home equity loan in 2006, compared with 7 percent in the whole U.S., according to CNW Marketing Research.

During the past few years, many families have relied on the cash from mortgage refinancing, made possible by rising house values, low home loan rates, a bevy of creative new loan products and more.

From 2001-2005, even as the economy was growing at a healthy clip over all, the pay of most workers failed to keep pace with inflation. Now the housing slowdown is making it more difficult to take equity out of a house, and an improved job market is finally causing wages to rise.

Still, McCarty said consumer confidence in Florida dropped markedly last month, especially willingness to buy expensive items.

Some budget watchers say that the Florida housing market boom was prolonged and intensified by the rebuilding frenzy after a series of hurricanes, and now could be a warning beacon for other states anticipating housing-related economic woes.

Last spring, nine of the 20 metropolitan areas that saw the sharpest home price appreciation were in the Sunshine State, according to OFHEO. Many areas of the state now have plummeting home values.

Despite increased fears of a bad credit mortgage loan backlash, the healthy reserves built up over the past few years by most states, as well as quite stable economic conditions outside the housing sector, should cushion the blow. At least for now.

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