Housing Slump Extends to the Tax Base

It didn't take long for the trickle down theory to work. The housing slump has finally hit cities where it hurts the most. Taxes.

The New York Times recently published an article highlighting the effects of the downturn in housing on municipalities tax collections. It seems less money is coming in the coffers as consumers slow their spending.

There had been many economists that stated and continue to state that because the sub-prime market is only a small percentage of the total mortgage market - that the economy wouldn't take much of a hit. It seems as if they miscalculated the far reaching effects of that small percentage.

What has happened in some markets is that the number of new home sales have dropped and the actual values have dropped as well. It's the old law of supply and demand. Too many houses and too little credit has dried up the buyers. Houses are sitting on the market.

Then there was the effect of all those home equity loans. It seems everyone was getting one of these loans. Consolidating their credit cards, putting in a pool or maybe just fixing up the house. Well it seems those purchases are drying up.

The house renovations that caused a big run on building materials is easing up. And when you add on a new room, of course you need new furniture. So, the sofa sales are down. If you've ever bought a couch, you know they are not cheap. Sales tax collection on all this spending is dropping.

States like Florida, Arizona and Nevada are all beginning to pull back on their state budgets as less tax money comes in. Admittedly, these states experienced uncontrolled building and there are many other states not going through this pain.

But for every action, there is reaction. It's hard to imagine this housing flu will be contained in just a few states.