Guest Post: Peak Housing, Peak Fraud, Peak Suburbia And Peak Property Taxes

Tyler Durden's picture

Submitted by Charles Hugh-Smith of Of Two Minds blog,


Peak Housing reflects not just a credit bubble but Peak Fraud and Peak Suburbia.

Once again pundits are claiming that housing is "finally recovering." But they're overlooking three peaks: Peak Housing, Peak Financial Fraud, and Peak Suburbia, all of which suggest years of stagnation and decline, not "recovery."

Here is the latest Case-Shiller index, which has traced out a nearly textbook bubble and a return to the mean that has been artificially restrained by trillions of dollars of Federal subsidies and backstopping of the housing market:

Here is a classic bubble and pop. Note that the "recovery" to bubble heights never arrived:
12 years later, the NASDAQ is around 3,000. If we adjust that by the 33% inflation since 2000 calculated by the BLS (Bureau of Labor Statistics), then the NAZ is around 40% of the 2000 peak.

Note that there were several "recoveries" that fizzled before the index finally round-tripped to pre-bubble prices. On the Case-Shiller, that suggests an eventual drop from 130 to 75, the pre-bubble level.

Like all other systems that have run their course, housing follows an S-curve.
After the vaporization of assets and cash in the Great Depression, America had largely reverted to a nation of renters. The postwar boom of plentiful jobs, cheap, government-guaranteed VA mortgages and virgin flat land near cities combined to fuel a suburban housing boom.

By the 1960s, the belief that housing was the bedrock of middle class wealth was firmly established. This was the explanation and motivation for buying a home: "housing never declines," and a rapid rate of household formation made it easy to sell a house to somebody else.

The high inflation of the 1970s and subsequent leap in housing prices embedded another key concept in the national psyche: housing wasn't just a forced savings plan that doubled as shelter, it was the speculative road to riches.

The mini-bubble of the late 1980s popped, sending housing into a six-year slump, but Peak Financialization and Peak Financial Fraud arose to goose housing to a new and spectacular credit-fueled bubble of frenzied speculation.

That systemic fraud was a key dynamic of the housing bubble is undeniable: everyone from those buying houses with no-document loans to money-center banks selling fraudulent mortgage-backed securities was relying on fraud. Peak Fraud isn't a necessary feature of financial bubbles, but it is often a causal factor among others.

If you have any doubt that the Crash of 1929 was accompanied by Peak Financial Fraud, I invite you to read John Kenneth Galbraith's The Great Crash 1929.

Alas, all bubbles pop, and now the world has changed. The overt fraud has been driven underground, but the repercussions of the institutionalized fraud of MERS and mortgage-backed securities hasn't been resolved; it remains in the market's blood stream, slowly poisoning what's left of the private mortgage market.

Peak Fraud will not be returning to the housing market, but its toxic consequences linger in the system. Does anyone seriously think the 4.4 million home equity lines of credit loans (HELOCs) on lenders' books are priced at their true market value? Accounting fraud in the form of overstated mortgage valuations is still rampant, and everyone knows it.

The rapid household formation of the 1950s and 60s period has given way to a generational decline. When housing, credit and oil were all cheap and plentiful, single people could buy condos and homes themselves, even with modest incomes. Credit may be cheap but housing and oil are not, and inflation has ravaged incomes, as noted here many times.

The demographics simply don't support rapid household formation; household formation is following an S-curve, too.

Then there's Peak Suburbia and Peak Commuting to Distant Exurban McMansions.
Here is a chart that correlates GDP (gross domestic product), the broad measure of economic growth and prosperity, with the price of oil and wages. Note that rising oil costs and stagnant wages take the wind out of the economy's sails.

Simply put, declining wages and high oil prices erode households' ability and willingness to buy a surburban home and pay for the gasoline needed to commute hundreds of miles every week.

Declining gasoline consumption is not an outlier, it is also a generational shift.
Mish recently addressed this dynamic: Demographics and Changing Social Trends Behind Gasoline Sales Plunge, and I covered the long-term trends in Why Is Gasoline Consumption Tanking? (February 10, 2012)

Once the belief that housing is the bedrock of middle class wealth fades, so too will the motivation to risk homeownership in an economy that puts a premium on mobility and frequent changes of careers and jobs. We can discern a sea-change in this chart of housing activity: despite trillions of dollars in subsidies, guaranteed mortgages and other types of Federal support, the housing market has not recovered, it has only stopped plummeting:

Only one aspect of housing hasn't yet peaked: property taxes. If the risks of homeownership weren't apparent before, they certainly are now as local governments jack up property taxes to indenture homeowners into tax donkeys.

Note that property taxes declined significantly in the previous recession (2000-2002), but they rose steeply in the 2008-9 recession, and continued climbing. The recent modest slippage may have several factors: lower valuations in states that set property taxes on assessed values, tax revenues declining as homes in foreclosure languish with unpaid property taxes, and so on.

Anyone claiming that property taxes have peaked will have to support that claim with evidence that local governments have found other sources of tax revenues to replace property taxes. Until that dynamic changes, then local government will have every incentive to jack up property taxes by any and all means available.

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Almost Solvent's picture

Copper and other such items removed from unoccupied homes may be worth more than the house itself. 


Sometimes the parts are worth more than the sum.

I think I need to buy a gun's picture

france shutting down its borders this weekend....beginning of the blackout bitchez


FEDbuster's picture

There is a couple year lag time in property taxes, but you are right, real estate owners are sitting ducks for the tax man.

I don't care about pollution
I'm an air-conditioned gypsy
That's my solution
Watch the police and the tax man miss
I'm mobile
Oooooh, yeah, hee!

Mobile, mobile, mobile yeah Goin' Mobile, The Who

Michael's picture

Not at 3% rise max homestead state constitutional amendment in Florida.

I heard there's been 800,000 foreclosures this year so far. That's a 200,000/month run rate.

Did you know China has 64 million empty vacant housing properties and their housing bubble is now bursting? Oh the humanity.

i-dog's picture

Central planning ... #winning!!

....And they think of themselves as "the smartest people in the room" ... ROFLMAO!!!!!!!!!!!!!!

Those fuckin' morons need to be euthanised...before they do more damage!

krispkritter's picture

Vacant land, not homesteaded, ran 15-20% increases year after year in FL. At the peak in 2010 I was paying 3x more for 8 acres than the Corporate owned 'farmland' comprising nearly 600 acres that adjoins it which was greenbelted. I can't greenbelt...the tax game is rigged. 

grey7beard's picture

>> Vacant land, not homesteaded,

Nor are rentals.  Anyone in the rent game isn't protected from tax increases.  The games is rigged to benefit the well off.  50% may not pay income tax, but they get it shoved up their hole at a higher rate by everybody from the local tax man to the bank fee nazis. 

For me, it made more sense to retire early and bail out to the country.  Business was strugglilng and the tax man, insurance man and the boogy man ( consistent property theft) made staying in the city a bad option.  I droped $500 a month in property taxes and $1,250 per month in insurance costs down to $20 per month property taxes and $160 a month in insurance.  I couldn't afford not to retire early. 

It's certainly not everyone's cup of tea, but living out in the stix suits me very well.  God help me if I every have to go back to the city to work for fiat.


GoldenTool's picture

 Property taxes are the linch pin to the system.  As long as there is a property tax you can't opt out, that is why in most places they are tied to education.  It would be "horrible" if you complain about it, or god forbid even talk about abolishing them.  Think of the children.

 Remove property taxes on all property under 100 acres and ban corporations from owning property.  Tax the piss out of the rest.  Gee people and corporations would actually have to pay for what they have rather then this rigged system.

MachoMan's picture

I actually do believe we're going to see a peak in property taxes in the not too distant future.  Like rents, property taxes will fall along with the price of housing.

The author asks us to come up with an inductive reason property taxes have peaked...  Instead, I'll offer a deductive one.  Property taxes are a local phenomenon.  The local populace dictates whether taxes are increased.  As americans become more politically oriented (note, apathy is quickly becoming a luxury), the place this will be most felt is local government...  the place where an individual can have the most impact.  Needless to say, if individuals favored more tax, they would simply donate money to the treasury (fat chance).

I also think the data is being interpreted incorrectly.  The rise in property taxes is presently a temporary measure due to denial by local officials and the population at large.  The debt burdens of municipalities (queue merideth) are simply incredibly substantial and cannot be overcome.  These debt burdens necessarily outpace the ability to offset them with tax revenues (increases in property taxes).  What is going to happen is that local governments are going to have to hack and slash the budgets, which means there will be less need for increased taxes (they WILL overshoot).  In other words, we have a spending problem, but have yet to realize it or make account of it.  In short, the temporary rise in real estate taxes is the product of a knee-jerk reaction to forced deleveraging on local governments ("we'll plug this shortfall with a little extra tax, mkay billy bob").  When it becomes apparent that the tax mules cannot be flogged into producing any more, the municipalities will have no choice but to cut their ranks.  The pressure from thenceforth will be to lower taxes...  (if I'm getting less governmental services, why do you need to increase my taxes?).

I think you could make the argument on a federal level that it is outside the sphere of influence for individuals (at least J6P) to materially alter elections or policy determinations.  However, at the local level, not so much (although, there are still obvious hurdles).      

hedgeless_horseman's picture



"Each luxury apartment unit is seamlessly integrated on 25 acres of lush forestland [that we have turned into a concrete parking lagoon]."

It is unbelievable the number of huge apartment complexes like this being built 50 miles from the city's center, with no rail, considering charts like this one...

Alaska Crude Oil Production

I guess Texas is different than Alaska?

Woodyg's picture

outside the portland area theres a house languishing on the market now for over a year -

listed at 375,000

property taxes 5700 per year

the old adage of you never own a house only rent it from the state (or county) applies here......


KowPie's picture

"3%...." which case your local county simply states the increases are "non-ad valorem assessments"; not "ad valorem taxes". Just fees tacked on for service. Wow. A tax that's not a tax. Brought to you by your local government. Wonderful stuff. And yes, my home county does this. Increase of $237 this year on a tax bill of $2400 on my "homesteaded" house. You know, the one with the 3% cap on increases. The one that was just increased 9.8% in one year. Wait... that can't be... that's over 3%. Ohhhhh. That's right. It's an assessment. Not a tax. The law clearly states they cannot increase taxes. What it doesn't state is they cannot add in non tax fees for service improvement. Whew! Had me worried there for a minute. Wonder if they will accept monopoly money? It's the same as US currency but it's not. Same principle, right? Here is a breakdown of Amendment 10:

"Under Amendment 10, increases in the annual assessment of homestead residential property shall not exceed the lower of either (1) three percent (3%) of the assessment of the prior year or (2) the percent increase in the Consumer Price Index for all urban consumers in the U.S. Amendment 10 does NOT apply to new construction or improvements to existing properties in the year following the year the changes were completed. However, in subsequent years, the cap provided by Amendment 10 will be in effect for both the property and the changes. In addition, when a property sells the process begins again."

Your wonderful local assessor can increase non ad-valorem fees for new services each time a new service is put into effect pertaining to your property. It will only impact the property for the year it was in effect. Funny. New "service fees" have been assessed for the last 4 years in this location but I cannot, for the life of me, see any improvements or changes. Oh well. Must be right, it's the government telling me so. (Yeah, that was sarcasm in between the tears).

AustriAnnie's picture

"The law clearly states they cannot increase taxes."

Since when do those in political office adhere to the laws?  You are right.  They will get our money any creative way they can.

All they have to do is re-write them, change the rules of the game.

There is no such thing as protection under rule of law, not these days.  And it will only get worse.

On a local level, the people are a little closer to the lawmakers, so maybe will have a little more power.  

But I wouldn't count on some "Amendment 10" to save me.  All they have to do is come up with "Amendment 11".

PersonalResponsibility's picture

Anything you take from the house is worth more than the house since you never actually own the house.  A house paid in full will always cost you in taxes; negative sum game.  Alternative?

Talleyrand's picture

1. Rural land. Maintain an ag. exemption. Put up a 1,000 sq. ft. steel "barn".

2. Live in your car.

3. Let's Abolish Government

grey7beard's picture

>> Put up a 1,000 sq. ft. steel "barn".

>> 2. Live in your car.

No real need to go to that extreme.  Rural land with a trailer, well and septic can be bought dirt cheap.  Granted, a lot of the trailers are cheaply built and trashed, but if you're patient and shop around, decent properties are there.  I bought a gutted shell 1968 trailer with 10 acres for $40K.  The actual structure of the trailer was very good.  I put in a new kitchen, bathrooms, did some insulation work, put in a new and powerful well, a few other odds and ends, and I've got a very nice cabin in the stix.  I've got about $55K tied up in the place, but my taxes are based on the initial $40K purchase price.  It is critical to keep the initial purchase price cheap as your taxes will forever more be based on that.  What you put in after, as long as you don't use contractors, is not added to the value.  Even if you have to live in the city to work, and if you rent, you can buy a country place and use it as your primary residence for tax purposes.  It's a good feeling to have a crash stead out in the stix.  I initially bought this place as a storage shed while I traveled because at $240 per year carrying cost it's cheaper than a small rental storage.  Once I got back from my travels I quickly realized just how much I like living here so I'm staying.

serog's picture

"A house paid in full will always cost you in taxes"


Compared to all the free apartments available?  Believe it or not it does cost money to call something home, regardless of onership rights.

AustriAnnie's picture

And then there's that other renter's dilemma: Where in this high-rise concrete apartment complex do I bury my gold?


Decolat's picture

The view is so lovely from the top, don't you think? 

BlueCollaredOne's picture

I've seen the "Lifestyle of Housing Market" graph numerous times on this site, with a few different titles. Each time I become a little more numb to it. Bring on the drop, no more foreplay is needed.

I'm ready to see some buildings on fire. Im ready for people to come together and finally realise how the media tries to divide and conquer.  Im ready to attend some court hearings against bankers.



Dr Benway's picture

If we really wanted to pop the ponzi it would be childishly simple: have no debt, own no shares.


If everyone refused to play the ponzi it would immediately cease to exist.

BlueCollaredOne's picture

Im doing my part.  Whatever extra money I have laying around goes towards silver.  The only debt I have is credit card debt that gets payed off monthly, I just use it for the rewards and its safer to use online than a debit card. 

Also, I know the first rule of fight club is not to talk about fight club, but anyone that knows me has had me pitch this site to them at least once.  I feel sorry for my old roomate, he probably had the movie Inside Job memorized with how often I had it playing. 

bankrun's picture

"The only debt I have is credit card debt that gets payed off monthly..."

Are you a US Citizen (i.e., hostage)? ... then you have debt sir... you have debt.

OldPhart's picture

This is what he meant.

 At the moment you owe, if you're an actual taxpayer,  $1,045,535.

At a MINIMUM, you owe $50,042.

Write a check payable to The United Nations.

BlueCollaredOne's picture

I think you are wrong on two accounts

1. It is my understanding that when the FED creates money, debt is also created.  That debt is placed on the back on the taxpayers and we are used as collateral in a sense.  That debt will never be able to be payed because you would be paying with the same dollars that were created from debt.  If there was no debt, there would be no dollars. Such is the problem of Fiat.

2. "Write a check payable to The United Nations."

Since you brought up taxes, and said "write a check to the United Nations" Im assuming that you believe our tax money goes to the UN, when in fact it goes to the Federal Reserve.  In 1913 a bunch of crooks met at Jekyll Island and created what we now know as the FED.  They were also nice enough to come up with the idea of an income tax

 *EDIT* Instead of junking me I'd appreciate if you corrected me where I am wrong.  I'm new to all this shit and would appreciate it.  Junking is for bitches, not bitchez


bankrun's picture

But you cannot deny that, if you pay taxes, you are paying interest expenses on local, county, state, and/or federal debt. A decent amount of this debt is not part of the fiat debt-based money system.

toady's picture

I'm there. The rest of you slackers need to pick up the pace!

Lednbrass's picture

True enough, I think a case could be made that the most effective revolution could be orchestrated simply by getting enough people to do absolutely nothing, or at least as little as they must to survive. There is no defense against it.

Paul Atreides's picture

Best defence is a good offence. Doing nothing will do nothing. Their currnet ponzi may fail but they will be there, always, ready to usurp power again and again until we unite and remove them from power permanently.

The Hawk's picture

I take it you haven't read Atlas Shrugged... Get the producers to stop producing for everyone else and only produce for themselves... When the big brother stops being fed it will starve and collapse itself. People need to realize what is going on themselves... Hard to persuade them... It is only a matter of time... And time I've got...

i-dog's picture


"but they will be there, always, ready to usurp power again"

Dude ... there's a queue a mile long (OK, a thousand miles long) of other parasites, psychopaths and sycophants just waiting to take their place!!

  • Take out Dimon and the Bernank and there'll be a thousand keynesian economist PhDs scrabbling for their positions.
  • Take out the donkeys and there'll be a thousand elephants just dying to take their place.
  • Take out the SCOTUS and there'll be a thousand lawyers shouting "pick me!...pick me!"

The only way to achieve a reset is to starve the fuckers of taxes, votes and compliance.

krispkritter's picture

You've got an awful lot of sheep to convince on the abstaining option. Then there's the 40+ million on foodstamps, the millions on SSD, etc. who owe their existence to the system remaining just like it is. This house of cards is going to have to collapse under it's own weight(of debt). I don't even bother talking to friends or family about it anymore. If you can't open your eyes on your own, when cold, hard reality hits you, you better be a quick learner.

narnia's picture

Peak public education, peak prevailing wage, peak monument building, peak prison building, peak non-police law enforcement, peak bureaucracy

GMadScientist's picture

Please do not call it "homeownership"; when you pledge debt for an asset, it has no more relationship to real ownership than sharecroppers exercised over the fields they tilled.


FEDbuster's picture

As long as there are property taxes, we are all just renters.

krispkritter's picture

And for that I want someone from the county to come fix my f'in toilet!

FEDbuster's picture

Renters without benefits?


Ron Paul supports North Dakota's effort to eliminate property taxes, the vote is June 2012.

FXPortent's picture

I wonder what will be done with all the excess homes and building projects.


People are struggling to sell their houses where I live. I know families who've had their houses on the market for over a year and can't even find a buyer.


Rewind 6 years and they would have been SOLD in a matter of no time.


Even though many saw this coming, it's sad to see all this economic decay.



nscholten's picture

Real Estate in Seattle is on fire.

chubbar's picture

I'd offer that they can sell their home tomorrow. They just need to be realistic with the price they will get for it. Folks down the road from me bought a house 3 years ago for 150K and have had it on the market for 188K for well over a year. It would probably sell if they asked 110K for it. They can't get their heads around the idea that they lost money on this transaction so they sit and wait for an offer that is never coming.

Dingleberry's picture

Confucious say "there is no problem that price cannot fix...bitchez".

dick cheneys ghost's picture

State and Local Gov Taxes will rise indefinetly to cover unfunded liabilites..............

New World Chaos's picture

This article is spot-on, and a good excuse to spam my housing manifesto yet again.  Don't buy a suburban house for anything other than fix-and-flip.  Self-sufficient, defensible homesteads in the rural West can work, but consider the following:

Housing won't recover until rule of law is restored.  MERS, fraudclosure, and clouded title will be with us until the whole system burns.  All these things are part of an Illuminati plot to ensure that all of America's honestly earned wealth is consumed by various bottom-feeders.  This is designed to tip the national psyche further towards parasitism and sociopathy, which are more manageable.  Any non-rural house will also be a big fat target for legions of starving bureaucrats and zombies.  This is part of the plan too.

Advantages to renting:

  • No worries about fraudclosure, clouded title, etc.
  • When starving bureaucrats jack up all the taxes and municipal fees until they are more than the mortgage, you can move (or live in a car).
  • You won't be a sitting target for zombies or roving gangs of unpaid cops looking for forfeiture plunder.
  • No house for Feds, lawyers, banksters, or greedy exes to steal.
  • You can arrange to have your mail delivered elsewhere, increasing your chances of escaping the first big FEMA roundup (make sure your cellphone never leaves a trail to the place that you sleep.  Keep the battery out too).
  • You can be gone in 60 seconds and never look back.
  • No worries about desperate tenants strip-mining the place for copper and suing you when they electrocute themselves.  The system rewards such bottom feeders.
  • No worries about the Terrorist Blogger Asset Rehypothecation Act of 2013.
  • No worries about the Terrorist Gardener Re-Education through Labor Act of 2014.
  • No worries about a housing flash crash when the bond market implodes.
  • No worries about ending up with a nice place on the wrong side of the DMZ.  Location, location, location.

Possible advantages to owning:

  • You might be able to get a house with a 30-year fixed mortgage and very little money down, you might be able to pay back the mortgage after the dollar becomes worthless but before they switch all the contracts to a new (supposedly gold-backed) currency, the pig-men might decide to let you keep your house, rule of law might eventually be re-established, and the title might be clear when you sell.
  • David Wilcock's alien buddies might enforce a global debt jubilee.

Now, if you still want to catch the falling knife, consider this:

The bond crash, riots, and subsequent crackdown will destroy the mortgage market and also awaken a large number of people to just how screwed the system is.  Housing will crash again.  Then it will behave like the Zimbabwe stock market.

In a functional society, I am guessing housing is undervalued at 10x rent or 3x mean income.  You may pick it up for less during a collapse.  Interesting anecdote: A Zimbabwean says it was at 17x rent during their collapse.  This was due to a very strong system of protecting title (except for white farmers), houses becoming the main vehicle for savings, real rents collapsing due to people moving in with family, and the government forbidding local councils from raising their fees (they shut down).  I suspect it won't work out so well for America. 

Make sure not to buy in an area that will wither due to peak oil, lack of local water, poisoned frackwater, gangs, or a despotic local warlord/city council.  Sheriff Joe Arpaio will have his very own gulag utopia.

Michael's picture

Everything you said is spot on, but I do have a special man love for Sheriff Joe.