NEW YORK, June 8 (Reuters) - Southern California’s housing market appears to be bottoming out after one of the nation’s worst drops and its pattern may be repeated across the country, Standard & Poor’s Ratings said in a report released on Tuesday.
But as property-tax revenue begins reviving, cities and states will face the longer-term problems of paying for their workers’ pensions and healthcare, upgrading roads and bridges, and dealing with new green legislation.
“In our view, in the longer term, the challenges that cities and states face are more about liabilities than lower real estate values,” S&P said.
The recent improvement seen in some of Southern California’s housing market partly stems from the slim recovery in the prices of homes that were bought in the bubble years — from 2003 to 2008 — whose owners were among those likeliest to default.
These gains must be sustained for the overall market to recover, S&P said.
“We believe things may finally be looking up in that, even in the worst housing markets, the slide in home values appears to have bottomed out, with some markets experiencing their first bit of good news as recently as March 2010,” it said.
For example, median home prices rose 15.8 percent in San Diego County in the second quarter of 2010. That gain contrasts with last year, when property-tax assessments were cut for 216,636 homeowners and business owners, S&P said.
While lower property-tax revenues can open budget gaps for counties, cities, and schools, these governments have benefited by using more conservative policies than the private sector.
“Governments aren’t out to maximize shareholder value, in our view, state and local governments exist primarily to provide essential services such as education, trash collection, clean water and transportation infrastructure, and therefore, we believe that they tend to handle their finances more conservatively and take fewer risks,” the report said.
Even San Bernardino County has a “healthy” budget reserve though 93,000 homeowners lost their homes after the bubble burst and houses sell for a third of their 2006 prices, S&P said. Any rebound for this inland county, whose expansion was depended on luring people from the more costly coastal counties, “is still well into the future,” S&P cautioned.
In Los Angeles County, property taxes are unlikely to recover anytime soon, but its politicians have a long history of managing a $23 billion budget and dealing with problems, from state mandates to a $42 billion pension liability, the credit agency said. (Reporting by Joan Gralla; Editing by Jan Paschal)