Beyond doubt, the rah-rah of a recovering real estate market is an iffy proposition at best. Zillow, inaccurate as it is, still shows declines in values in most markets, as does Case-Shiller. When one mentally filters out markets guaranteed to appreciate (such as MD, DC, Northern Virginia due to artificially high incomes due to proximity to Federal largess), the picture is as bleak since the 1930s.
That means a real problem for state and local government finances. Although in a 'normal' recessionary period, sales, income and other labor and capital sensitive sources of revenue dry up first, real estate is usually there until the end, still faithfully turning out tax dollars. No longer.
The bubble - a land value bubble to be precise - led to the usual exuberance for government as well as home-buyers convinced homes were a jackpot. Now, with credit still at a standstill, and a nation terrified, values are dropping further, and they will strain government to the utmost, as demonstrated by a Cleveland Fed study. It likely cannot be stopped with a lack of fundamental change
surely, the time has come to reinvent the property tax so as to tamp down irrational land bubbles, but also to provide on the ground relief to people and their governments. In the Great Depression, property tax failure led to the sales and local income taxes we have today. That is no longer an option. We need to have Property Tax 2.0 to get us through at least the next five to seven years in the wilderness.