High mortgage interest rates will continue. This is why it’s bad news for county governments and their taxpayers.

In recent years, many local and state governments have built record Budget Stabilization Funds (also known as rainy day financings) to help with additional services, unexpected costs, emergencies, overruns, and future pandemics. , and infrastructure can be paid for.

Those rainy days were flooded with cash, thanks to pandemic-related surplus funds, record home purchases, and extremely low interest rates. The average funding amount across all 50 states in 2021 was approximately $34 million. Wyoming led with her $300 million, while Washington trailed off with her $2 million deficit. According to Pew Research.

Surplus funds have led to both higher government service spending and lower taxes, but there’s a real problem ahead. One of the sources of revenue that has boosted local and state government revenues is facing imminent drought. Fees and additional tax losses arising from refinancing and home buying opportunities. The record high levels of home purchases and refinancing over the past five years have created a fantastic financial egg for most governments. No more.

Recent data show that both home sales and refinancing are down significantly as high interest rates hit the country. Home sales are down 5.4% from May 2022 and almost 15% in 2021. National Association of Realtors (NAR)According to some estimates, house prices 20% possible drop If the U.S. economy hits a recession, it will be sold in more than 180 markets nationwide. Experts at research firm Moody’s Analytics said 183 homes in the country’s largest rural housing market of 413 “Overrated” 183 housing markets could see home prices fall as much as 20%. This expected recession will hit many government revenues.

Declining revenue is not an isolated problem. These unfortunate consequences are directly related to high inflation. The Federal Reserve has been raising interest rates in hopes of slowing the pace of inflation. However, we do not expect these rates to fall any time soon, as inflation has proven stronger than earlier forecasts and key areas of the economy, such as the labor market, are unlikely to cool down any time soon. Hmm. enough.

A CNBC survey of economists and investment managers found the Federal Reserve is likely to keep rates on hold through 2023, possibly with additional rate hikes. This outlook implies at least two more rate hikes in November and December, totaling at least 75 basis points. more,

These fees have a direct impact on future homebuyer decisions. It also affects Americans looking to refinance their homes because the available interest rates are highly unfavorable.

Mortgage rates for high-credit borrowers are currently hovering above 7%. This is the highest value since 2008. These extraordinarily high interest rates have essentially wiped out the mortgage refinancing business boom that blossomed between 2015 and 2020. High interest rates also discourage many first-time homebuyers from making the transition from renting to eventually buying their own home. According to online services, the American has not seen mortgage rates this high in over 50 years (he hasn’t since 1971, to be exact). Mortgage report. There is no indication that these rates will drop any time soon. In fact, they are expected to rise.

Today, the average record fee and transfer tax for a homebuyer or refinancer is almost $100 to $200 per transaction. In 2010, he had more than 3.1 million Refinance. Locally, the county government recognized this increase. For example, Maricopa County, Arizona’s largest country, had 78,101 refinancings, yielding nearly $15 million in revenue.

Not surprisingly, these rate hikes add to an already volatile bond market. Bonds are being pounded around the world.In the U.S., bond investors are experiencing heavy paper losses that are closely linked to deficits inflation and government-engineered interest rate hikes federal reserve to curb rising prices. Because bond prices and interest rates (aka yields) move in opposite directions, a sharp rise in interest rates automatically leads to a large depreciation of the currency. bond price.

With record low homebuyers due to high interest rates, inflation and a sporadic bond market, local governments are looking elsewhere to make up for this income loss and keep even smaller sums of money. is needed. Sadly, this could result in higher taxes or a substantial loss of support to the residents they serve.

T. Michael Andrews is senior vice president of McGuireWoods Consulting in Washington, DC, working on housing and Native American issues.

Opinions expressed in commentary articles on Fortune.com are solely those of the authors and do not necessarily reflect the opinions or beliefs of the authors. luck.

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