Lower Home Values Aren’t Halting Higher Property Tax Bills
- Oct 08, 2007
Sinking home sales, lower home prices — we’re all feeling the effects of the housing decline. And many of us are paying for it, thanks to higher loan resets.
But reports indicate that the decline will soon hit homeowners in a new, costly way: Via property taxes.
It seems wrong that property taxes could possibly be rising, when home values and selling prices are dropping across the nation. (Housing prices in the top 20 U.S. cities fell 3.9 percent in July from 2006, according to a recently-released Case-Shiller index.)
However, because many counties assess properties every other year (some take even longer), many properties are being taxed on their value from last year — during the housing boom high.
The result: A one-two punch of rising mortgage costs and a huge tax bill. Consider the following:
- In Montgomery, Ala., the housing downturn isn’t reflected in this year’s tax notices because property values were calculated for tax purposes as of Oct. 1, 2006, Montgomery revenue officials say. As a result, some areas saw a tax increase of 20 percent, according to the Tuscaloosa News.
Given that area home sale prices showed a median value of $136,900, the tax base for average residences was between $13,695 and $19,556.
- In Massachusetts — which has seen property taxes rise a massive 50 percent since 2000 — more than three-quarters of the cities and towns raised property taxes in 2007 to just under the limit allowed by law, according to the Department of Revenue.
The average tax bill for a single-family home rose 4.2 percent from last year, the Boston Globe reports. The 2007 Massachusetts tax levels are based on a January 2006 assessment — which is particularly dangerous because the levels really reflect 2005 residential values, when the housing industry was markedly better.
As a result, taxes this year climbed 7 percent or more in 65 communities. (And I am suddenly more clear on why my grandfather used to lovingly call his home state "Taxachusetts.")
With these huge tax bills, homeowners may find themselves in a tough financial situation — prompting them to try to sell. That’s no easy feat and a move that would add more surplus to the housing supply.
The higher taxes could also force some homeowners into default, eventually adding to the country’s already ridiculously high foreclosure rate.
The property tax lag is also proving to be a major headache for local governments. Like Massachusetts, Arizona’s Pima County is concerned about what affect the taxes will have on state funding. Arizona’s housing valuations are a year to 18 months behind what homeowners see on tax bills, according to the Tucson Citizen. The bills mailed last month reflect spring 2006 property valuations.
The county is now realizing that, although for the past few years it came to expect large amounts of revenue from its residential industry, in the next two to three years, the continued decline will significantly reduce what is added to county resources.
As a result, the County Board of Supervisors is considering raising the county’s combined property tax rate; cutting program and service spending or increasing sales tax to offset the decline. (Which would, of course, add to cash-strapped homeowner’s financial woes.)
That’s a situation more communities are likely to face as the housing decline continues.
Is it too progressive to ask communities to reconsider their property tax system and change it to more closely reflect real values and assist homeowners suffering from the current housing crisis?
What if local banks, which were mentioned as a possible homeowner re-fi funding source in a blog last week, launched aggressive programs to reach out to at-risk homeowners in community areas that have received the biggest property tax hikes?
There are a number of suggestions we can make; but in the end, it’s up to the communities to address the issue before they find themselves short on finances. We’re all unhappy that our home values are low and our taxes are high — but nobody wants to see the situation cause funding shortages and teacher lay-offs.