News and Events

May 11, 2007

Property Taxes Up as House Prices Fall

Property taxes up
as house prices fall

By Dennis Cauchon, USA Today

Property taxes will keep rising nearly everywhere for homeowners even as house prices are falling in many parts of the country, according to a USA TODAY analysis of government data.

A key reason: Despite the downturn, the market value of millions of homes still exceeds their assessed value used for tax purposes.

“Some people are irritated to learn the news,” says Jim Todora, a property tax assessor in Sarasota County, Florida. “Their home’s value may have gone down, but their property tax is still going up.”

Fresh evidence of the slumping real estate market came Tuesday, April 24 when the National Association of Realtors reported that sales of existing homes dropped in March at the highest rate in 18 years.

Property tax limits were passed to prevent big increases during times of soaring home values. Those laws let assessments rise, slowly but steadily, until they reach market value.

Property taxes from homeowners and businesses go mostly to local governments, paying for schools, roads, police and other services. Collections rose 7% last year to a record of $377 billion, although the median home price climbed just 1% nationwide and fell in many places. The disconnect is likely to continue.

All but five states limit how quickly property taxes can rise. After a decade of soaring housing prices, it can take years for a home’s tax value to catch up to its market value, even with the current dip.

In the long run, property tax limits save homeowners money. Clark County, Nev., Treasurer Laura Fitzpatrick would owe $4,781 in taxes on her Las Vegas house if it were assessed at market value. Instead, she’ll pay $3,036. “Those are big savings, even if this year my taxes went up more than the value of my house,” she says.

Other reasons few tax bills will shrink:

· Higher tax rates. Many local governments where home values have softened – including the Washington, D.C., suburbs of Northern Virginia – are increasing tax rates to offset lower assessments. The city of Fairfax, VA., for example, plans to raise its tax rate by 4.5% to offset a 3% decline in house values.

· Delayed Assessments. Property taxes often are based on market values that are several years old. New Hampshire revalues property once every five years, most recently in 2006 when prices peaked.

“People read about how the market has crashed,” says Polk County Assessor Jim Maloney in Des Moines. “But that change doesn’t show up for a long time.”

Among the few who may benefit from falling values: people who bought recently at the market peak, only to see prices drop.

Ventura County, California, is looking at 20,000 home sales since the end of 2005 to see whether any owners deserve a tax cut. The median house price in Ventura County is $567,000, down 5% from its peak in March 2006, according to DataQuick, which tracks prices.

“To get a tax cut, you have to buy a home at the peak and have it lose value quickly,” says Ventura County Assessor Dan Goodwin. “You can’t enjoy double-digit increases in your home value and then expect a tax cut when the market dips.”

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