Property Taxes Keep Rising as Home Values Keep Falling

Property Taxes Keep Rising as Home Values Keep Falling Common sense suggests that as home prices decline, the property taxes based on their valuations ought to as well. But even as house prices continue to slip, property taxes nationally are clicking higher.

Why is this occurring? There are several factors at work.

The first is that many local governments are responding to sharp declines in real estate values by raising property tax rates. In one southern Washington state county this year, the rate jumped from $10.06 to $11.60 per $1,000 of assessed value -- a more than 15% increase. Throughout Washington, even as assessed values slumped by more than 13%, property tax revenues rose 2.1% to $8.8 billion -- a $181 million increase. Though the state has limits on property tax hikes, local governments' property tax rates don't rise or fall based on assessed values -- they're set by budget requirements. So falling prices don't necessarily translate into lower property taxes.

Real Values Would Need to Drop Much Further

Next door in Oregon, state law has combined with the law of unintended consequences to produce an unusual twist on the property tax problem: A voter-mandated statute limits increases in assessed values to 3% a year. As a result, those assessed values are still lagging market prices, which soared during the housing bubble. In Multnomah County, the average assessment of $174,000 is $100,000 lower than current average market values.

Thus, assessed values -- as opposed to actual values -- will keep rising, and property taxes will rise with them, by 3% a year even as real home prices slip. Property taxes in those markets won't fall unless real values drop below assessed values, which would require massive additional price declines.

In northern New Jersey, property taxes are rising by as much as 12% in some municipalities, after skyrocketing 80% over the past decade, far outstripping growth in the consumer price index (31%) and household incomes (24%). The state government in Trenton has cut its contributions to local governments by $200 million over two years, and other revenue sources are falling. Localities now say raising property taxes is their only option.

Property Taxes Now Dominate Local Revenues

According the U.S. Census Bureau data, the nation's local governments will collect an estimated $476 billion in property taxes in 2010 -- almost twice the $250 billion that states garnered from income taxes and 66% more than total sales tax revenues of $286 billion.

A decade ago, revenues from property taxes were roughly equal to those from sales taxes. In 2000, property taxes totaled $247 billion, and sales taxes came in at $223 billion -- a difference of roughly 10%. Since then, sales taxes have increased by 28% -- roughly in line with the rise in consumer prices, as calculated by the Bureau of Labor Statistics.

Property taxes, though, have far outstripped inflation, soaring by $229 billion, about 92%.

State income taxes have risen nationally from $217 billion in 2000 to a peak of $303 billion in 2008, just as the global financial meltdown began. Since then, they've dropped back $250 billion in 2010. Over the decade, that's a total rise of $33 billion, or 15% -- actually less than inflation, since income taxes have fallen substantially since the recession began.

Going in Opposite Directions

Add all this up, and we can see that local governments have become far more dependent on property tax revenues than they were in 2000. As levies on sales and incomes have stagnated in the recession, property taxes have continued their decade-long rise, jumping $45 billion (over 10%) since 2008 even as home prices plummeted roughly 30% nationally since the 2006 peak of the housing bubble.

Since California's voters passed Proposition 13 in 1978, property tax increases there have been limited to 1% of assessed value a year, and assessed value increases are limited to a 2% a year. Additional parcel taxes can be added only through voter-approved bond measures and "special assessment districts" which fund municipal water districts, libraries and other local government services.

But those assessed values are reset to market valuations when properties are sold. As millions of homes changed hands during the boom years, their assessed value skyrocketed, reaping huge increases in property taxes for local governments in California.

An Illustrative Case

A random selection of homes in the San Francisco Bay Area yielded these representative increases (addresses are not listed due to confidentiality concerns, but property taxes and sales figures are all public records, easily accessible on sites such as zillow.com.)

A 3-bedroom, 2.5-bath home, built in 1924:
assessed at $270,000 in 2004, property taxes: $5,090
sold 2005 for $725,000: 2006 taxes: $10,997
sold 2010 for $540,000, 2010 taxes: $12,193
Once this home was sold at a bubble-era valuation, its property tax more than doubled, and then rose 10% from 2006 to 2010, despite a fall in value, as local "special assessment district" levies increased.

Now that the home has sold for $185,000 less than its previously assessed value (a drop of 25%), the property taxes collected will certainly decline by a similar percentage. Multiply that by hundreds of thousands of homes sold since 2007 for less than their bubble-era valuations, and it paints a bleak picture of major declines in property tax revenues for California's local governments.

Rising Rates Risk Homeowner Revolt

Homeowners in many locales can petition their property assessor's office to lower the assessed value of their homes. If granted, such reductions can substantially lower property taxes.

Again turning to California for an example, a 3-bedroom, 1.5-bath house built in 1928 saw its assessed value leap more than tenfold when it was sold for $770,000 in 2006. Property taxes jumped from $2,522 to $11,394. But the assessed value was notched down from $810,000 in 2008 to $630,000 in 2010 in an adjustment to the realities of post-bubble valuations.

Either by reassessment or by sales, assessed property values are falling around the nation. While local governments can compensate by jacking up their tax rates every year, at some point, those substantial annual increases will likely trigger resistance from homeowners watching their home values stagnate or decline.

The property tax cash cow will likely get leaner as a result, and local governments will have to find other revenue sources or slim down budgets to match the new realities of the realty market.

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disilpdpjc

All Home owners should only be legally required to pay school taxes for a maximum of 40 years. The number of years you are legally required to pay School taxes should depend on the number of children you have.

# Children # Years Legally required to Pay School Taxes
0 - 1 13 Years (Kindergarden thru High School)
2 26 Years
3 39 Years
40 Years (Pay the extra year if you child was left back a grade)

After that, that's it.

In addition, the legal tax rate assigned to the value of homes should be legally locked in for 5 years. In this way when home values decrease homeowners owners would see an actual reduction in their school tax bills they receive from the County's Assessor's office. Schools would then have to budget their money and reign in their spending.

February 13 2011 at 5:01 PM Report abuse rate up rate down Reply
captmerit

No one is going to have a home because of out of control property taxes, shame on local municipalities

February 08 2011 at 11:18 AM Report abuse rate up rate down Reply
jamesmann123

Over the life of a 30 year loan, a $300 per month decrease would equal over $100K in savings. Search the web for "123 Mortgage Refinance" website they helped me find 3.118% rate easily. Strongly recommend them for anyone.

December 21 2010 at 4:13 AM Report abuse rate up rate down Reply
bltsfn

Big part of the problem is free programs for illegal immigrants. The other is out of control labor unions with their huge salaries, benefits and pensions.

December 20 2010 at 9:49 AM Report abuse rate up rate down Reply
Gg

Common sense only comes into play when you focus your mind on the things above.

December 20 2010 at 9:24 AM Report abuse rate up rate down Reply
william

they are not going to stop until we are all homeless, are they?
with a revaluation of our home, our taxes are going up $2200 THIS YEAR!!!
did I mention that our home was evaluated by a young guy that was going to school to be an assessor (not even liscenced) he had told us he was doing this to amass
hours needed to become a liscenced assessor. What kind of sh#t is this ?
Now we have to pay a lawyer to fight this, or pay taxes on a figure some KID came up with. I'm getting extremely sick and tired of this government and we the people have to stand up and take our country back. This government is full of criminals, legally robbing us of our money and dignity. When will "THE PEOPLE"
wake the hell up ?

December 20 2010 at 6:51 AM Report abuse +2 rate up rate down Reply
yunker1029

As property owners get wiser, and learn to challenge the assesed valuations, municipalites revenues go down, causing cuts to services, such as police, firemen, teachers, snow removal, and the list goes on and on. Cut services or raise taxes? That's your only choice. We are toast!

December 20 2010 at 5:53 AM Report abuse -2 rate up rate down Reply
keneuggens

How can they say raising property taxes is the only option? How about reducing the size of government, remove the activities that are not in the local charter or constitutions and let private sector and charitable and non-profit sectors do what they do best. Government, in most cases, is not the solution but is the problem. The arrogance of officialdom - raise taxes is only option. Baloney.

December 20 2010 at 2:14 AM Report abuse +6 rate up rate down Reply
Jonathan

The high property tax rates are very destructive in today's weak economy. People who are unemployed have to pay the same rates as when they were making professional salaries. This means that they have to use their last dollars from savings to pay their property taxes. The expense of property taxes therefore puts many families over the edge. The high property taxes also affect small businesses across the country. The costs involved with operating commercial real estate are escalating. Although many important services are funded by property taxes, a good amount of this money goes to pay for incompetent bureaucrats and their expensive offices. It would be better to not have as many disfunctional bureaucrats and lower property taxes for working families and small businesses.

December 19 2010 at 11:16 PM Report abuse +5 rate up rate down Reply
hi cat

These are reasons why local real estate taxes have only one way to go...UP! Hordes of illegal invaders deplete our local and state economies by bleeding local school resources. They demand( demand ! bi-lingual teachers) Who do they ( think (and you Wendy) pays for that teacher? Illegals never paid in to the school system ( hey Wendy, 85% of MY real estate taxes go to PAY the local SCHOOL BUDGET) I do not have ANY CHILDREN in the local government school either. Hospital emergency wards are another safe FREE haven for them; illegals never have to PAY FOR ANY HEALTH CARE NOW. The rest of us are victims of that travesty too we pay more for all hospital stays because they pay NOTHING !! ) The money they earn gets sent OUT of the country does nothing for the local state or national economy. And now the deconstructor-in-chief thinks somebody with a wet back and no papers should be able to get health care for free CARD. On top of all these assaults on us and our resources, traitors in the media and high office actually ALLOW them to tie us up in knots by giving them a PLATFORM to debate this issue AND MAKE DEMANDs on real citizens paying their bills.

December 19 2010 at 10:14 PM Report abuse +5 rate up rate down Reply