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Guest Post: House Values Fall 30%, But Property Taxes Keep Rising
Submitted by Charles Hugh Smith from Of Two Minds
House Values Fall 30%, But Property Taxes Keep Rising
Even though home values have plummeted by a third, property taxes are increasing: welcome to the Great Middle Class Squeeze.
You might think that with home prices off by 30% or more since the housing/credit bubble popped in 2006, property taxes would have declined by a similar percentage. But you'd be wrong: they've gone up. As if the massive reduction in home equity wasn't enough of a blow to the Middle Class, they're also paying higher property taxes.
Though house prices have declined roughly 30% nationally since the 2006 peak of the housing bubble, property taxes have continued their decade-long rise, jumping $45 billion (over 10%) since 2008.
Local governments are responding to declining revenues by jacking up all taxes and fees. To counteract sharp declines in property values, municipalities are raising their property tax rates, squeezing more out of properties even as they drop in value. Though there are local variations, the result is the same: property taxes are rising.
In southern Washington, the rate jumped from $10.06 to $11.60 per $1,000 of assessed value--a leap of over 15% in one year.
Even as assessed valuations slumped by over 13% annually, property tax revenues statewide increased 2.1% to $8.8 billion--a $181 million increase to taxpayers. Though Washington state has limits on property tax increases, local government's property tax rates do not rise or fall with assessed value--they're set by budget requirements. So falling prices do not translate into lower property taxes.
In Oregon, a voter-mandated statute limits increases in assessed value to 3% a year. As a result, assessed values are still lagging market prices, which soared in the housing bubble. In Multnomah County, the average assessment of $174,000 is $100,000 lower than average market values. That means property taxes can increase 3% a year even as home prices slip. So property taxes won't fall until market values fall below assessed value, and that would require further massive declines in home prices.
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 the consumer price index (31% rise) and household incomes (up 24%).
Nationally, property taxes now dominate local tax revenues. Property taxes tripled from 1990 to 2005 in Florida, for example; once the local government obtains that gargantuan revenue stream, it becomes the "baseline" for all future years.
Local governments should go back to the revenues and budgets of pre-bubble years, but instead they are jacking up rates to maintain revenues, even as valuations have fallen off a cliff. Bubble-era prices and equity are gone, it seems, but bubble-era property taxes are here to stay.
According to U.S. Census Bureau data, the nation's local governments will collect an estimated $476 billion in property taxes in 2010--almost double total state income tax revenues of $250 billion and considerably more than total sales tax revenues of $286 billion. That means property tax revenues are 66% higher than sales tax revenues--$190 billion more a year.
A decade ago, property taxes were roughly equivalent to sales taxes. In 2000, property taxes totaled $247 billion and sales taxes came in at $223 billion-- a differential of roughly 10%. Sales taxes have increased by 28% since 2000-- roughly in line with the rise in consumer prices (as calculated by the Bureau of Labor Statistics).
Property taxes, meanwhile, have far outstripped inflation, soaring from $247 billion in 2000 to $476 billion in 2010--a gargantuan increase of $229 billion, or 92%.
State income taxes have risen nationally from $217 billion in 2000 to $250 billion in 2010, after peaking at $303 billion in 2008, just as the global financial meltdown began. That's a rise of $33 billion, or 15%--actually less than inflation, since income taxes have fallen substantially in the recession.
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.
No wonder they're jacking up property tax rates.
California property taxes have been limited to 1% of assessed value by the voter-mandated Proposition 13, passed in 1978. Assessed value is limited to a 2% increase per 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 assessed values are re-set to market valuations when a property is sold. As millions of homes were sold during the boom years, the assessed value of those homes skyrocketed, reaping huge increases in property taxes for local governments in California.
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.)
3 bedroom, 2.5 bath home, built 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, then the property tax more than doubled, and then rose 10% from 2006 to 2010 as local "special assessment districts" levies increased.
Now that the home has sold for $185,000 less than its tax assessment (a drop of 25%), then the property taxes collected will certainly decline by a similar percentage. Multiply that by hundreds of thousands of homes sold for less than bubble-era valuations, and it paints a bleak picture of major declines in property tax revenues for local government.
Homeowners in many locales can petition the property assessor's office to lower the assessed value of their homes; if granted, such reductions in value can substantially lower property taxes.
This is no guarantee that your property taxes will stay low for long, though. Anecdotally, one reader from a state without Prop 13 limits wrote that he petitioned the county for a reduction based on lower valuation, which was duly granted. But that $1,200 reduction was largely offset by a $700 increase resulting from a higher tax rate.
Again turning to California for an example, a 3-bedroom, 1.5 bath house built in 1928 saw its assessed value leap more than ten-fold when it was sold for $770,000 in 2006. Property taxes leaped from $2,522 to $11,394. But the assessed value was notched down from $801,000 in 2008 to $630,000 in 2010 as an adjustment to the realities of post-bubble valuations. Though the value dropped 21%, the property tax only slipped to $10,035, a 15% reduction.
That's still quite a leap still from the pre-bubble annual tax of $2,500.
Either by re-assessment or by sales, assessed property values are falling around the nation. While local government can jack up tax rates by 10% or more annually, at some point those substantial increases will likely trigger resistance from homeowners who continue to see their home values stagnate or decline.
The property tax cash cow will likely get leaner as a result, and local governments will have to slim down budgets to match the new realities of lower property values.
Here's a simple suggestion for local government: go back to the pre-bubble budget of 1996, and add in the inflation since then--39%. That would be fair and transparent.
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Heiner Mueller once wrote, he couldn't imagine a democratic society, having lived in two dictatorships (NSDAP, GDR).
Now I know what he meant. As an American, I can't imagine what it's like to live in a functional society with an industrial base, a middle class, constitutional freedoms, and an actual future.
I have 25 years of hard residential and commercial RE investment experience. I monitor RE trends in a dozen USA markets.....about 1/2 of the taxing bodies have been very response to the fall in RE values and have adjusted their tax rates accordingly ......for the remainder of them, you can always challenge the assessed valuation and get some relief..........
I think you are incorrect implying that the TAX RATES have gone down - I believe they have gone up to offset, at least to some extent, declining housing prices/values
Opps, yes, assessed values have gone down in the markets mentioned - valuation per thousand has not.
dbl
County assessor:
"How many homes are we assessing this year, and how much money do we need to support our staffs, their benefits, their raises, their bonuses, their retirement plans, and their health care?"
"Divide the number of houses into the dollar amount we need and send out those bills."
The 21st century == the predator century.
Two choices: become overt slaves, or lock and load.
Wimps!
Ever hear that old saying about how "the generals always fight the last war?" I get the sense that some of the comments here reflect the same shortcoming.
The future is unknowable, but it may be prudent not to assume that the legal system will be unable to foreclose on a house indefinitely. I know that suggestions about not paying the mortgage are often made in haste (and perhaps the excitement of the moment), but I would not make part of my plan the ability to live in a house for a year after I stopped paying the mortgage.
I am also one of the lunatics that just bought a house. I had been living in a rental for the past three years after selling our last house. I am doing it primarily as an inflation hedge. It won't increase in value--like gold or silver--but it is likely to appreciate along with the decline in the purchasing price of the dollar.
I don't pretend to know what's best for others, and I am humble enough not to assert that I know better than others about how they should lead their lives or spend their money.
P.S. Australia is better, and I would move there if I could. Unfortunately, I am too old and I can't emigrate because they won't let me.
What about the "unseen taxes" like using cops as a money generating machine? Adding on all kinds of "costs" to everything at all levels of government, etc... Meanwhile, we're still figting 2 unwinnable wars..........or is it three now?!?
Most, no pretty much all of my family and friends are convinced that I am coo-coo for cocca puffs.
I had no idea about the truth behind our government until I served four years in the U.S. Air Force. That began a twenty year quest to truly understand who was behind the curtain. Dear friends as so many of you already know, the steady decline of our liberties and our nation is by design. The evil ones have exhorted the enterpreneur, decieved the student, murdered the patriot. Generations past and present have allowed the strength and power of evil to grow exponentially.
Each and everyday we complain, whine, and pout as we conceed to evil. Masters of the surrender.
This group of folk here at ZH should strive to become a new kind of master. Verily I am impressed with the community that gathers here. I propose collectively our energies be focused on reclaiming that which has been stolen, raped, destroyed.
Isn't that the sad truth, try and clue in your family and close friends, and they just want to pretend they can't hear you. Whats worse, this isn't a situation we will any joy of a told ya so.
Once you find out how the government really works, whos running it, etc. I didn't think it was an option to not at least show people the danger. Oh well
thats why most people dont want to believe its true....there is no upside, if we are correct
I do not disagree with you, but to do that, you better start buying a LOT of weapons, because no government gives up its power peacefully.
not the USSR at the end of 1991 ?
[dup]
I read the thread.
My mothers home declined in tax assessed value 40k- and her taxes went up 300 because they simply maxed out the mill levy.
The real CPI this year is 2.4. It is interesting to note that taxes are never factored into inflation. Perhaps they too, like food and energy, are too volatile. My take on it is here...http://thecivillibertarian.blogspot.com/2010/12/jon-sanchez-koh-radio-fr...
Property taxes are not based on the value of your property. They are based on the total needs of the local govt/divided by your share, and then based on the relative value of your property. Govt used rising house proces to excelerate tax spending thinking you wouldn't really care about a tax increase because your house had gone up 298% in value over 5 years. They was wrong.
They shore wuz...
The Ben Bernanke solution to this issue...
Get a petition going in your town.
What for ?
To have a presentation centered around 3 pieces of detailed fugures broken out, category by category: 1) Expenses in 2003 2) Expenses in 2010 3) Revenues in 2003 4) revenues in 2010 5) % home price rise and 6) % population increase. Have another column for 2011 budget.
Then what ?
Lock the door and no one can leave until all the numbers are understood by everyone and and action plan is put into place.
Sounds simple.
Not. There will be people that benefitted from the insane rise in costs that will attempt to thwart the meeting, that is the interesting part....
Why ?
They used their influence in the haze of the real estate boom to further themselves and their relatives or friends. They gorged. Now they will try to avoid it and deny it.
Like pigs ?
Like pigs.
California Dreamin----- risk on for Commercial Property.
The risk of Prop 13 being killed for Commercial Property (the rich don’t you know) is now high with Brown becoming Governor in January. Besides the obvious increase of the disincentives for business to move to California, now there is more reason to leave California. Those renting commercial property are gonna take a huge hit from two sides, tax and lack of tenants. Good news for Nevada and Arizona.
That is the better of the bad news. Any apartment over 4 units is commercial property. That means the rents must go up for 5 units and above. Do you know where most of the disadvantaged (poor mother funkers) live????? You got it, apartments. So tax the rich AND tax the poor black, brown and white trash and the kamikazis too. Will welfare get a raise to pay for the tax increase/rent increase? Not likely.
just watch
I lived for a long time in one of the richest counties in the US. In many ways, it was a quasi open, gated community. High property taxes, heavy police presence, and super high property values and strict standards as to how you maintained your house and property. At one time, one of my sons worked until late at night, before he had a driver's license, and I would go pick him up every night. At least 30% of the time, a cop would stop me, and then a few more would show up, and they would descend on me with flashlights, questions, attitude and bellicose bullshit. Once while moving my daughter out, we parked one of the cars in the front yard temporarily, and a cop stopped by and fined me $75.00 for creating a public nuisance.
Finally, we got tired of it and moved to a different county, out in the middle of freaking nowhere.....as they say, we went so far back into the hills they had to pipe daylight to us. Now, no cops, no neighbors, no stupid building codes, no harassment and no bullshit. The closest neighbor I have is a gun nut who hunts year around for meat. I have heat, electricity, water, privacy, the Internet, and I can lay on my front porch naked and it is just my fucking business. The problems? my kids and wife have to drive a long way to school/work over mountain roads, the airport is a long ways away, and when we go to town we have to stock up on things. No worries, we have a garden, guns, everything I can see is in any direction is mine, and it is quiet and nobody out here fucks with anyone else. If the stockbrokers/bankstas/politicos/assholes/know-it-alls and hucksters ever overrun the place (unlikely) I have the place in Thailand furnished and waiting. But, I figure if my friendly neighbor ran across a banksta, he would see it as an easy opportunity to add something to his freezer or smokehouse.
anymore this is how I'm thinkin...I am tireder of just being fucked with all the time by the cretins who call themselves authorities. Everyone has a stupid fucking rule, everyone is an asshole, everything is maximally intrusive. Just leave me the fuck alone, jfc
Yep....ever know anyone who became a cop? probably was a total fucking loser. Give any human a little authority, and they turn into storm troopers. Years ago I gave up ambition and the drive to power....the only people I have any control over is my kids and those I pay for work...and I try to minimize that. I guess I have no ambition, in this world as we know it.
Purchase a mobile home and presto personal property tax and not RE tax. Personal property is much lower.
I kind of noticed that even though the taxable value of my home has declined substantially since I purchased it in 2006; once when I sent in an appraisal from a refi, another 10% was knocked off by the township without my asking, the overall property tax bill has not decreased. At least it's a tax deduction.
I took the time to look over the individual components of the bill, and large chunks of it were for local schools and the local community college. Police and fire were fairly small (the only service I actually need).
16% increase in my county this year. At the beginning of the crisis we had a surplus. We swung to a deficit fast when half the warehouses that the county taxed closed up shop. Live in a moderate sized city between NYC and Philly and is a major distribution hub for NJ, NYC, and Philly.
I'll know the economy has recovered when I drive by the warehouse parks and don't see vacancy signs.
Here is an outlier..
I live in Goochland County Virginia..This year due to lower appraisals the County lowered my taxes ( and everyone elses ) by 18%.
Mind you they cut services by $2 Million, but they are very fiscally responsible.
Very good posts here - seems like this struck a nerve. True leadership is about making hard choices, sometimes ones that people won't make for themselves. We have an absence of leadership right now in the US. Our politicians are making decisions to prolong their tenure - tax cuts AND tax increases (as noted in this article re: property taxes) and government spending for those in the club. No one is making the difficult and obvious choices. What are those? Austerity. Tighten the belts, cut back on bloated government and municipal spending, and focus on getting this country back to greatness. That involves energy independence. NOT through solars - the technology isn't good enough. How about nuclear? Worst decision this country made was not building more plants. It isn't either or, we needed the nuclear to reduce oil dependence, while also studying renewable energy longer term. The US must become a leader in these areas.
People in this thread are lamenting the fact that their loved ones aren't listening... I think we need to stop trying so hard (I've tried, people look at me funny). Action, not words. Someone else on another thread called for the start of the "Coffee Party" - they were joking, but I think there is a serious critical mass of people who can do without the ultra right or left wing political stuff, and just want to focus on monetary fairness, and getting back to being productive as a nation. Unfortunately, for such a movement to succeed, we need leadership.
Charley Reese's final column
Charley Reese is retiring. His last column is this one. I know many will miss this southern gentleman..
He had a great run and we are all better off for it.
Farewell, Mr. Reese, and thank you.
Charley Reese has been a journalist for 49 years.
Be sure to read the Tax List at the end.
This is about as clear and easy to understand as it can be - read it!! The article below is completely neutral, not anti republican or democrat Charlie Reese, a retired reporter for the Orlando Sentinal, has hit the nail directly on the head, defining clearly who it is that in the final analysis must assume responsibility for the judgments made that impact each one of us every day. It's a short but good read. Worth the time. Worth remembering!
545 vs. 300,000,000
545 PEOPLE --By Charlie Reese
Politicians are the only people in the world who create problems and then campaign against them..
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes,WHY do we have inflation and high taxes?
You and I don't propose a federal budget. The President does.
You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does.
You and I don't write the tax code, Congress does.
You and I don't set fiscal policy, Congress does.
You and I don't control monetary policy, the Federal Reserve Bank does
One hundred senators, 435 congressmen, one President, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a President to do one cotton-picking thing. I don't care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes.
Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits...... The President can only propose a budget. He cannot force the Congress to accept it.
The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? Nancy Pelosi. She is the leader of the majority party. She and fellow House members, not the President, can approve any budget they want. If the President vetoes it, they can pass it over his veto if they agree to.
It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility. I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.
If the tax code is unfair, it's because they want it unfair..
If the budget is in the red, it's because they want it in the red ..
If the Army & Marines are in Iraq and Afghanistan it's because they want them in Iraq and Afghanistan...
If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way.
There are no insoluble government problems.
Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.
Those 545 people, and they alone, are responsible.
They, and they alone, have the power..
They, and they alone, should be held accountable by the people who are their bosses.
Provided the voters have the gumption to manage their own employees...
We should vote all of them out of office and clean up their mess!
Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.
What you do with this article now that you have read it......... Is up to you. This might be funny if it weren't so true.
Be sure to read all the way to the end:
Tax his land,
Tax his bed,
Tax the table,
At which he's fed.
Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.
Tax his work,
Tax his pay,
He works for
peanuts anyway!
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.
Tax his cigars,
Tax his beers,
If he cries
Tax his tears.
Tax his car,
Tax his gas,
Find other ways
To tax his ass.
Tax all he has
Then let him know
That you won't be done
Till he has no dough.
When he screams and hollers;
Then tax him some more,
Tax him till
He's good and sore.
Then tax his coffin,
Tax his grave,
Tax the sod in
Which he's laid..
Put these words
Upon his tomb,
Taxes drove me
to my doom...'
When he's gone,
Do not relax,
Its time to apply
The inheritance tax..
Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Excise Taxes
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (currently 44.75 cents per gallon)
Gross Receipts Tax
Hunting License Tax
Inheritance Tax
Inventory Tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Personal Property Tax
Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Recreational Vehicle Tax
Sales Tax
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Nonrecurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax
STILL THINK THIS IS FUNNY? Not one of these taxes existed 100 years ago, & our nation was the most prosperous in the world.
We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.
What in the hell happened? Can you spell 'politicians?'
I hope this goes around THE USA at least 545 times!!! YOU can help it get there!!!
GO AHEAD - - - BE AN AMERICAN!!!
If only it were so simple as 300 million vs. 545.
The 545 are important players, but who they actually work for is another matter.
Yes, in a contrived scheme of wedge politics, money, media, and restricted access to ballot, we do get to “consent” to their appointment, typically by a choice between Tweedledumb and Tweedledumber.
Divide and conquer is the overall policy methodology, whether domestic or foreign.
Race, religion, sex, age, wealth, you name it, and it will be used.
Opposed to global militarism? Well others are for it, for either its direct or imagined benefit to them.
Don’t like intrusive martial laws or the war on drugs? Well, to others those mean jobs, power, and safety.
Does money, media ownership, and government podiums confer an advantage to mold public opinion and encourage wedge politic divisions? “You bet’cha.”
For example, Big Ag has been hiring internet propagandists (trolls) for some time to promote their interests.
The Bivings Group is one of the major PR agencies providing such a service to corporations.
http://www.alternet.org/media/149197/are_right-wing_libertarian_internet_trolls_getting_paid_to_dumb_down_online_conversations
Perhaps we’ve heard of the Israeli lobby, and wonder how it might operate.
http://www.alternet.org/teaparty/149256/right-wing_money-fed_campaign_escalates_latent_9-11_paranoia_into_anti-muslim_hysteria/Needless to say, autocratic organizations such as the military, or financial institutions, will propagandize and reward their employees to wed them to the self-interests of the organization.
Nor is all power wielded expressly through the federal government. Regulations are issued detailing how laws will be administered. State and local laws are passed. Foolish bond issuances are recast until “approved” by voters.
And if one gets too uppity, Homeland Security lies in wait.
Get justice and reasonableness by replacing the 545?
Or do we need to do more, or even something altogether different?
What is the right thing to do, what will be the consequences, intended or unintended?