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While it’s no surprise that property tax collections are down in 2010, and are expected to drop even more in 2011 and 2012, what is a shock is just how little total property tax collections declined—just 1.8 percent in 2010.  Property tax collections grew 4.9 percent in 2009 even though property values declined.

Since the peak U.S. home prices recorded in 2006 (based an average of the monthly median existing home sales price of $222,000), prices dropped 22.2 percent in 2009 to an average monthly median of $172,742.  And for the first eight months of 2010 that remains little changed with an average $173,700 price (a year-over-year gain of less than 6/10ths of 1 percent).  Commercial real estate values, as proxied by the MIT Real Estate Group analysis of the National Council of Real Estate Investment Fiduciaries (see my blog August 27, 2010 http://blog.stewart.com/?p=636), are down at least 27 percent from the peak. 

So why so little decline in property tax collections when values are down 20+ percent and taxes off less than 2 percent?  Property tax collections are based on both the assessed value of the real estate and the property tax rate.  And yes, you got it, property tax rates rose in the face of declining property values.  Property tax rates, however, are not equal across the country.  To get an idea of how widely they range and to view the relative burden of property taxes on homeowners, The Tax Foundation  reports annually respective tax rates and burdens across the country.  Comparative property tax rates can be seen at http://taxfoundation.org/taxdata/show/1888.html.  The Tax Foundation ranks the top 792 country property taxes as a percentage of the home value.  Nationwide, 2009 saw an average rate of 1.04 percent, up from 0.96 percent in 2008 (an increase of 8.33 percent). Wow.  The report, which can be downloaded as an Excel file, includes data for 2005 through 2009. 

So what can we conclude regarding property taxes?  There will be continued pressure by local governments to raise the tax rate despite declining real estate values.  One would hope, however, that local and state governments would place as much vigor in reducing spending as they do in increasing tax rates—in addition to accurately appraising properties.  

And for consumers, visit with local real estate specialists, find out your realistic market values and appeal you property tax assessment if they taxing authority has you overvalued.  While you can’t, on an individual basis, dispute the property tax rate, assessed values should be based on realistic market values.

Ted

Ted C. Jones, PhD

Senior Vice President-Chief Economist, Stewart Title Guaranty Company

Director of Investor Relations, Stewart Information Services Corporation

 

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