THE POINT: A lot of homeowners are cashing in on the equity in their homes as prices keep climbing but along with these increased values are the increases in property taxes which, in some areas, will be more than mortgage payments. U.S. homeowners enjoying historic gains in the value of their property will likely face a hit next year through a higher tax bill.
According to recently released Labor Department data, property taxes — up the most in 15 years in 2020 — will likely see even sharper jumps this year. The median price of previously-owned, single-family homes set new highs last year and have climbed even more in 2021, which could haunt homeowners when the bills come due and potentially force Americans to dig deeper into their savings.
“Unlike paper gains on stocks which don’t lead to tax consequences until you sell, paper gains in real estate have more immediate financial consequences in the form of real estate taxes,” said Danielle Hale, chief economist at Realtor.com. While no one likes taxes, property taxes are generally the most-dreaded because of the high amount owed and the fact that they’re presented in a tangible bill from state and local governments.
Home prices have increased 20–45% in some areas because of supply shortages and low mortgage rates. But some people are learning that although they may be able to afford a new house, the taxes, plus maintenance fees, are a lot higher than anticipated.
What will this do to the economy? At first, nothing because too many new homeowners don’t consider the cost of property tax increases and maintenance, but eventually, they will feel the pinch because prices on everything are rising, including employee health insurance.
Homeowners in New York are feeling the tax increases, but home shoppers are also in shock. One property in Michigan was listed for $469,000 even though the buyer paid only $320,000. The taxes and maintenance on that home are more than $1500 a month, which could be higher than a mortgage payment.
Demand for housing is expected to be robust in the coming years, but realtors see a slowdown. Some buyers are reluctant to drain savings accounts for homes that have shot up in price when they learn that the taxes have also increased.
In some areas, the limited supply of homes will keep prices high, but some interior regions are already seeing a decline in buyers’ interest. “Two months ago, an open house would draw a crowd now maybe three of four people will come through,” said a realtor in the Midwest.
Rising property taxes, along with inflation and higher energy costs, are going to drain paychecks and savings and could put us into another recession.
Originally published at https://commonsenseandpolitics.com on November 21, 2021.