Local property tax is a key consideration for most prospective home buyers. In fact, many home shoppers today not only consider the current tax rate but also what the forecasted tax increases are in the communities where they are shopping.
Many home shoppers fear that taxes will increase dramatically after they buy a home in a particular town. As such, they tend to closely scrutinize any major municipal projects – such as school construction projects – that might be planned or already underway before making a final decision.
As is to be expected, local property taxes are going up in almost every community in the country. According to recent report from ATTOM Data Solutions, the average amount of property tax paid by a U.S. homeowner in 2017 was $3,399, an increase of 3% compared with $3,296 in 2016 – and an effective tax rate of 1.17%, up from up from 1.15% in 2016.
New Jersey, Illinois, Vermont, Texas and New Hampshire had the highest effective tax rates in the country, according to the report.
Interestingly, but perhaps not surprisingly, average property taxes were nearly twice as high in politically “blue” counties than they were in “red” counties. This is mainly because most of the “blue” states are located on the two coasts, where home prices and municipal operating costs generally tend to be higher.
ATTOM’s property tax analysis, which covers more than 86 million U.S. single-family homes, shows that property taxes levied in 2017 totaled $293.4 billion, an increase of 6% compared with $277.7 billion in 2016.
The report uses property tax data collected from county tax assessor offices nationwide at the state, metro and county levels, along with estimated market values of single-family homes calculated using an automated valuation model (AVM).
States with the highest effective property tax rates included New Jersey (2.28%), Illinois (2.22%), Vermont (2.19%), Texas (2.15%), New Hampshire (2.06%), Pennsylvania (2.02%), Connecticut (1.99%), New York (1.92%), Ohio (1.72%) and Wisconsin (1.67%).
Among 217 metropolitan statistical areas analyzed in the report with a population of at least 200,000, those with the highest effective property tax rates were Scranton, Pa. (3.93%); Binghamton, N.Y. (3.14%); Rockford, Ill. (3.03%); Rochester, N.Y. (2.93%); and El Paso, Texas (2.63%).
But what about the rate of increase? Markets that saw the biggest rates of increase in 2017 included Los Angeles (7% increase), Dallas (11%), Houston (10%), Philadelphia (4%) and Miami (5%).
ATTOM’s research shows that the rate of increase was faster than the national average in 58% of local markets tracked.
“Across California, it’s not the age of property tax increase that is as concerning to consumers, as it is the net effect to cash flow, especially for an aging population on fixed incomes,” explains Michael Mahon, president at First Team Real Estate, covering Southern California. “This erosion of disposable income for many homeowners, coupled with an aging housing inventory stock in need of repair across many areas of the state, puts some homeowners in a difficult position where they have ample housing equity on paper but aren’t able to realize home value gains until a future sale of the property.”
“The increase in property taxes in the Seattle region is not surprising given the number of voter-approved measures that add to homeowners’ property taxes, as well as rising home values,” adds Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle housing market. “That said, this rapid rise in values of housing more than offsets this increase — therefore, the relatively small effective tax rate.
As mentioned, sometimes all it takes is a major municipal project to result in a significant year-over-year increase in local property taxes.
“Passage of the McCleary Bill to fully fund K-12 basic education means that 2018 property taxes are going to jump quite dramatically before dropping back in 2019, with the recently passed one-time property tax cut of 30 cents per $1,000 of assessed value,” Gardner adds.
States with the lowest effective property tax rates in 2017 included Hawaii (0.34%), Alabama (0.49%), Colorado (0.51%), Tennessee (0.56%), West Virginia (0.57%), Utah (0.58%), Delaware (0.61%), South Carolina (0.66%), Arkansas (0.68%) and Arizona (0.68%).
Metros with the lowest effective property tax rates included Honolulu (0.33%); Montgomery, Ala. (0.36%); Tuscaloosa, Ala. (0.41%); Colorado Springs, Colo. (0.42%); and Greeley, Colo. (0.45%).
Counties with the highest average property taxes on single-family homes in 2017 were all in the greater New York metro area, led by Westchester County, N.Y. ($17,179); Rockland County, N.Y. ($12,924); Essex County, N.J. ($11,878); Bergen County, N.J. ($11,585); and Nassau County, N.Y. ($11,415).
Other counties with average property taxes of more than $10,000 – the cap on state and local tax deductions for federal income taxes under the tax reform legislation signed into law by President Donald Trump in December – on single-family homes included Marin County, Calif. ($11,295); Union County, N.J. ($10,863), Fairfield County, Conn. ($10,612), and Morris County, N.J. ($10,294).