Property taxes have been rising. Here’s what it means for housing

In many communities, homeowners and homebuyers have been hit with eye-popping property tax increases. It is costing more for schools and governments to pay for services. And homes in many communities have shot up in value in recent years, leading to tax increases through reassessments. 

But opinions differ on how much impact higher taxes are having on local housing and mortgage markets.

“I don’t think property taxes are killing deals,” said Tay Toliver, director of community advancement for Thrive Mortgage in Georgetown, Texas. 

This northern suburb of Austin in Williamson County is typical of many counties. It has seen so much growth that the school district recently built two elementary schools. In the first half of 2022, home prices in the county were on fire, jumping up by 40% year over year in some neighborhoods as people were pushed out of pricier Austin.

Williamson County homeowners paid an average of nearly $8,000 in property taxes annually in 2022, according to the real estate analytics company ATTOM, which does an annual survey of property taxes in the spring. The market has since cooled off, but taxes are going up.

 In August, the county raised the tax rate slightly. That, combined with higher home valuations from sales last year, has meant that the average homeowner will pay an extra $130 annually in tax through fiscal year 2024, according to the county. 

Toliver noted, though, that Texas has no state income tax, which lessens the overall impact of property tax increases. 

“It (the tax) is definitely a question that people want to know, that is, how much are the property taxes if I live in eastern Austin versus living here in Williamson County,” Toliver said. 

“If somebody is concerned about that (taxes), I always put it back on the buyer and ask them, ‘Do you have any control in the increase of your rent payment?’”

In 2022, the average tax on a U.S. single-family home was $3,901, up 3% compared to 2021, ATTOM reported. ATTOM’s figures are estimates based on an analysis of local tax data, home values and the use of an automated valuation model. 

For homebuyers, property taxes are “a huge issue,” said ATTOM CEO Rob Barber in an email. 

“High tax burdens can play a major factor in whether buyers get priced out of a potential home purchase,” Barber said. “For sure, it can dampen demand and, by extension, harm prices in some markets.”

Barber says it is costing more for local governments and schools to provide services. This is especially true on the East Coast in a state like New Jersey, which has many small towns and school districts, as well as high employee salaries and poor economies of scale due to so many small-scale governments. “The higher the costs, the higher the tax burdens.” 

Property taxes don’t move in lockstep with an area’s home price trends. Higher values often increase a home’s property taxes but not always. 

Local governments determine how much money is needed to cover the cost of services, like policing, parks, roads and public schools. Local assessors determine how much each individual property owner should pay based on the assessed value of the home. The assessed value is often significantly lower than the appraised market value.  

Many counties do regular assessments of properties, sometimes annually or every two years. But counties do assessments in different ways. Pittsburgh’s Allegheny County, for example, hasn’t done a countywide assessment since 2012. But home values and taxes have shot up in several neighborhoods. Some Pittsburgh homeowners had a tax increase in 2022 of more than 50%, according to ATTOM.  

Allegheny County school districts have been watching home sales carefully and, if a home sells far above the assessed value, the district typically appeals to the county’s review board to raise its taxable value closer to the recent sales price. This has created a situation where recent homebuyers in certain neighborhoods now pay significantly higher taxes than their neighbor for a comparable home, the nonprofit news organization PublicSource has reported. 

Higher taxes aren’t necessarily a big weight on a housing market, however. While residents of leafy neighborhoods along the East Coast, like in Manhattan or Bergen County, New Jersey, pay some of the highest property taxes in the country, the homeowners also have higher incomes. So, any negative impact of taxes on the local housing market is muted. 

“They are more likely to be able to afford large tax bills and get mortgages,” he said.  Barber also noted that affluent communities with high taxes also tend to have the best school districts and premium government services. These amenities may drive up property taxes but also “provide a significant lure for buyers.”

That said, taxes have been playing a role in cooling off home prices in some markets. Barber said average home values rose less than 5% or declined in about one-third of markets where average property taxes exceeded $5,000. Only one out of six counties in this group saw home values rise by 10%.

By contrast, average home values shot up at least 10% last year in almost two-thirds of the counties in communities where average property taxes were less than $2,000 annually.

New Jersey mortgage banker Luke Chamberlin says he always brings up property taxes early on in meetings with clients. In Bergen County, the average homeowner paid just over $13,000 in property tax in 2022, which is among the highest amounts in the nation, according to ATTOM.

“The topic of property taxes has always been top of mind,” said Chamberlin, the branch manager of NJ Lenders Corp. office in HoHoKus. “It (the tax) has always been high, and it has always been a big factor in their decision of what to buy and where to buy.”

New Jersey’s high property taxes, however, have rarely been a deal breaker for borrowers, Chamberlin says. The taxes are, however, a more noticeable pain point when combined with today’s high interest rates and home prices. Chamberlin said loan volumes have declined in his area in recent months.

An increase in property tax has more of a direct impact on the monthly mortgage bill, Chamberlin noted. A $1,000 increase in the property tax, for example, will increase the monthly payment on a mortgage by $83 whereas a $1,000 increase in the home price only adds about $7 to the monthly bill assuming interest rates of around 7% on a 30-year fixed loan. 

“For the first-time homebuyer, it is definitely important, but for the move-up buyer in our area, it is important, too,” Chamberlin said. He noted that the annual tax bill for a move-up buyer in Bergen can sometimes increase from $8,000 to $17,000 or more. “That is a big jump for people in an area that has such high taxes.”