Property Tax decreasing Home Value?

I'm currently looking to buy a home in the area but was curious about the affect of property tax on house value in SOMA area.  

Most of the homes we're interested in have property taxes of around $17k.  It seems like taxes increase around $500/year.  At that rate our tax bill would be about $22k in 10 years.  Real wage growth has been pretty much flat for quite some time for the average worker in the U.S.  So I'm wondering if there's a tipping point where your house begins losing value because of the exorbitant property tax.  I know your home purchase should never be viewed as an investment, however, I would hope to at least get my money back down the road (which is still a loss due to inflation during that time.)  In our experience, we've seen some really nice homes at great prices but we've stayed away because of taxes already over $20k.  I think I've answered my own question but would love to hear from others.  Are there any candidates or movements that are fighting for restructuring of municipal taxing?  Is this progressive taxing sustainable?


There are pretty much no guarantees, except that taxes will continue to increase.  And you'll probably have home repairs in the thousands as well (e.g., a new roof runs ~$10K, plus or minus).

It is not cheap to live here, but less expensive houses tend to have lower taxes. Lower taxes tend to increase more slowly than higher taxes (as the increase is generally around 2%-3% increase per year). Updating a house (e.g., new kitchens/baths, additions) will increase your taxes as property taxes are based on the estimate of 'house worth', and with updates, the 'house worth' increases.


Budget accordingly.


The only thing that I will add is that you shouldn't view taxes in your equation as a complete loss.  First, if you have children you have access to a pretty good school district.  Second, taxes are deductible on your income taxes, so that reduces the bite a little.  The problem with leading a charge against tax increases is that while nobody likes the taxes, including me, we do like what they provide.  I hope you find a place that fits for you. These are good towns to live in.



It would be safer to predict property tax increases as a percentage (say, 5%/year) than a dollar amount, $500/year. I believe it has risen in Maplewood at 5%/year for several years. That's doubling every 14 years. When we moved in in 2003, I guessed we would need to move out in ten years, and we did just that. We moved out in 2013.

It's not clear that there is a depressive effect on values over time. In fact, there is evidence to the contrary. Maplewood and South Orange remain desirable places, and values seem to weather storms better than values in other places.


While I don't have solid numbers to back this up, property taxes seem to be a bit lower in SO than in Maplewood, overall. We just bought in SO, and looked at many houses in both towns. The houses in Maplewood--the same size or even smaller than the house we ended up purchasing--all had higher property taxes, in a few cases $5-10K higher. 


When we were looking at houses nearly 20 years ago, a realtor explained to me that the reason houses that were in "desirable" areas in Bergen County were so expensive was because the taxes there are lower. In other words, property value here would be even higher, if our taxes were not so high. I had a hard time wrapping my mind around the concept at the time. Since our taxes have doubled in the 16 years we have lived in SO, I get it now. Still, I am glad we moved here. 

It seems that property values here have held up pretty well over all. There was the dip after the bubble and the 2008 crash. But the value has come back up. 


When we looked, also near 20 years ago, it was clear that towns with higher taxes had lower prices (Maplewood and South Orange), while towns with lower taxes had higher prices (Millburn and Summit, if I recall), so that overall cost of ownership evened out, at least at the time of purchase.  

Whether that remains true if you stay in the house 20+ years is something I'm not thinking about too hard, since we mostly love it here.

Real average wage growth across the US, or lack of it, is not the driving force in MSO property valuations, given our easy commute to the rich wage markets in Manhattan, and the comparison to expensive NYC living.  We've seen a substantial increase in property value during our years here, with rises and falls with the broader economy.  I don't think we've seen major shifts in relative value between the various local suburbs over that time, in spite of the different taxation environments.


What Susan said, although in my family's case it is now almost 30 years.  When our mortgage is paid off, we will still have a hefty monthly payment (currently about two-thirds of what we pay the bank each month.)  But I don't know of a less costly alternative within a reasonable commuting radius of NYC where I'd be willing to live, so no near-term plans to leave even though we are now "empty nesters".


Yes, there are towns where values are higher and taxes are lower. But the fact that taxes rise in Maplewood (perhaps at a greater rate) doesn't seem to have an effect on the long term values in Maplewood. That's what I'm trying to say.



Tom_Reingold said:

Yes, there are towns where values are higher and taxes are lower. But the fact that taxes rise in Maplewood (perhaps at a greater rate) doesn't seem to have an effect on the long term values in Maplewood. That's what I'm trying to say.

Agreed!


bkeditor:  One thing you are not allowing for in your $500 a year rise estimate is the fact that real property tax increases are compounded since your base changes from year to year as your taxes increase.  Another thing you are not allowing for is that real property values on which real property taxes are based, at least in Maplewood, can change yearly up or down depending on how real property values changed in your part of town compared with the town as a whole.  South Orange also has real property revaluations but they tend to occur less frequently.  This makes it very difficult to set any kind of standard increase when trying to determine how your real property tax obligation will grow over time.  

Real property values have grown substantially since we moved to the area over 30 years ago but this only has a real impact if you are planning to take out a home equity loan or sell your house.  Bottom line is that you should buy something you can afford now factoring in utility, maintenance, and home repair costs as well as mortgage and real property tax payments.  Then try and estimate where you will be in the future assuming promotions and salary increases to determine whether the house you wish to buy is one you will be able to afford over time.


Going a bit off topic, I'd echo what Joan says, but would also add that, if you are a two career couple, think about what happens if that changes.

I was certain that I'd always stay in the work-force, but we bought less than we could afford, since I had recently moved to a new career, and wanted the option to change back to lower-paid options if my shift didn't work out.  

What we never anticipated was that family needs would bring us to the tough decision to have me change careers to the unpaid role of Chief Special Education Officer and Household Manager for our family. We were very glad that we had bought a home that we could continue to afford without my paycheck (although it has taken some serious budget-cutting to manage).


Susan makes a valid point to which I would add being able weather unplanned for job loss, health care and child care needs, education costs, and other kinds of sudden large expenditures that can do real damage to one's housing budget.



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