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Housing Values Soar. So Do Property Taxes.

This Month in Retail Banking

Even despite the Fed’s best efforts to slow the economy, home prices in major metropolitan areas continue to rise, steeply. According to Case-Shiller’s 20-City Home Price Index (HPI), average housing prices have risen by nearly 24% since 2021. One unwelcome consequence of the surge – and for many homeowners, unexpected – has been the commensurate spike in property taxes, which has taken an average annual tax bill from $4,800 to $6,000 since 2021. This is based on an average tax rate 1.25% for the 20-city benchmark from Curinos data. 

This $600 increase in taxes each year means that debt-to-income (DTI) ratios, already at ~36% in 2021, are climbing with no assumption of new debt. The resultant risk is that some homeowners could find themselves priced out of their homes if rapid tax increases are not matched by similar increases to annual income, which currently stand at 4.7%. (A third of the states and the District of Columbia provide some relief in the form of an annual cap on increases to home price assessments.)  

Both the Dallas and Atlanta markets illustrate the potential hazards. At 2.22%, Dallas has one of the highest effective property tax rates in Case-Shiller’s 20city index. Were it not for its 10% cap on annual assessment increases, the average annual taxes on homes purchased in 2021 would have increased by $2,683. As it is, the two-year increase is still $1,526. Atlanta, on the other hand, with no such relief, has experienced an average increase of 37% on a tax rate of .94%. According to Curinos data, this has resulted in a tax gain of $1,100 in the past two years. 

Fortunately, some safeguards are in place to prevent too many tax-burden increases at once. But over time homeowners who locked in low rates and don’t want to sell, or refinance with much higher rates, may find themselves eventually priced out of their homes if current upward HPI trends continue. 

Sources: Curinos Lendersbenchmark, S&P/Case-Shiller, Local Governments for Cities in 20-City Index, Economic Policy Institute 

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