Home Values May Be Soaring -- but Property Taxes Aren't
KEY POINTS
- Home prices rose 16.9% in 2021.
- Property taxes only rose 1.8% in the same time frame.
Here's some good news for homeowners.
The housing market exploded last year -- not in terms of inventory, but in terms of prices. In 2021, the median home sale price was $346,900, up 16.9% from 2020 as per the National Association of Realtors. That also caused home equity levels to skyrocket.
Now you'd think that rising home values would push property tax bills through the roof. After all, property taxes are calculated by taking a home's assessed value and multiplying it by the local tax rate. The latter isn't impacted by rising home prices, but the former definitely is.
Surprisingly, though, property taxes for single-family homes rose by only 1.8% last year, according to ATTOM. And that's bought existing homeowners a bit of a reprieve.
Why didn't property taxes climb even more?
Many Americans are struggling with higher living costs these days in the wake of rampant inflation. The last thing homeowners need to deal with is higher property tax bills.
But while property taxes clearly didn't spike as expected in 2021, that doesn't mean homeowners are out of the woods. Rather, it could simply be that town assessors were not able to update their data in time to issue much higher property tax bills. But once they have a chance to catch up, property taxes could get a lot more expensive.
A large burden for some homeowners
In 2021, the average U.S. property tax bill was $3,785, per ATTOM. But in some parts of the country, it's way higher.
Take New Jersey, which has the highest property taxes in the nation. Last year, the average property tax bill within the Garden State was $9,476. And in Connecticut, which is also known for higher-than-average property taxes, the average bill in 2021 came to $7,464.
On the flipside, the average property tax bill in Alabama last year was $905. And in Louisiana, it was $1,248.
The reality, though, is that rising property taxes can be a burden even in places where they're lower than in other parts of the country. Homeowners always have the option to appeal their property taxes. But because home values are so high right now, homeowners are likely to struggle when arguing their assessed values down.
Covering higher tax bills
Those who are struggling to keep up with rising property taxes may have more options today than in the past. Because home values are up so much, it's easier for more homeowners to borrow against their home equity. Homeowners who don't have the money to keep up with rising property taxes can take out a home equity loan or HELOC to cover those higher costs if need be.
That's not an optimal solution, as ideally, homeowners should try to land in a position where they can cover all of their essential bills, property taxes included, with their paychecks rather than dipping into their savings accounts. But since living costs are so high across the board right now, tapping home equity is a move some homeowners may need to make.
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