Editorial / Finally, a reward for watching home equity erode
Published 3:13 pm, Thursday, July 21, 2011
If you've just awoken from a five-year nap, you might be interested to know that home prices are lower. A lot lower than when you nodded off.
After topping out in 2005-2006, U.S. home prices have plunged 33 percent, according to Zillow Inc., which tracks real estate and mortgage data. That's a steeper drop than during the Great Depression.
Just when eternal optimists this spring were hoping the worst was over, Zillow reported the average price nationally was 8 percent lower than the same time last year.
In Westport, empty-nesters eager to sell family homes and use the proceeds for retirement are grinding their teeth over low prices. And real estate agents who know Westport's market intimately aren't offering any hope it will be better for sellers next year.
If there's a silver lining in the black cloud hovering over Westport real estate, it's that 70 percent of the town's single-family homeowners recently got tax bills that are lower than a year ago. This despite a 3 percent hike in the town's budget.
Most homeowners catching a break this year can thank the real estate crisis, which reduced assessments on thousands of homes during last year's property revaluation.
Property tax bills are calculated using two numbers: the assessed value of the property and the tax rate. When revaluation raises the total value of taxable property, the tax rate typically declines. When the total value of property declines, the tax rate typically rises. In both cases, the increases and decreases balance out to produce the same tax revenue. Increases in municipal also raise the tax rate.
In Westport, the vast majority of single-family-home assessments went down -- the total value of taxable property fell about 12.5 percent.
In response to both that and the increase in town spending, the tax rate rose 17 percent. The aggregate total of all tax bills, however, will increase only about 3 percent -- about the same as the increase in town spending. What's interesting about Westport's revaluation is the number of homeowners getting a tax cut -- about 6,100 of the town's roughly 8,700 single-family homes, according to an analysis by the town assessor.
Granted, many of the reductions are small. The largest group getting relief -- about 45 percent of homeowners -- got tax cuts of 10 percent or less. The biggest savings -- tax cuts of 20 percent or more -- went to a scant 2 percent of homeowners.
On the flip side, 30 percent of homeowners have received higher tax bills than a year ago. About 350 homeowners -- 4 percent of the town's total -- have been hit with hikes of 20 percent or more. About 1,800 homeowners -- 20 percent of the town's total -- got increases of 10 percent or less.
So how did the revaluation and new tax rate yield tax cuts on 70 percent of single-family homes, despite increased town spending?
We know that more of the tax burden was shifted to the 30 percent of homeowners whose assesments rose. What we don't know are the values or locations of those homes.
But hefty tax hikes for a few hundred properties valued at multiple millions of dollars could offset small tax cuts to thousands of more modest homes. Where are the properties whose assessments rose? Any agents will tell you the three most important things in real estate are location, location, location.
In neighboring Fairfield -- which also revalued last year -- owners of waterfront and beach-area property are complaining that their new assessments are far too high and that some tax bills have doubled from the previous year. Some other taxpayers argue that beach properties had been undervalued for years and it's about time their owners pay a fair share. That scenario might be playing out here, too, although less vocally.
In Westport, we are fortunate that tax relief for most homeowners was not achieved by heaping a greater burden on commercial property. Many local business owners already are struggling with the worst economy in 70 years, and Westport doesn't benefit from more empty stores and vacant office space.
For homeowners who have watched helplessly as equity in their homes erodes, any break on the taxes is cause to celebrate.