U.S. Homeowners Property Tax Increase

Last year, U.S. homeowners faced an average property tax bill exceeding $4,000, marking the highest increase in five years, according to data from Attom Data Solutions, a real estate data firm. Property taxes nationwide amounted to over $363 billion in 2023, reflecting a 6.9% rise, largely attributed to inflationary pressures on local government costs and public employee wages.

States with the highest effective property tax rates included Illinois, New Jersey, Connecticut, New York, and Nebraska, with notable disparities in tax increases observed across different regions, such as a 31.5% increase in Charlotte, North Carolina, and a 15.2% rise in Atlanta.

Property taxes are determined by the assessed value of the property and applying the tax rates for the different taxing authorities for that year.  Generally, homeowners are notified of the assessed value of the property for that year, many times, even before the tax rate is set.

There is often a procedure for disputing the assessment, which may involve various processes. In some states, independent appraisal boards convene to review arguments from the taxpayer and a representative of the taxing authority.

To help further understand the process, here are some helpful definitions:

Assessment Process - The local government assesses the value of your property periodically to determine its taxable value.

Taxable Value - This is the value of your property that is subject to taxation, which may not necessarily be the same as its market value.

Tax Challenge - Homeowners have the right to appeal their property tax assessment if they believe it is too high.

Tax Rates - Typically determined by the taxing authority based on funding needs to generate the necessary revenue.

Tax Exemptions - Some homeowners may qualify for tax exemptions or reductions based on factors like age, disability, or veteran status.

Escrow Accounts - Many homeowners pay their property taxes through an escrow account set up by their mortgage lender, which is included in their monthly mortgage payment.

Tax Due Dates - Property taxes are typically due annually or semi-annually, depending on local regulations.

Penalties for Non-payment - Failure to pay property taxes on time can result in penalties, interest charges, and even the loss of your property through tax foreclosure.

For information about federal income taxes relating to homeownership, download the Homeowners Tax Guide.

Use Ben's Balance Sheet to Decide

There is a technique that has been attributed to Benjamin Franklin and used when faced with a decision.  As the lore goes, whenever Ben was faced with a decision, like you are now, he'd take a piece of paper, draw a line down the middle of it.  On the left side, he'd list all the reasons he should do something and on the right side, he'd list the reasons to avoid doing that thing.

Would-be home buyers are faced with the decision of whether to buy in today's market with uncertainty about inflation, the presidential election, the economy, higher than recent mortgage rates, and increased home prices, just to mention a few.

Some people have been put on the sidelines because they cannot qualify for a mortgage and others have sidelined themselves, even though they have the funds and resources, because of all the "noise" in the market.  Looking at the advantages of renting versus buying may bring clarity.

Advantages of Renting:

• Financial Flexibility: Renting typically requires a lower upfront cost, making it more accessible for individuals with limited savings or those looking to manage their finances conservatively.
• Maintenance Responsibility: Renters are often not responsible for major maintenance and repair costs, as these are typically the landlord's responsibility, allowing for a more worry-free living experience.
• Mobility: Renting provides greater flexibility to relocate quickly if job opportunities or personal circumstances change without the commitment of selling a property.
• Amenities and Services: Many rental apartments offer on-site amenities such as gyms, pools, and concierge services, providing added convenience and luxury without ownership responsibilities.
• Predictable Costs: Renters usually have fixed monthly costs for rent, making budgeting more straightforward as they don't need to account for unexpected homeownership expenses.

Advantages of Buying:

• Equity Building: Homeownership allows you to build equity over time as you pay down your mortgage, which can serve as a valuable asset and investment for the future.
• Stability and Control: Owning a home provides stability and control over your living environment, allowing you to personalize and renovate the property to your liking.
• Tax Benefits: Homeowners may benefit from tax deductions on mortgage interest and property taxes, potentially reducing their overall tax liability.
• Long-Term Investment: Real estate has historically appreciated in value over the long term, potentially leading to significant wealth accumulation.
• Sense of Ownership: Owning a home often brings a sense of pride and accomplishment, as well as the freedom to make decisions about the property without seeking landlord approval.

The Ben Franklin balance sheet might suggest that whichever side had the greatest number of reasons, that would be the appropriate action.  If each item had the same weight of importance that might be logical.  However, some reasons might tip the scale dramatically in favor of taking a particular action.

The equity building aspect of homeownership is exactly that type of reason.  With each payment made on the mortgage, a portion of it reduces the principal balance due which builds equity in the home.  Each month, a larger amount goes to the principal.

Homes on a national basis have experienced a 5.56% annual appreciation over the last 60 years according to the Federal Reserve Economic Data and Bureau of Labor Statistics.  During that period, inflation has averaged 3.7%, making homeownership a hedge against inflation.  Even if a person continues to rent, they will be paying more because rents have increased during the same 60-year period at 3.88% annually.

The average price of a home in America in 1963 was $19,300 and in 2023, 60 years later, the average price of a home was $495,100.  Long term, a home is a powerful investment in an individual's wealth.

For more information, download our information guide Homeownership Today and run a Rent vs. Own for your particular situation.