Homes in Silicon Valley, Calif.
Property taxes are based on the value of one’s home. But as the real estate market collapsed and owners watched in horror as home values dropped by one-third, or perhaps half, their property taxes probably didn’t budge. Through the Great Recession and years of a stagnant market that followed, it’s more likely that your property taxes have kept creeping upward. Finally, though, five years after the market first began to stumble, property taxes seem to be declining in parts of the country.
The number of underwater homeowners—those who owe more on their mortgages than the home is worth—keeps rising in the U.S. In the fourth quarter of 2011, 11.1 million homeowners, or 22.8% of owners with mortgages, were underwater, up 3.7% from 2011’s third quarter, when 10.7 million owners were in negative equity.
While many of these owners are simply finding it more difficult to pay their mortgages, one of the main reasons for the rise in underwater or upside-down homes is that the values of these homes continue to drop. As values decline, the scale tips: An owner that owed $200,000 on a home worth $225,000 finds himself underwater when the home is suddenly worth $190,000.
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For most owners, the worst declines in home values took place a few years ago, perhaps in 2007 or 2008. The average mid-tier home’s value dropped 41%, and lower-end homes dipped even more, by 46%.
Yet, as USA Today reports, it’s unlikely that these owners received any breaks on their property taxes until just recently. In 2011, total property taxes collected increased by 1.2%, which actually represents a decline of nearly 1% when adjusted for inflation. The story notes that property taxes could drop even further in 2012:
If the downward trend continues, property taxes may actually bring in fewer dollars this year than last even before adjusting for inflation. That hasn’t happened since the Great Depression.
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Will this actually happen? It’s pretty unlikely. Property taxes are needed to pay for schools and local services, and few communities are game—or even legally able—to scale back in ways that are significant enough to have a major impact on taxes.
When an owner puts an addition on a home, in many cases the town will immediately send out inspectors and assessors to check out the work—and to update the property’s new estimated value, in order to start collecting higher property taxes. When values decline, however, municipalities typically respond slowly, which makes sense: Why would they be in a hurry to begin collecting less money from homeowners?
Tax assessments are often based on home values from three, five, or even 10 years prior, and some communities base the assessment on an average of several different years’ values. Even when assessments get updated, many states and cities just make further rate adjustments to keep property tax revenues steady. The simplest means of doing so is hiking the tax rate, which happens quite regularly.
Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.
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