We hope you’re doing well! In this issue of In the Neighborhood, we’ll do our usual update on the housing market, highlight the sometimes-confusing issue of supplemental property taxes, and share a little about our work this year. We hope you find it interesting and useful!
Note: this article was featured in our September 2023 email newsletter.
Many buyers and sellers sitting it out
A lot of home buyers are on the sidelines right now because of high interest rates. Normally, we’d expect that falloff in demand to cause home prices to fall. But it hasn’t, because so many potential sellers are also on the sidelines with low-rate mortgages they refinanced into a few years ago, and they don’t want to give them up.
We’re currently seeing almost 40% fewer listings than in a normal year. So, even though volume is way down, many homes have sold this year with multiple offers, and prices were rising from the first of the year to early summer.
Take a look at these graphs from our friend, appraiser Ryan Lundquist’s Sacramento Appraisal Blog, showing how low the supply of homes has been this year, and how prices fell more than usual in the second half of 2022 but then recovered some of that ground this year. We’ve passed the seasonal peak now, and we’re seeing slightly lower prices and homes taking a little longer to sell. This is normal to see prices decline a bit into the fall, but also note that the median is about $40k less than the peak in May 2022.
Do you know about supplemental property taxes?
We had a client contact us recently about some extra property tax bills that had come this year, and we thought we should give a little explainer.
California law (enacted by Proposition 13 in 1978) limits the property tax on your home to 1% of assessed value, and the assessed value is determined by what you paid for the home. The county can increase your value over time, but only by 2% a year. So, if someone before you owned the home for a while, they were getting a break by not paying on the full market value of the home. You get that break too, when your property appreciates in the future.
So, when you buy an existing home, the county will reassess the home to the price you paid, and often you’ll see a property tax bill based on the previous owner’s value and then another bill that levels it up to the value you paid for the home. This is prorated for the remaining months in the fiscal year. Sometimes there’s a long delay, and you don’t get the supplemental bill for many months. And sometimes you’ll get two bills – one for the previous fiscal year and one for the upcoming year. Your mortgage company may not pay the supplemental bills – it depends on how much money you have in the escrow account set aside for your taxes and homeowner’s insurance.
Here’s an example:
Previous owner’s assessed value: $400,000
Price you paid: $600,000
Property tax based on previous owner’s value: ~$4,000
Property tax based on your value: ~$6,000
Purchase date: May 1st (two months left in the fiscal year)
Prorated supplemental tax: ~$333 ($2,000 difference in annual tax, prorated for only two months remaining in the fiscal year)
Often the next year’s tax will come in two bills as well — the original $4,000, plus a second bill for the full year’s supplemental $2,000.
Be sure to check with your mortgage company about whether they’re going to pay the supplemental bills. If they are not, you need to pay attention to the payment deadline to avoid penalties for late payment.
If that’s confusing, feel free to reach out! Steve teaches the public finance course for Master of Public Administration students one semester a year at UOP’s McGeorge Law School. He can answer all kinds of property tax questions!
How we’re doing 🙂
Yes, it’s been a fairly slow year. Some realtors are quitting. We’ve been doing OK, currently about to close our seventh one since this spring. We’re here for you if you’re thinking about selling or buying – just reach out and let’s chat. And if you know someone thinking of buying or selling, please send them our way! We’d love to help. Our contact info is below.
