Mortgage fallout is hitting home

November 7, 2008
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Not only has the sub-prime mortgage crisis lowered property values, it has also called for yearly property assessments rather than bi-annual assessments, due to falling housing prices.

Still, the market value of residences in Kent County this year isn’t likely to drop nearly as steeply as the 20 percent decline touted in the national news.

“There may be 20 percent on some individual properties, and that may have been the case. But here we’re not in a coastal area or in some of the places in the country, like the Southwest and Florida, that had the huge, huge, huge run-up in prices, and so we’re not having as big of a bubble bursting,” said Matt Wolford, Kent County equalization director.

“We are going to see a substantial decrease in residential value this year — probably to the tune of 3 percent or more countywide. But that doesn’t mean that every parcel will go down. It just means that on the whole, that is probably what we’re going to see,” he added.

An equalization report issued last May showed the first decline in the county’s total equalized value of real and personal property in 19 years. The report showed an overall drop of $42.3 million from the previous year’s report, as the total value of all properties in the county fell from $24.33 billion in 2007 to $24.29 billion in 2008.

All the residential properties in the county were valued at $15.6 billion in May’s report. A 3 percent drop would run that number down for the 2009 report by roughly $47 million, a bigger decline than all the property types recorded last year.

Wolford also said he expects that values for commercial and industrial properties will be fairly flat, with a few small increases here and a few small decreases there. Those values are being calculated now, and Wolford said it is too early to toss out an estimate for either.

But lower home values alone will negatively affect the county’s property-tax revenue. Last month, a total of $90.3 million was thought to be going into the county’s general fund. Last week, though, that forecast was dropped to $89.1 million — but still higher than the $87.8 million expected for this fiscal year.

The general fund’s bottom line for the coming year went from an earlier predicted deficit of $800,000 to nearly a $2 million shortfall last week, largely due to the change in projected property-tax revenue.

Despite a general decline of home values, some homeowners will see an increase in their property tax bills next summer. That’s because the Consumer Price Index has risen by 4.4 percent this year, the biggest jump in over a decade, and that figure will be added to a home’s current taxable value.

Wolford said, though, that not every homeowner will receive a tax increase and of those who do, not all will see a 4.4 percent hike. Some increases will be less because the home’s State Equalized Value has fallen below its capped value, which is the previous year’s taxable value with last year’s CPI increase added to it.

“So 4.4 percent is the maximum that someone could see, but it is by no means going to be what everyone sees. In the city of Wyoming, I think over 30 percent of the parcels are already at that point,” he said of homes with a higher capped value than property value.

“So for many, in fact, the taxable valuation is frozen and (they) will see no increase.”

Wolford was quick to point out that Wyoming isn’t the only location where a capped value is higher than the SEV. He said over half of the parcels in the county are at or near that point, and that includes personal property.

“It’s a substantial number, and over the next couple of years, it could grow into the majority of people not receiving a taxable-value increase if their market value has gone down to the level where it’s lower than the capped value,” he said.

“Of course, when you extrapolate that across all of the properties in Kent County, we could see a real compression on the taxable value as a whole, which has financial implications for all of the taxing authorities.”

Those financial implications are lower property-tax revenues or smaller-than-normal increases in property-tax revenues to taxing jurisdictions like the county. The county is going through the latter this year for next year’s budget.

Something that not every property owner may be aware of is state law does not consider the actual sale price of a property to be its true cash value, or SEV for assessments. In fact, using a sale price as an assessment is illegal. Why? Because some people buy or sell homes for more or less than what the houses are worth, and counting those sales in an assessment could unfairly raise taxes or lower values for nearby homeowners.

“I used to be the assessor for East Grand Rapids, and we always used to be able to point out the people who came in from Chicago to buy property because they’d over-pay by 30 percent thinking they got a tremendous bargain. Their knowledge of the local market was uninformed compared to others,” said Wolford.

“You might also have an uninformed seller, maybe in a divorce situation, and so there is an incentive to sell.”

But Wolford said a sales price does become a data point for the entire area, the county gets about 28,000 of those each year, and those data points help to evaluate properties in areas where sales have occurred.

Also according to state law, an assessor can’t consider foreclosure sales when calculating values, as they aren’t viewed as reliable indicators of property values when markets are compared. Nor does a foreclosure sale automatically lower the value of another non-foreclosed, nearby property to the foreclosed property’s value.

But that’s not to say foreclosures have no effect at all.

“Are foreclosures having an impact? You bet. Not only directly on the parcels that are in foreclosure, but also on the ones that are having a downward spiral,” said Wolford. “But that doesn’t mean that an assessor goes in and says, ‘OK, this house is on for foreclosure so that one right on the other side of it is going to get that amount of a decrease.’”

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