Possible property tax increases
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Whether you're eyeing a $150,000 starter home or a new luxury condo, house hunters of all budgets would be wise to pay attention to property taxes in 2024, industry experts tell Axios.
State of play: The housing market's conditions are ripe for property tax sticker shock.
- Property values across Metro Detroit have increased about 30% since 2019, meaning a buyer would pay about 30% more in taxes than if they bought a house five years ago.
Why it matters: Buyers who overlook future tax payments could find themselves in a house they can't afford.
What they're saying: "Too many buyers are getting caught without knowing that," Randy Repicky, a Grosse Pointe realtor who manages Real Estate One's market research department, tells Axios.
How it works: Every year on Jan. 1, local property assessors across Michigan set the taxable value of homes that sold the previous year to the prior year's state equalized value or SEV, which is then adjusted for any appreciation or depreciation of the prior year's local values.
- For existing homeowners, Michigan law caps property tax increases with a calculation tied to inflation so they aren't priced out of their homes when property values increase.
Yes, but: Property sales lift that cap.
- Resetting the home's taxable value at market prices can increase property tax payments by thousands of dollars — especially in periods of sustained property value growth like we're seeing now.
Be smart: Repicky offers buyers this advice: Disregard the seller's past property tax payments when estimating the taxes you'll have to pay.
- Instead, focus on the home's SEV, which gives a true basis for future tax payments because it disregards Michigan's property tax cap for existing homeowners.
- Repicky wrote this handy one-page primer with further guidance.
By the numbers: Let's look at the property taxes on a typical Metro Detroit home purchased in 2009 for $125,000.
- An owner who kept the house would have a 2023 tax bill of $3,671.
- But if the house was sold in 2022 — lifting the property tax cap — the new owner would have owed about $8,100 in taxes last year based on the area's assessment growth.
The bottom line: Real estate agents and lenders should make buyers aware of property tax consequences, Repicky says.
- But some don't, and buyers can protect themselves with a little due diligence.