Reader Duncan Burns, a writer for the “Valley Patriot”, a local newspaper in North Andover, Massachusetts pinged me with an interesting chart on the home ownership rate in Massachusetts.
A quick look at the chart led to hours of investigation. There were huge variations in home ownership rates, state by state.
Region in the county was not a factor, nor was the size of the state. Home ownership peaked in 1998 in one state and 1999 in several more.
The Massachusetts home ownership rate did not peak until 2012!
What’s up with that?
Massachusetts Home Ownership
A variation of that chart kicked off numerous questions:
- What other states peaked late?
- What states peaked early?
- What states are most above and most below the US average?
- Is state population a factor?
In all of the following charts, the data for individual states goes to 2015, while the US average is through first quarter of 2016. The home ownership rate for the entire US is seasonally adjusted, individual states are not.
Home Ownership Rates Five Largest Population States
In this group, Illinois is the most above the US average home ownership rate. Illinois is the 5th largest state by population. The US average in 2015 was 64%. Illinois was at 65.4%. Florida, the third largest state by population, is also above the national average. Population alone does not appear to be a major factor in home ownership rates.
Home Ownership Rates of Five Highest States in 2015
The coal bust state of West Virginia and the rust belt state of Michigan have the highest current home ownership rates at 74.9% and 74.6% respectively. The pattern stops there. Delaware, Vermont, and New Hampshire follow.
Home Ownership Rates of Five Lowest States in 2015
Dwarfing all the states, I added D.C. to the list. The current home ownership rate in D.C. is a pathetic-looking 40.4%, in a class by itself. Ignoring D.C., congratulations are due New York and California for having the lowest home ownership rates in the nation. A mere 51.5% of New Yorkers own their own home. California sits at 54.3% with Nevada at 54.8%. Rhode Island and Hawaii round out the list. Massachusetts was next in line, just missing the cut. Region is not a determining factor.
Home Ownership Rates Peaking Earliest
Congratulations are due Kentucky for trendsetting. It peaked in 1998, well before US average of 2004. North Carolina, Pennsylvania, and Maine peaked in 1999. New Mexico peaked in 2000. I don’t see much of a reason here, but all of the early peakers are still well above the national average.
Home Ownership Rates Peaking Latest
Congratulations are certainly due Massachusetts for peaking in 2012, a year later than runner up Vermont. Note that that Massachusetts plunged like a rock following a touch of the national trendline.
Data Sorted Low to High based on 2015 Home Ownership Percentage
| STATE | 2000 | 2005 | 2010 | 2015 | PEAK | PEAK YEAR |
|---|---|---|---|---|---|---|
| New York | 53.4 | 55.9 | 54.5 | 51.5 | 55.9 | 2005 & 2007 |
| California | 57.1 | 59.7 | 56.1 | 54.3 | 60.2 | 2006 |
| Nevada | 64 | 63.4 | 59.7 | 54.8 | 65.7 | 2004 & 2006 |
| Rhode Island | 61.5 | 63.1 | 62.8 | 58.9 | 64.9 | 2007 |
| Hawaii | 55.2 | 59.8 | 56.1 | 59.3 | 60.6 | 2004 |
| Massachusetts | 59.9 | 63.4 | 65.3 | 60.5 | 65.8 | 2012 |
| Oregon | 65.3 | 68.2 | 66.3 | 61.1 | 69 | 2004 |
| Arizona | 68 | 71.1 | 66.6 | 61.7 | 71.6 | 2006 |
| North Dakota | 70.7 | 68.5 | 67.1 | 61.8 | 71 | 2001 |
| Texas | 63.8 | 65.9 | 65.3 | 61.9 | 66 | 2006 & 2007 |
| Alaska | 66.4 | 66 | 65.7 | 62.3 | 70 | 2003 |
| Washington | 63.6 | 67.6 | 64.4 | 62.6 | 67.6 | 2005 |
| Georgia | 69.8 | 67.9 | 67.1 | 62.9 | 71.8 | 2002 |
| Louisiana | 68.1 | 72.5 | 70.4 | 63.3 | 73.5 | 2008 |
| Colorado | 68.3 | 71 | 68.5 | 63.6 | 71.3 | 2003 |
| New Jersey | 66.2 | 70.1 | 66.5 | 64 | 70.1 | 2005 |
| United States | 67.4 | 68.9 | 66.9 | 64 | 69 | 2004 |
| Florida | 68.4 | 72.4 | 69.3 | 64.8 | 72.4 | 2005 & 2006 |
| Kansas | 69.3 | 69.5 | 67.4 | 64.9 | 70.4 | 2001 |
| North Carolina | 71.1 | 70.9 | 69.5 | 65.2 | 71.7 | 1999 |
| Illinois | 67.9 | 70.9 | 68.8 | 65.4 | 72.7 | 2004 |
| Montana | 70.2 | 70.4 | 68.1 | 66.4 | 72.4 | 2004 |
| Ohio | 71.3 | 73.3 | 69.7 | 66.4 | 73.3 | 2005 |
| Connecticut | 70 | 70.5 | 70.8 | 66.5 | 73 | 2003 |
| New Mexico | 73.7 | 71.4 | 68.6 | 66.5 | 73.7 | 2000 |
| Tennessee | 70.9 | 72.4 | 71 | 66.5 | 72.4 | 2005 |
| Wisconsin | 71.8 | 71.1 | 71 | 66.6 | 73.3 | 2004 |
| Arkansas | 69.9 | 69.2 | 67.9 | 67.1 | 71.2 | 2001 |
| Maryland | 69.9 | 71.2 | 68.9 | 67.1 | 72.6 | 2006 |
| South Carolina | 76.5 | 73.9 | 74.8 | 67.1 | 77.5 | 2002 |
| Virginia | 73.9 | 71.2 | 68.7 | 67.1 | 75.1 | 2001 |
| Oklahoma | 72.7 | 72.9 | 69.2 | 67.4 | 72.9 | 2005 |
| Kentucky | 73.4 | 71.6 | 70.3 | 67.9 | 75.1 | 1998 |
| Nebraska | 70.2 | 70.2 | 70.4 | 68.1 | 71.2 | 2004 |
| Missouri | 74.2 | 72.3 | 71.2 | 68.5 | 74.8 | 2002 |
| Iowa | 75.2 | 73.9 | 71.1 | 68.8 | 76.6 | 2001 |
| Indiana | 74.9 | 75 | 71.2 | 69.4 | 75.8 | 2004 |
| Pennsylvania | 74.7 | 73.3 | 72.2 | 69.6 | 75.2 | 1999 |
| Maine | 76.5 | 73.9 | 73.8 | 69.9 | 77.4 | 1999 |
| Utah | 72.7 | 73.9 | 72.5 | 69.9 | 76.2 | 2008 |
| Wyoming | 71 | 72.8 | 73.4 | 69.9 | 73.8 | 2009 |
| Alabama | 73.2 | 76.6 | 73.2 | 70 | 78 | 2004 |
| Idaho | 70.5 | 74.2 | 72.4 | 70 | 75.5 | 2005 |
| Minnesota | 76.1 | 76.5 | 72.6 | 70.1 | 77.3 | 2002 |
| South Dakota | 71.2 | 68.4 | 70.6 | 70.1 | 71.5 | 2001 & 2002 |
| Mississippi | 75.2 | 78.8 | 74.8 | 70.7 | 78.8 | 2005 |
| New Hampshire | 69.2 | 74 | 74.9 | 71.6 | 76 | 2009 |
| Vermont | 68.7 | 74.2 | 73.6 | 71.8 | 74.6 | 2011 |
| Delaware | 72 | 75.8 | 74.7 | 73.3 | 77.3 | 2004 |
| Michigan | 77.2 | 76.4 | 74.5 | 74.6 | 77.4 | 2006 |
| West Virginia | 75.9 | 81.3 | 79 | 74.9 | 81.3 | 2005 |
Property Taxes
Inquiring minds may be wondering how property taxes play into home ownership rates.
The above table from the CoreLogic article Comparing the Real Cost of Owning Property Across the United States. This gives us yet another metric to use.
Home Ownership Rates of States With Highest Property Taxes
Of the five highest property tax states, two are above the US average, two are below. New Jersey trended the entire time right near the average, sometimes above and sometimes below, and is now right on the average.
Home Ownership Rates of States With Lowest Property Taxes
Of the five lowest property tax states, South Dakota, Alabama, and Wyoming are above the US average. Colorado is right on the average, and Hawaii (with the lowest property taxes) is well below average ownership.
Valuations
CBS News has a list of the 11 Most Expensive U.S. States to Buy a Home as of May, 2015.
- District of Columbia
- Hawaii
- California
- New York
- Massachusetts
- New Jersey
- Alaska
- Colorado
- Washington
- Delaware
- Utah
Home Ownership Rates of Five Most Expensive Places
There’s D.C. again. It is the number one in the list of most expensive places, and number one in the lowest home ownership rate.
Overall Analysis
- The number one factor in home ownership rate is affordability.
- The most expensive places to buy a home are D.C., Hawaii, California, New York, and Massachusetts, in that order. D.C., Hawaii, California, and New York are also in the bottom home ownership list. Massachusetts just missed the cut.
- D.C. is the most expensive place to buy a home and also dead last in home ownership.
- Following D.C., New York has the lowest home ownership rate in the nation. New York is the third most expensive place to live. In addition, New York has Rent Control and rent stabilization programs. New York’s current rent control program, which began in 1943, is the longest-running in the United States. New York has the second highest property tax rate after Illinois.
- California has the third lowest home ownership and is the third most expensive place to live. California also has Proposition 13, hugely impacting tax rates of recent buyers.
- Nevada has the fourth lowest home ownership rate but has a low tax rate and is not in the list of expensive places to live. It is the odd man out in this analysis.
- Rhode Island has the fifth lowest home ownership rate. It also has a high property tax rate.
- Hawaii is the second most expensive place to live but only the 6th lowest in home ownership rate (counting D.C.) As a possible contributing factor, Hawaii has the lowest property taxes.
- Massachusetts is the fifth most expensive place to live and had the 7th lowest home ownership rate. It is 16th in property taxes.
Mike “Mish” Shedlock
I’m curious about your tax burden numbers, do you include programs like DC’s “Homestead/Senior Citizen Deduction” when evaluating how much home owners pay?
Do not know how they derived the numbers
Illinois is first in median property tax rates, okay, no surprise there.
Hawaii is last? Never would have thought that.
Hawaii has a lot of real estate locked up in land trusts. These are vestiges of the old families who first discovered and exploited the islands. These trusts only lease the land out for 99 year periods. They don’t need to sell, so this effects the supply of the market and distorts the numbers you see in the graph. Just fyi.
Yes, and all of Hawaii (or nearly all) was once owned by only 5 families.
Fifty states. A dozen cultures. 2.02 sexes.
Hi Mish,
You can add another bullet point to your overall analysis…Property taxes in Texas are grossly underestimated!
That median property tax rate of 2.17 percent is a work of fiction. It’s why most home “affordability” calculations underestimate the true cost of homeownership in Texas. The only way your are going to get a property tax rate of 2.17 percent is if you live out in the sticks outside of a larger city municipality or without any MUD (municipal utility district). Average property tax rates in major metro areas like Houston, Dallas Austin etc are going to be closer to 2.9 or 3.0 percent. Here in Houston you might see property tax rates of roughly 2.6 percent for older homes (25-years of older) where the MUD’s are paid down. Everything else has a much higher property tax rate. Newer homes in the Houston area have property tax rates of 3.3 to 3.7 percent.
This means that for one of the more popular master-planned communities here in Texas you can have a $500,000 home with an $18,000-per-year property tax bill. The property taxes on a modest $300,000 home can run as high as $12,000 per year.
http://aaronlayman.com/category/katy-texas-property-taxes/
A few years back a friend who had inherited his grandmother’s house in River Oaks in Houston sold the property that he and his wife owned because the property taxes had soared to more than $160,000 per year as Harris County had increased the property valuation to more than $8.5 million even though the family originally paid far less than $100,000 for the property and construction when they built it as one of the first houses back when River Oaks was created in the 1920s. The effective tax rate was around 2.2%.
Here in California, thanks to Proposition 13, property tax assessments are only allowed to increase by 1% per year as long as the property continues to be directly held by the original owners or their immediate heirs. When the property is sold or otherwise transferred the country property tax assessors here immediately reassess the property to market value at the time of that transfer which causes taxes to soar upwards by huge amounts. The current effective tax rates here in Los Angeles County typically run about 1.22% in most areas but vary based on the municipality.
Another big gotcha here in California is for relatively newly built subdivisions which charge a tax fee known as the “Mello-Roos Fee” to pay for the improvements of those subdivisions over a period of time which jacks the effective tax rate to more than 1.90% (nearly double, but not quite) for many of the newly constructed houses here in California. A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. The Houston MUD is very similar to the Mello-Roos surcharges here in California.
https://en.wikipedia.org/wiki/Mello-Roos
Not surprised at the Michigan stats. Ex-Detroit, rural Michigan housing prices are selling at 10 to 30 thousand dollars. Prices stayed down after 2008.
Property taxes did not go down with valuation like they’re supposed to. You’ll likely pay 1,500 a year, that’s 10% taxes.
Within a 10 minute walk, there’s a half dozen perfectly nice and livable houses, each less than 15k. The trick is to have the job, or bankroll, to buy it in the first place. Welcome to rural Michigan.
Can homeowners request a reassessment to current valuations from the county tax assessor?
Some days I own my home while other days it owns me. $28k/yr property taxes.
you sound like a New Jersey resident ……
What state?
New York and California figure heavily in rent control schemes, which tend to make it a very bad economic decision to move, much less buy your own place.
California has practically NO RENT CONTROLS at all of any kind except in a very few areas such as the People’s Republic of Santa Monica.
You’re actually off by quite a bit. The entirety of San Francisco and most of the east bay area have rent control.
Nice analysis! It would be interesting to see how employment factors into this. For example, many people in DC likely have government jobs, and California and New York might have relatively high levels of unemployed or non-skilled workers, which could bring down ownership rates.
If DC, New York City, Los Angeles, and San Francisco had an infinite supply of the 15k rural Michigan houses instead of over 500K or million dollar plus median home prices, everyone would own two or three houses. Multi-unit rental properties would become distressed properties, and landlords would remember rent control longingly as the good old days. Definitely affordability of housing relative to jobs/wages, student debt levels, etc.
Personally, I do not see WHY IT MATTERS whether 55% or 65% or some other arbitrary figure owns housing. Maybe it matters for political reasons, as rationale for government policies and interventions. But to me, these home ownership numbers are as arbitrary as the FED targeting 2% or 4% inflation. But at least the FED inflation targets have a purpose, aiding the government and other big debtors by inflating away the debt. What possible purpose could home ownership targets, be they 55% or 65%, have? Other than helping related special interests like home builders and mortgage bankers.
Washington DC is also a VERY TRANSIENT AREA where many people who live there are only there for a very short period of time working on government jobs and do not plan to live there for very long which obviously is a big contributing factor to the high rentals on property there.
We are simply returning to historical averages after the artificially induced subprime buildup. As for state by state averages varying, you hit on a couple reasons but could also include such things as employment rates, average time of ownership, loss and type of jobs in each state, job migration in major population centers, etc. Florida has retirees who do not move, West Virginia has a population which has been in the state for generations. Illinois is an outlier but if you look hard enough you will find why it has such high ownership.
You raised some interesting points, some of which I shared with Mish.
However, in order to find further answers I needed more data. While some of this data is readily available, some of it is not. In my state, Massachusetts, The Massachusetts Secretary of State Office made it cost prohibitive for me to delve further into analysis and data, calling it “specialized”, and it meant charging me tens-of-thousands of dollars in order to meet my request. Even though when the data is parsed, I think it would be of great benefit to many across a wide spectrum of industries. As of this writing, I do not have answer as to why they will not do this, especially since being so beneficial to so many. This of course is a monumental task would have to taken up in each state, so good luck to those that make the attempt.
Along those same lines: “Nevada has the fourth lowest home ownership rate but has a low tax rate and is not in the list of expensive places to live. It is the odd man out in this analysis.” I don’t know, but my guess about Nevada is they have a proportionally huge number of low paid service workers who can’t afford to buy houses and if they can, certainly not expensive ones. Also, many of them are probably transient and never intend to own a home.
Once you get out of Las Vegas and to a lessor extent Reno there’s not a whole lot of “there” there. Acres of land available but no utilities or even roads. If you can get a clear well and enough room for a solar array you can live there, but don’t expect curbside mail delivery. Makes land super cheap.
And I’m sure the LV market is still absorbing the overbuilding boom of the 00s.
“The number one factor in home ownership rate is affordability.”
Boy, you got that right. Between mark up of property for sale, so owner can drop a down payment for their next place to live, all those added fees for simply moving ownership from one person to another (realtors, banks, assessments, etc), and skyrocketing value assessments for tax purposes, it’s a wonder that anyone can achieve home ownership these days. The red tape baloney legalese in 5 point font-type is unbelievable to witness in contracts, too.
We are diligently searching for a home with a bit of space, inside and outer acreage, and finding it extremely difficult. Two counties over (where we want to relocate to), we found one place that we fell in love with, even if it needed serious updating. But the owner thinks it’s worth 200k (it’s not), and even the realtor thinks that’s ridiculous. The county we currently reside in, and the one next over, have taxes really high, supposedly partly due to desirability of location, which is silly funny. Personally, I think part of that thinking, subconsciously even, is to keep select people, aka the lower income, from living in these areas. Gotta keep the trailer trash out you know.
Speaking of trailers, we even entertained the idea of a modular home placed on some property. Did you know the cost of these are in the six figure range? And, apparently, when we did some math on this, we found the costs of new home construction on the same property was double the cost of that modular. Just WOW! Unreal. I thought the point of modular was cost reduction. Despite being half the price of a new home, it’s still crazy expensive.
Today’s Home Ownership Monopoly is a poorly designed game meant to discourage the majority, and turn us into a Renter Society.
My apologies for a long- winded post, but my experiences with buying and selling a home really makes me feel like I’ve stepped into a Hunter Thompson’s novel.
Around where I am, no not the US but a ( in some cases once) popular corner of EU, local legislation was left vacant for a couple of decades. So how does it look when you can build what you like where you like?
Well you could buy a 100 000 sqft land, within an hour of major airport, a quatrer hour to town or city, sea views, services etc., pay to build say 2000 sqft on it, all for 100 to 200 000 dollars ( prices here rose during those decades). Not bad, considering that after 4 yrs illegal built property could be legalized for about further 10% cost. Property taxes almost zero ( tens to a hundred or two). Services a hundred or two. Several hundred thousand took to this until the crack down ( you guessed – gfc, competition by developers for unsold units, local authority needing income), the service costs remained same, very few were demolished. Obviously there was a risk all along that there would be a clamp down at any point, a few got caught out half built, but far more were caught out investing in legally buildable property rezoned off hand on another occasion than that.
My point is that take away the red tape and people will build, mostly for themselves, at a fraction of market cost. That does not have to mean you sacrifice quality or zoning either, a basic set of rules were always applied ( and enforced by the various neighbourhoods), such as respect for distance to borders, non destruction of habitat, etc. In fact the developers were those who bulldozed valleys to fill them with terraced housing and appartments , not individual private builders.
I enjoy this topic so will give one example of mine:
Not an ambitious project compared to some, started 2000, mostly finished 2 yrs later, 10 000 sq ft completely bare land, masonry built studio of 250 sqft ( not pictured out of privacy). Solar electric. Total cost @ 30 000 dollars fully legalized, could add another 5 000 if you paid for labour. Materials good quality ( and you find out how poor most commercial construction is). Total outgoings yearly ( everything, inc. water, services) 1000 dollars. Well placed, quiet neighbourhood.
And I get to wake up to this when I stay there ( in fact better as the photo is a couple years old).
http://s33.postimg.org/aka9luhz3/DSC_0092.jpg
Which suits me just fine.
I guess I am writing this out of encouragement to others, if you can still find somewhere where you can build “off plan”.
In most of the US, the banksters and their armies of sycophants, use their control over the state’s oppressive apparatus to prevent people from doing this. The idea being that by banning anyone but themselves from building anything more than a cardboard box under a freeway overpass, sustains their “property values.” Which, along with reverence for Dear Leader and general incompetence, has replaced Christianity as state religion in most of The West.
Exactly that. To buy the cheapest legally buildable land would cost 60 000 dollars. To build something similar would cost well over 100 000 total, with many delays. To buy similar finished would cost over 150 000. A crummy single bed apt. costs 100 000 in this area. So people are paying 3 to 5 times cost. Financing too, I went about this half down on the land and half over 50 month private contract ( 5 000 + 50×100) . I built in my spare time as I could afford, without financing, if I had gone in with all the cash at hand and free time, would have been finished in a few months, not 2 yrs.
The local politicians ignored this self building here as they were so busy with their own corruption in a booming market. When the politics changed, that is when their revenue dried up, they turned on private builders, and it is no exageration to say they pulled every move, often illegal, to stamp on self builds. I don’t think you would believe how they went about this, it seemed an effort to show just how wrong their ideas were while making people pay for the privilege of being subject to. Though I had legalized beforehand they still went looking and inventing to capture the authority . They set up express auctions adjudicating properties without due process and selling them at cents to the dollar to acquaintances. Fortunately, the sheer number of people affected ( hundreds of thousands litterally) were enough to confront this all, the politicians involved are out of power again, and many under investigation. However all previous projects remain frozen as they are being assimilated in new planning, and no new projects of this nature have been started because there is zero tolerance towards them now by all political sides…. instead there is just a continuous push to try to offload the endless stock of still exorbitantly priced bank owned repossessed property with near 100% financing.
That is ‘authority’ for you.
Where’s the house?
$200,000 wouldn’t even make much of a downpayment on most houses in California anywhere near the coast here in Southern California. Value and affordability are always in the eye of the beholder and VARY RADICALLY on a national basis. There are practically no shacks here in coastal California that would sell for less than $1 million and one such shack in the People’s Republic of Santa Monica is now listed for $5.4 million.
Are these taxation figures inclusive of programs like DC’s Homestead/Senior Citizen Deduction? Certainly such efforts seem to make it more affordable while …..
“Home Ownership Rates of Five Most Expensive Places”
Think Vancouver
Trophy locales like California, DC, NY, Las Vegas, etc are bullseyes for foreign capital inflows that will drive up the prices to a point that locals can’t afford.
Give thanks to NAR for lobbying for no questions asked money laundering all cash sales.
I think that Las Vegas skews the Nevada numbers a bit. In fairness, NYC probably skews New York some, too. But maybe not as much as the impact of Vegas on Nevada.
Property prices in Las Vegas are generally low and remain quite depressed – at least as compared to property prices in California.
I expect strong correlation between home ownership and vacant houses. If nobody wants to buy a house then houses are a bad investment, so the only way to have a place to live is to own it. Conversely, in a mature city, government will have taxed most home owners into poverty, until most houses have been converted into apartment buildings and the owners of the apartments have taken over city government.
Mish — as another commenter mentioned (in reference to Texas), the property tax numbers you cite are bogus. I have no doubt that Connecticut is #1 in taxes across the board; GE recently announced it is leaving CT to move to “Taxachussetts”… and if there were honest journalism in the US they would mention that GE is late to the party. The highest paid workers in Hartford CT (other than government employees) all live around Springfield, Mass.
The problem with all those property tax charts (not just the one you cited) is that corrupt politicians have learned they can lie with impunity, knowing that reporters will never write anything bad about higher taxes.
Want to make property taxes in Illinois be ZERO? Just relabel them something else. The idiots that work for newspapers will never figure out the scam.
Connecticut’s governor raised taxes during his last term, before giving away the money to corrupt public unions. Then he created an electric utility sales tax, collected by the electric company but payable to himself. Then there was a water tax, followed by a separate sewer fee and sewer tax (both!) to pay for increased pensions. Train ticket prices exploded by 30% (despite bad service), so the state budget could redirect transportation funds to the governor’s pet projects.
Oh, and then he raised income taxes for the middle class and used the proceeds to give hedge fund Bridgewater a massive tax rebate. Dan Malloy’s corruption and horrid tax increases are so bad that socialist Bernie Sanders apparently demanded Malloy not be allowed to speak at the party convention.
But your source claims CT property tax is somehow #4 in the country? Only because corrupt politicians have relabeled and diverted the funds elsewhere. In the private sector this is known as ***ACCOUNTING FRAUD***. Just because politicians do it, does not make it right. Its still accounting fraud.
I know this sort of accounting fraud is rampant throughout the USA (its just CT’s governor happens to be worst at the moment). But its still accounting fraud, its still corruption.
Affordability is no doubt a major determinant of home ownership, but any attempt to correlate numbers based on GASB accounting fraud is destined to go nowhere.
Explain this: “California also has Proposition 13, hugely impacting tax rates of recent buyers.” the rate is a percentage of the sale price. It makes no difference WHEN you buy, only WHAT you pay. Prop 13 merely/only limits the annual INCREASE the tax assessor can raise your property tax.
It seems EVERYONE has a misconception of Prop 13, you included.
I’m pretty sure Prop 13 allows the property assessment to rise to the current market value when a property is sold, so a new buyer may be paying 2 or 3 times the taxes of one in an identical house who has lived there 30 years.
Indeed, Shamrock, that is exactly what happens here in California. Anytime a residential property is sold or otherwise transferred outside of the parent-child exclusion or spousal exclusion, the PROPERTY IS REASSESSED to comparable market values which can cause a property assessed at $125,000 to rise to an assessment of $1.5 million, for example, and property taxes increase massively from the amount paid by the old owners to around 1.2% of assessed valuation which in the case of a $1.5 million assessed house would be around $18,000 a year in property taxes.
Proposition 13 caps the maximum increase on assessed valuation of all houses to 1% annually and that includes newly purchased properties as well as those purchased by their original owners back in the 1950s.
@surfaddict — Prop 13 says property taxes are “assessed based on the sales price”, as you say. If the homeowner does not move (or more precisely does not sell), the sales price remains at the level when they bought the house.
I have two relatives in CA who bought their homes in 1970s, and their property taxes have never changed — because the sales price hasn’t changed. The most recent sales price dates to 1970s.
The homes are both valued in seven figures **IF** they sold today, but property taxes are under $10K because they are based on the $140K sales price dating back 40+ years.
I believe the term for this nonsense is “homesteading”
If the properties are held in a family trust (as some are), there is no sale when the buyer dies (the trust still owns the property). Perpetual trusts are illegal, but until the 2nd or 3rd generation dies, there is no sale — and thus no new sales price.
Don’t cry for them though. When the trust ends, they already plan to put a huge swatch of land into a green trust — preserving nature, getting another tax break, and preventing anyone from building nearby and messing up their private views.
You need to stop whining and go get a second and third jobs so you can pay more taxes and support this!!! There are illegal aliens waiting for more “free” stuff (free to them, you have to work).
Seems like you guys are circling around what Prop 13 does.
It only limits property tax increases; it does not freeze them. Property values outpace the tax increases.
However when a property is sold the new owner is assessed and pays the tax based on the selling price, which is often a big jump in the tax bill. But when property values crashed in 2008-2010 homeowners could ask to be reassessed and their bills were lowered.
The purpose of Prop 13 was to make the tax affordable to elderly people, so they would not be taxed out of their home.
I think Michigan has adopted a similar property tax scheme.
You forgot the mile high list of parcel taxes in Cali. Under prop 13 can’t raise property tax so they tag parcel taxes. And the fruit and nuts here keep wanted to fund everything that’s proposed.
@D — “parcel taxes” in lieu of “property taxes” — yet another case where corrupt government officials simply change the labels and collect more for themselves.
Wait till Jerry Brown or the CA legislature gets some tips from Connecticut’s scam government. Are you collecting sales taxes on municipal fees yet? CT’s governor thought up that scam in his first term!
How about pushing the cost of schools onto local governments while still collecting the taxes for the state? That is CT governor’s latest way of “balancing” *HIS* budget, while forcing local towns/cities to raise their property taxes to make up the losses.
Next, throw a party (at taxpayer expense of course) for yourself for “balancing the budget” via this accounting fraud. Invite Obama and Clinton to come speak (oh yes they did), and maybe Obama will make you his guest at the State of the Union speech (yup).
Malloy figures he can always tell taxpayers that he found ANOTHER huge deficit and needs to raise taxes again tomorrow!! But it won’t be property taxes, it will have a different label.
If government was serious about fixing accounting fraud on Wall Street, they would lead by example. Right now, government is showing the private sector how to commit accounting fraud — so don’t be surprised that it continues
100% correct! One one of our properties, I pay 3.6% property tax all inclusive. It makes being a landlord very difficult; so much so that I’ve been thinking of selling them all and buying an apartment complex.
@other Greg … don’t waste your money on an apartment complex. Buy a presidential candidate, the returns are MUCH higher
How Clinton Donor Got on Sensitive Intelligence Board
http://abcnews.go.com/Politics/clinton-donor-sensitive-intelligence-board/story?id=39710624
( have to wonder if ABC got permission from anchor George Snuffleupagus before doing this story )
Northern Nevada is poverty stricken. Low housing prices and low property tax rates can’t overcome that.
How is this measured? Seems to me states like CA and HI have low rates of individuals owning their own homes because real estate’s run by the ferengi and the richest people in the world come in and buy up tons of stuff everyone else can just rent. Is this wrong?
Correct that to “barely afford to rent.”
Get a 3% down VA/FHA Mortgage and, VOILA – you are a “Homeowner”.
LOL.
No, unfortunately you are not a “homeowner”.
What you “own” is a slightly-out-of-the-money (due to closing and transaction costs) 30-year call option on the market value of the house. You get to live in it in the meantime – assuming you can afford to make all the mortgage, tax, and insurance payments, along with upkeep and maintenance.
LOL — that is how the socialists view the world. It worked wonders for economies all over Latin America.
Back when the US had a growing economy run by capitalists, the law was required to protect property rights.
If you ever want to see economic growth return to the US, send the socialists to prison where they belong
Or even worse: deport the socialists to Venezuela.
Hi Mish,
I write about this issue over at my blog, maddogslair.com.
I suspect the primary factor depressing home ownership rates is land use planning. Oregon would seem an odd state to have low home ownership rates, but it does and it does because of it state wide land use planning, and the Urban Growth Boundary. Here are a few articles which can help suss this out a bit more.
Turning Portland into San Francisco | The Antiplanner
And a long post from my blog:
Boomer versus Millennial Wrestling World Smackdown, Portland is out ahead, but Seattle is running a close second!
Also, I suspect the valuation is less interesting than knowing the value to income ratio in each state.
I hope this was useful.
Mark Sherman
This is an extraordinarily excellent and comprehensive analysis, Mish!
A key thing not discussed in this excellent analysis is the huge difference in INCOME TAX RATES in all of the 50 states. California has among the highest state income tax which tops out at around 13.2% these days and is a huge burden for folks with large incomes who are also the ones likely to own the most expensive houses in the State. Texas, by contrast, has very high property tax rates of 2.2% to 3.7% but has no state income tax which offsets the much higher property taxes in Texas, at least for folks with very high incomes, as compared with the 1.2% property taxes here in California.
I suspect a large reason for depressed homeownership rates is foreign investment in residential properties driving out local citizen buyers. (China has invested about 300 billion in the last five years, most of it in about ten states) Many other uber wealthy from other nations have done so as well. As an example California is heavily bought by Chinese, and rents have skyrocketed, and prices have moved beyond the peak in many places. Much of that rental income leaves the area.
One dynamic in the northeast is the more wealthy from NJ, NY, CT and MA have purchased 2nd homes in NH and VT. Some buy their future retirement homes and rent in the area they work. This offers a huge tax advantage for someone who is a consultant and can deduct the place they rent as a business expense. In the case of NH, people can live in NH and commute to the Boston area for work.
I’m not sure if this was included in the last bit of data (most expensive places to buy a home) – it wasn’t clear from skimming their ‘article’. But it seems like the actual number of interest would be something like (average home value * property tax rate + yearly payment assuming a 30 year fixed mortgage with 20% down) / average income. I’ll be lazy and just use myself as an example: in CA the average homes near me are over $1M so you’re paying $12k+ a year in property taxes (I can’t bring myself to buy such a crappy house for >$1M so I just pay property taxes via my landlord). I previously lived in PA where I owned a really nice house that cost $300k and I paid around $8k a year in taxes (but it was only assessed around $250k – they had a semi-arbitrary system for assessing valuations, and the total tax rate was somewhere north of 3% as I recall, not the 2% shown in the article’s chart).
Anyway, if you look here: http://www.rasmussen.edu/career-center/career-research-hub/salary-by-state/#occupation=Engineers,-All-Other
salaries for engineers, for example are only slightly different between those two areas, $102k vs $86k. If you do the calculation I outlined above, you get a house in CA costing about 57% of pretax income vs 26% in PA. If you adjust for quality, the same house in PA might be more like $150k (being generous) and then you’d get around 13% of pretax income being spent.