We all know that home prices have taken off dramatically over the past few years. But there is another crucial part of the homebuying equation that most of us don’t think about.
Property taxes.
With the median home price increasing by nearly 17% (over $50,000) in 2021, property taxes should’ve increased alongside them.1
But it appears that the housing market took off so quickly that property tax increases were left in the dust.
Analyzing housing data across 50 states and 585 cities from 2016 to 2021, Today’s Homeowner found that although property tax bills have been higher across the country, the effective property tax rate has decreased in 48 states and most cities in that same period.
Now in 2023, it seems this small blessing could turn into a nightmare for recent homebuyers. Will property tax rates ramp up to keep pace with rising home values?
Key Findings
Nationally, the average property tax bill increased by more than 19% over the past five years ($2,340 to $2,795), while the average effective property tax rate dropped by 0.15% (1.14% to 0.99%).
Average property tax bills rose the most in Western states, including Colorado (40.2%), Utah (34.7%), and Washington (33.2%).
Though average property tax bills rose in nearly 97% of cities, effective property tax rates increased in only about 17% of the cities we considered.
Four of the 10 cities where effective property tax rates dropped the most are in New Jersey — a state known for its high property taxes. They include Trenton, Paterson, Elizabeth, and Bayonne.
Breaking It Down: What Are Property Taxes?
First, a quick lesson: what are property taxes? And how are they calculated?
Property taxes (also called real estate taxes) are often tacked onto your monthly mortgage payments and go toward improvements in your city or town — everything from roads and infrastructure to schools and public transportation.
If you’re part of the 37% of Americans who have paid off their mortgage, you’re still on the hook for paying property taxes.2 They’ll just come in the form of a bill from your local government.
How Are Property Taxes Calculated?
The amount you owe in property taxes is based on the assessed value of your property multiplied by your local government’s tax rate.
Property tax = property value x tax rate
For example, let’s say your home has an assessed value of $350,000, and your local tax rate is 2%. You’d owe $7,000 annually in property tax, which comes out to about $584 a month added to your mortgage.
Why Property Taxes Differ by Location
Often (but not always), the more expensive a place is to live in, the less it typically relies on income from real estate taxes — getting funds from high sales or income tax instead. For example, Hawaii has the lowest real estate tax rate of 0.27% but one of the country’s second-highest income tax rates at 11% (just behind California at 13%).3 Hawaii also saw the highest median home value of any state in 2021 at $722,500.
Real estate tax rates ebb and flow depending on the treatment of different property classes (residential vs. commercial) and the spending habits of the local government. For instance, Honolulu has one of the lowest tax rates (around 0.30%) due to high median home values and low local government spending.4
Where Are Property Taxes Rising the Most?
How much you pay in real estate taxes varies significantly based on which state you live in and where you live within that state.
Property Tax Bills by State
Analyzing changes in housing data from 2016 and 2021, we can see all 50 states reported an increase in taxes paid, but the change in average property tax bills varied significantly.
The top three states that saw the biggest increase in property taxes paid were:
- Colorado: 40.2%
- Georgia: 35.8%
- Utah: 34.7%
In Colorado, the average property tax bill catapulted from $1,611 to $2,259 — an increase of more than 40%. Georgia’s average property tax payout rose from $1,493 to $2,027; in Utah, it increased from $1,627 to $2,191.
Property Tax Bills by City
The top three cities that saw the largest increase in property taxes paid are all in Florida:
- Fort Myers, Florida: 73.0%
- Town ‘n’ Country, Florida: 67.5%
- Melbourne, Florida: 64.0%
Despite the large increases for all three metros, only Fort Myers saw a significant increase in property tax rates (+0.13%) from 2016 to 2021. Melbourne saw a slight tax rate increase of 0.06%.
Aside from Florida, the top 10 cities that saw the largest increase in property tax bills were located in Texas, California, and Colorado — three states that saw significant increases in home values over the same period.
Changes in the Effective Property Tax Rate
While property taxes are mostly based on your home’s assessed value, they can fluctuate based on where you live. States also perform property assessments at different frequencies — some annually and others every two to three years — which can lead to a lag in data.
Property Tax Rates by State
Though property taxes rose in all 50 states and most large cities, changes have often not kept pace with rising home values.
As a result, the effective property tax rate decreased from 2016 to 2021 in all but two states — it remained the same in Hawaii and increased slightly in Louisiana (+0.01%).
For example, the top three states that saw the biggest increase in property taxes paid (Colorado, Georgia, and Utah) all saw a decrease in the property tax rate. Colorado’s tax rate dropped by 0.03%, Georgia’s by 0.08%, and Utah’s by 0.13%.
Areas in the Northeast and Great Lakes region of the United States saw the biggest reductions in real estate tax rates between 2016 and 2021, with the top three biggest reductions in:
- New Hampshire: -0.42%
- Wisconsin: -0.38%
- Rhode Island: -0.33%
It’s important to note that these three states started with comparatively high tax rates. New Hampshire had the third highest tax rate in 2016 (2.19%) and was followed by Wisconsin in fifth place (1.89%) and Rhode Island in twelfth (1.62%).
Other states in this region — including New Jersey, Illinois, Connecticut, New Hampshire, and New York — saw big tax rate reductions with comparatively high tax rates.
Property Tax Rates by City
Several cities saw larger drops in the effective property tax rate than states. In fact, five cities saw the effective property tax rate fall by more than a percentage point. At the city level, these three cities saw the largest drops in effective property tax rates:
- Detroit, Michigan: -1.44%
- Flint, Michigan: -1.16%
- Trenton, New Jersey: -1.14%
Many of these cities had lower median incomes and lower home values.
Should Homeowners Be Worried About Rising Property Rates?
The housing market has begun to slow as of the beginning of 2023. But the issue of the lagging property tax begs the question — do homeowners need to worry about property taxes rising to meet higher assessed home values?
There’s no exact answer, but some experts say you should be prepared for the possibility.
“New homeowners should keep in mind that property taxes are yet to rise parallel to property values,” Fant Camak, a realtor at Coldwell Banker, told Today’s Homeowner. “The future is not so bright that it would stay this slow and favorable for homeowners.”
“New homeowners should remain cautious and consider the possibility of future changes in tax rates,” said Jenna Lofton, a certified financial planner at Stock Hitter. “Rates might ‘catch up’ to higher assessed home values, particularly in fast-appreciating markets.”
Whether or not it’s for certain, Lofton said it’s “crucial” for homeowners to stay on top of their local property assessment schedules and be prepared for potential changes.
Others are more optimistic, saying it’s “unlikely” that property tax rates will need to catch up to higher assessed home values.
“Unless there is a significant shift in local or state laws governing taxes, new homeowners should not be overly concerned about this issue,” said Dana Ronald, president of the Tax Crisis Institute.
If you are wary of increased property taxes, you can consider other ways to reduce your housing costs, like finding a cheaper home warranty plan or reducing your electricity use to cut back on utility bills.
Methodology
To determine local changes in property taxes, Today’s Homeowner considered data for all 50 states and 585 of the largest cities. For each place, we considered two metrics:
- Change in average property tax bill. This is the five-year change in each place's average property tax bill.
- Change in effective property tax rate. This is the five-year change in the effective property tax rate. The effective property tax rate is the average property tax bill divided by the median home value.
Data comes from the Census Bureau’s 2016 and 2021 1-year American Community Surveys.
Questions about our study? Contact media@todayshomeowner.org.
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