Property Taxes Intensify Hardship in South Florida Housing Market
Faced with a steep rent increase, Lori Mays was thrilled to find a quaint condo for sale with three bedrooms and a picturesque water view. But then she did the math and learned her annual property taxes would be about $5,000.
Suffice it to say, it was a deal breaker.
The South Florida housing market has slowed substantially in the past year, and consumers, real estate agents and analysts say property taxes are a major reason. As home values soared in the past five years, so have taxes, which get reassessed every time a property sells.
On top of already sky-high Florida mortgage payments, that’s sigificant. And so Mays and others are stuck renting. Homeowners also say they are trapped, unable to buy larger or smaller places because their tax bills would double or triple. More people are giving up altogether.
Thousands of angry residents have spoken out at public forums in Broward County and Palm Beach County this week. There wasn’t enough momentum to change the tax system in the 2006 legislative session, but widespread outrage will make it a top priority for lawmakers next month.
Jeff Levine, a real estate agent for Illustrated Properties in Palm Beach County, uses his house as an example of the dilemma facing homeowners.
On a property he bought 12 years ago for $180,000, he pays annual taxes of about $3,700. The Save Our Homes amendment to the Constitution prevents taxes from rising more than 3 percent a year on homesteaded properties. Homeowners, however, lose that protection when they move.
So if Levine were to sell and buy a $500,000 home, his property taxes would climb to $10,000. A rule of thumb is that property taxes amount to 2 percent of the sales price.
He’d be facing higher taxes even by downsizing. A $300,000 property, for example, would mean taxes of about $6,000, a 62 percent increase over what he pays now - and a staggering sum on top of a Florida home mortgage that would already be hefty to borrow.
Last spring, Palm Beach County Property Appraiser Gary Nikolits said the local housing market would be “brought to its knees” if the property tax system doesn’t change.
Some would say that prediction came true. Housing markets across the nation turned soft in 2006, but few places were as affected as South Florida, where mortgage costs and a steamrolling homeowners insurance quagmire compound the situation.
More than 8,300 existing homes changed hands in Broward last year, a 26 percent drop from the 11,331 that sold in 2005, according to the Florida Association of Realtors. For its part, the condo market has plummeted 32 percent, to 8,996 from 13,253.
Rising homeowners insurance premiums, Florida mortgage loan rates and the exodus of short-term investors certainly have played large roles in the market downturn, but the property tax quagmire is equally to blame. Agents say that clients are stunned when they crunch numbers.
Some proposals for change would allow homeowners to take their Save Our Homes tax benefits with them when they move. Others include extending the current homestead exemption to second-home and business owners.
While property tax changes wouldn’t suddenly make the real estate market hot again, they would make it easier to buy and sell. We’re cautiously optimistic that Gov. Charlie Crist and the state legislators will soon recognize the importance of fixing the property tax mess.
