Nearly all Maryland homeowners due to receive new property assessment notices being mailed today will see a lower assessed value on their houses, reflecting what officials say is the largest decline in the state assessment office's history. On average, residential property values dropped 19.7 percent over three years, according to C. John Sullivan, director of the state Department of Assessments and Taxation.
"I've never witnessed anything like it. It's unprecedented," said Sullivan, who has worked in the state's assessment agency since the mid-1960s.
The decline is the downside of the sharp increases in home values during the housing bubble in 2005-2006, a slide that is expected to continue into next year.
Commercial properties increased slightly in value, however, meaning that overall property values dropped 16.1 percent statewide since 2006, the last time these same areas were evaluated, he said.
Sullivan said 673,221 notices were to be mailed Tuesday, reflecting physical inspection of nearly one-third of the properties and a review of 68,261 sales over the past three years. More than 93 percent of the homeowners who will receive notices in the coming days will see a decline in the assessed value of their property.
"These areas were last valued three years ago, and that was at the top of the market," said Larry White, assessment supervisor in Carroll County, where residential values in the southern third of the county dropped 21.5 percent. The state sets home values, while local governments set tax rates.
Many homeowners will not see corresponding declines in their tax bills come July 1, however, officials warned, unless local governments reduce the tax rate, which is unlikely because they need the revenue.
Many residents are paying taxes on only a fraction of their home's assessed value because the state's Homestead Tax Credit program caps the amount of increase that may be taxed each year. As home prices climbed rapidly early in the decade, owners were protected from sudden jumps in tax bills. While statewide the cap is set at 10 percent, most jurisdictions have lower ceilings.
In Howard County, for example, if a home doubled in value, the owner pays taxes on only 5 percent of that increase yearly. So even this year's 23.1 percent decline in residential value won't produce a tax bill cut.
"Unless they bought a home in the last two years, they will still see an increase in property tax," said Raymond S. Wacks, Howard County's budget director, because the county's cap is suspended on newly purchased homes for one year. That revenue cushion may disappear in another year or two, however, if prices continue to fall, he warned. Anne Arundel officials expect a similar scenario, despite the 19.7 percent drop in home prices from Annapolis north. Overall values, of residential and commercial properties, in Arundel declined 17.9 percent.
"It will have minimal impact" on revenues, Anne Arundel County Executive John R. Leopold said, because of his county's 2 percent annual assessment cap.
Still, the lower assessments and the prospect of lower taxes in the future could help those who haven't been able to sell their homes during the economic downturn, or at least make staying in their homes less onerous.
"If we end up staying here, we'd love to pay less taxes," said Chang Woo Lee, who owns an imposing house on the corner of St. Paul St. and East 39th St. in Guilford that she and her husband bought in 2006, renovated for a year and a half and then put back on the market.
Lee, a cellist with the Baltimore Symphony Orchestra, said she and her husband have already lowered their asking price to $1.68 million, "a lot less than [the $2.3 million] we invested," but plan to go no further.
"This was more of a fun project, but it was a terrible time to be doing my fun project, and I'm paying the price for it," she said, standing in her doorway Monday as the afternoon sun fell on the house's red brick facade.
Baltimore officials are happy prices haven't plummeted as much as in the suburbs. "We've maintained a stable [housing] base," Baltimore Mayor Sheila Dixon said about the average 5.5 percent decline in residential property values across the northern third of the city. "It's good that [prices] haven't gone down a lot." The overall city decline, including commercial values, was 2.6 percent.
Dixon expressed hope that a slots parlor downtown will enable the city to cut its high property tax rate - eventually. The state recently tossed out an application by a group of developers for the city slots license and will start the bidding process over.
City budget director Andrew Kleine noted that with a projected shortfall of $50 million this fiscal year and $126 million in fiscal 2011, "the only bright spot has been property taxes." Assessment increases in the previous two years should keep those revenues going up for now, he said.
One-third of each Maryland jurisdiction is revalued every three years, but unlike higher values, which are phased in over that entire period, the decline in values takes effect immediately.
The sharp price cuts on homes are taking their toll on the housing market, economists said.
Baltimore-based economist Anirban Basu said lower prices will keep more buyers and sellers on the sidelines, while a repeat of this year's decline next year will begin to hit local government revenues hard.
"The next shoe to drop is local jurisdictions," said Howard County Executive Ken Ulman about the 23.1 percent average decline in home values in the north-central part of the county, covering western Ellicott City near Marriottsville. Homes costing $500,000 and above saw the largest reductions, said Howard Levenson, assessment supervisor in Howard.
Still, prospective homebuyers might feel encouraged, one Realtor said, and homeowners might appreciate the decline from record-high assessments of several years ago.
"It's definitely a double-edged sword," said Bob Kimball, a Baltimore County Realtor who is president-elect of the Greater Baltimore Board of Realtors. No one wants values to drop, but the potential of lower taxes in the future could attract more buyers, he said.
Economist Daraius Irani, director of applied economics at the Regional Economic Studies Institute at Towson University, said "the official recession is over, but unemployment is still an issue," and that's influencing home prices.
"We see 2010 as being a year in transition," he said. "As long as people are still unsure about employment, they may not purchase a house."
David McIlvaine, current president of the Greater Baltimore Board of Realtors, said Realtors are seeing an annual price drop of about 7 percent to 8 percent, though he's encouraged by quicker sales, spurred by the federal credit for first-time homebuyers.
"We've seen a consistent increase in sales," he said, though prices are still depressed.
John Kortecamp, executive vice president and CEO of the Home Builders Association of Maryland, expects a "modest improvement" in sales of new homes accompanied by slightly higher prices next year. He expected the assessments to reflect an even deeper price decline, he said.
"They're not shocking," he said about the drop. "This is relatively good," compared to his own expectations.
State officials say the declines merely reflect the usual dynamic in which assessments lag behind market changes.
"We have an awful lot of short sales and foreclosures," said Doris J. White, assessment supervisor in Frederick County, where the 26.1 percent average residential decline was the state's second largest to Charles County's 28.2 percent. Fast-growing Urbana, near the Montgomery County line, was particularly hard hit, she said. "It looks to us like we have an awful lot of people who bought houses with nothing down," she said.
Worcester County revalued the northern portion of the county just west of Ocean City, where supervisor Robert L. Smith said 78 percent of homes are not owner-occupied. "There are hundreds of [vacation] condos," he said, and property values are heavily influenced by the tourist market in Ocean City itself. Residential values there declined 23.9 percent.
In contrast, areas where home prices rose the least early in the decade saw little change from three years ago, statistics show.
Chronically distressed Allegany County was the only place in the state to see an average increase in home values, although it was just 0.1 of one percent over three years.
"We never saw the bubble go up, so we didn't see it burst out here," said Tom Farrell, assistant assessment supervisor in Allegany. Garrett County values were flat on average.
Owen Charles, assessment supervisor in Baltimore City, said larger declines in prosperous areas like Homeland and Roland Park were more than balanced by much smaller price changes in rowhouse neighborhoods like Chinquapin in Northeast Baltimore.
Darrell Pope, a real estate agent with Roland Park-based Long & Foster, said that during the mid-decade boom in prices, houses in Baltimore "were assessed at ever-increasing rates, which brought in a lot of revenue for the city."
But as the downturn in the economy took hold, "people putting their houses on the market were finding that their assessment from the city is more than their property's market value."
In western Baltimore County, where home values dipped an average 17.8 percent, the more modest homes in Arbutus and Lansdowne counterbalanced larger price declines in Catonsville, Owings Mills and Randallstown, said Roger Lee, assistant assessment supervisor there.
The sharp drops in values show that assessment officials are following the market closely, Sullivan said, eager to deflect chronic critics who say Maryland's complex property tax system is inherently unfair.
But H. Leroy Whiteley, president of the Harford County-based Marylanders for Fair Property Taxation, rejected Sullivan's assurances, renewing his call for the General Assembly to authorize a property tax study.
"I say the whole system is unfair," he said. His own house was given a 38 percent higher value last year, he said, and it takes hours of often futile work and aggravation to seek relief. A system based solely on sale prices of comparable or near-identical properties would be better, he said, and save the state millions of dollars on administrative costs.
"These people have got to be brought to be accountable," Whiteley said.
Sun reporter Nick Madigan contributed to this article.