N.Va. Home Assessments Expected to Hold Steady
Tuesday, July 11, 2006
The era of double-digit property assessment increases for Northern Virginia homeowners appears to be over. Government officials say a rapidly cooling housing market means residents can expect minimal growth in the value of their property this year, perhaps as little as 1 percent.
The flattening of the housing economy might be good news for some taxpayers but poses challenges for local governments. A six-year windfall in property tax revenue, generated by soaring assessments, has enabled many localities to both increase spending and cut tax rates -- although the reductions have seldom been enough to offset tax bill increases. Officials starting to work on proposed budgets for the fiscal year that begins next July say the new economic climate, widely forecast, could sharply limit spending.
"This will be a difficult revenue year," said Barbara Donnellan, Arlington County's deputy manager.
In Alexandria, where real estate assessments rose 19.5 percent last year, bringing the average value of a home to $526,852, officials have told the City Council to expect reassessments to rise by only a few percentage points when bills are sent early next year.
"What we're seeing is the slowdown that everyone has been talking about" for several months, said Deputy City Manager Mark Jinks.
Homeowners in Maryland and the District are not expected to have the same drop-off in soaring valuations, even though home sales in these areas are also down sharply. Unlike Virginia real estate, Maryland properties are reassessed every three years, so the upcoming valuation will reflect the huge appreciation that occurred in 2004 and 2005. District properties, although reassessed annually, usually reflect a two-year lag, according to Natwar M. Gandhi, the District's chief financial officer.
Property tax increases in the District and Maryland are also capped by law at 10 percent a year.
In Fairfax County, where home values have surged for six years in a row, including an average of 20.5 percent last calendar year, a new study places market changes in sharp relief.
The number of homes sold in the first five months of 2006 fell more than 20 percent, to 8,232, compared with the same period in 2005, according to an analysis by county staff. Listings of homes for sale have increased more than threefold since May 2005. Houses in Fairfax are now on the market for an average of 56 days, compared with 21 days in 2005. Multiple bids are not as common. And in May, homes sold for 97.3 percent of list price, compared with 101 percent in May 2005.
"The period of double-digit growth in home assessments has abruptly ended," Fairfax County Executive Anthony H. Griffin told the Board of Supervisors in a recent memo. Although the numbers are preliminary, Griffin said, he did not expect assessments to rise more than 1 to 3 percent in the coming budget year.
Griffin said in an interview yesterday that the flattening assessments mean that next year's budget "is going to be constrained in comparison to this year's" and that most homeowners' real estate tax bills will remain about what they are now. The owner of a house valued at $540,746, the county average, is paying about $4,812 in property taxes this year.
This year, supervisors cut the tax rate to 89 cents per $100 of assessed value -- the lowest in modern county history and 4 cents lower than what Griffin had proposed in his budget. (But even at the reduced rate, Fairfax homeowners paid an average of $328 more in taxes than last year.)
If Fairfax supervisors decide to cut the tax rate again next year -- a tempting option with an election coming up in fall 2007 -- it would almost certainly mean cuts in some county services, officials said.
Board Chairman Gerald E. Connolly (D) said that it is too early to know whether the board will push for a cut in the tax rate but that any increases will be off the table. Everyone in county government, he said, "has to understand what this means: no new initiatives, no growth in [agency] budgets."
"We don't vote to roll back the hard-fought tax reductions we've implemented," he said.
The county school system, in particular, will have to downsize expectations, Connolly said, even lower than the 6.5 percent increase it received this year -- which came after annual increases of about 9 percent.
"The schools will be looking at one of the smallest budgets in terms of growth they've seen in decades," he said.
Staff writer Lisa Rein contributed to this report.