Property tax increases the force of increase in foreclosure rates

A new analysis from the digital homeownership platform Knock has found that, as the country’s double-digit home price appreciation has pushed homeowners’ equity to record highs, it’s not necessarily good news for all owners.

While the country’s recent home prices have boosted homeowners struggling with underwater mortgages, others say the housing boom fueled by low rates and the pandemic has resulted in increased tax burdens.

Knock’s analysis focused on the impact of house price appreciation, unemployment rates, debt-to-income ratios, income inequality and the length of the foreclosure process on real estate transactions ( REO), found that those who already have trouble meeting their mortgage payments are most at risk of losing their homes to foreclosure as property taxes rise.

These forces led to an increase in REO seizures in states such as Virginia, Georgia and New York throughout 2021, while they fell in New Jersey, Mississippi, Delaware, Connecticut and New York. -Mexico.

“The appreciation in house prices has become a double-edged sword,” said Knock co-founder and CEO Sean Black. “Until recently, the lack of appreciation in home prices was attributed to underwater mortgages and high foreclosure rates, but in 2021, increases in foreclosures are more the result of rising property values. homes that pushes risky homeowners to the brink with an increase in the tax burden.In the future, property tax increases may exacerbate foreclosure rates in states with unemployment, income inequality and ratios. debt / income are widespread. ”

The study found that in 2021, homeowners in Virginia, Georgia and New York – the states with the largest increases in foreclosures – saw property values ​​appreciate between 18% and 21%, while property taxes increased by 9%, 14% and 21% on average. , respectively.

“Because property tax assessments use recent home sales values ​​as the basis for their appraisals, many homeowners are seeing their tax bills skyrocket due to rising market values,” he said. report.

During that same period, the states that historically dominated the foreclosure rankings saw their home values ​​return to their pre-Great Recession highs, having only started growing in line with the national average in 2019. From 2019 to 2021, home prices appreciated on the year-over-year average of 22% in Connecticut, 20% in New Jersey, 19% in Delaware and New Mexico, and 14% in New Jersey. Mississippi, nearly 15 to 20 times the growth averages accumulated over the previous decade.

Over the 10-year period from 2009 to 2019, house prices in Connecticut were still 11% below their peak price in 2008, while Delaware remained down 6%. During that same period, home appreciation in New Mexico (11%), New Jersey (10%) and Mississippi (8%) grew more slowly than the national average of 23%.

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Penny D. Jackson