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Watching the housing bubble from next door

August 28th, 2005 at 02:44 pm

Back in the spring, our next-door neighbor died and her children put it up for sale. It finally sold last month for $170,000. (I checked the sale price on http://www.domania.com ) Then there was a flurry of activity for several weeks. Old heater out, new heater and central a/c in. Carpeting out, wood floors refinished. New windows. Paint slapped on a nice natural stone front, I assume because it was the cheapest way to spruce it up. A one-day whirlwind of landscaping, much of which will have to be torn out by the new owner anyway. A tree planted one foot from the house isn't going to be able to stay there long.

They had an open house today, so DH and I walked over. The asking price is now $239,900. I've been involved with some home renovations here and at DMom's house, so I do have a vague idea of how much all those projects probably cost. I can't see it being over $15,000, assuming the "investor" did some of the work himself. DH says maybe more like $30,000. Even at that rate, they are trying to make nearly $40,000 in profit in about 6 weeks. I don't know, it sounds a bit outrageous to me!

I noticed something on Domania.com that made me do some further research. The sale prices on houses in my neighborhood are now about double what the assessed values are for property taxes. Our property valuations were last done in 1993, and are now completely out of whack. What I found out was, here in NJ the valuations can only change when you do something like build an addition, or when all the houses in a town are reassessed. And if the assessed *value* doubles, your town's tax *rate* is supposed to go down, so you still end up paying about the same.

Now I can add one more thing to my (short) list of good things about living in New Jersey. There's the shore, and the fact that we don't have to pump our own gas. Now it looks like even though taxes feel high, the property tax system isn't as horrible as it is in some states. Apparently in other states, when your assessed value doubles, your taxes actually do double, too. I also found out that in some places, a house is revalued whenever it's sold. So when house prices rise, you may end up trapped in your house--when you try to buy another house, you find the taxes will be 2x to 3x what your current taxes are, making a move unaffordable.

The experts keep talking about how more people will end up in foreclosure if they have ARMs and can't handle the payments if rates go up. I can't help but wonder now how many will lose houses because of property taxes zooming up.



3 Responses to “Watching the housing bubble from next door”

  1. Anonymous Says:

    "I also found out that in some places, a house is revalued whenever it's sold. So when house prices rise, you may end up trapped in your house--when you try to buy another house, you find the taxes will be 2x to 3x what your current taxes are, making a move unaffordable."

    This is true where I live. Fortunately, we love our home and didn't buy it with thoughts of moving any time soon. It would be nice, however, to feel like maybe we had the option.

  2. Anonymous Says:

    If you are interested in following this not only from next door, check out this blog:

    http://thehousingbubble2.blogspot.com/

    Ben Jones blogs on this topic and the articles he picks up are interesting and timely. Sometimes the people who comment are a bit on the crank/money in the mattress side. Smile

  3. Anonymous Says:

    Geez, in OK your property taxes go up every year. The house is "reassessed" every year and your taxes go up at the same time. The rate stays the same (something right around 1%) but since they've revalued the house, the amount goes up. Plus, in Oklahoma County, they have houses valued at more than you could sell them. My house was on the market for 4 months and sold for $5k less than the assessed value. I could have fought it, but people who did told me it wasn't worth it, because you can only do it once every 3 years and the 2nd year they raise the value to the max they can (I think they can raise the assessed value by 10% each year).

    I said "reassessed" because they don't even drive past the house, they just decide that house values in each neighborhood rose by a certain amount and apply that percentage to all houses in the neighborhood, even the vacant houses that have so much deferred maintenance they're worth only the lot they stand on.

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