Texas property tax law changes every few years. See the latest posts for the most up-to-date information.
The housing market over the past couple of years has been bumpy for prospective home buyers and current homeowners. In late 2021, Austin saw a 30% annual increase in house prices, with other significant metroplexes just a little behind. Some prospective buyers were priced out of the market; new homeowners had to pay far more than they may have anticipated.
But high house prices didn’t just affect the transactions between buyers and sellers; it also meant homeowners saw skyrocketing property tax rates, even if they never put their house on the market and had lived in the same home for years. Now that the market is starting to cool — it’s not cold by any means, but the rise has a milder slope — many homeowners are hoping for lower property tax bills. This article explores what’s likely to happen to property taxes, why we think your property bills won’t go down, and what you can do to ensure the bill is fair.
First, Let’s Look at the Mechanics: Why Does a Hot Housing Market Mean High Property Taxes?
Texas property taxes are decided on the county-by-county or city-by-city level by a combination of local tax policies and tax assessors that measure the value of each property. As a result, your property bill follows this simplified equation: [the effective tax rate as decided by county expenses, less your potential exemptions] * [the assessed property value of your home] = total taxes due for the year.
That second number, the assessed property value of your home, is calculated by considering a wide range of factors, including:
- The historical value of your home or the trend line of your home’s value
- Improvements or upgrades you’ve made to the property
- Changing amenities and features in your local community
- The purchase price of comparable homes in your neighborhood or city
That last factor is significant now. Suppose you have a four-bedroom, two-bathroom house that’s 2,500 square feet. Your local tax assessor will factor in the recent purchase prices of all four-bedroom, two-bathroom, 2500-square-foot houses in your neighborhood for the last few months, and the net of properties they consider might be less specific. If you bought your home in 2000 for $100,000 and someone bought your neighbor’s identical house for $400,000, that will raise your property value—and through that, your taxes.
Various limitations and more complex calculations go into it, but many homeowners have faced this situation. Now that you know what rising house prices can do to your taxes let’s investigate the current housing market.
What’s Happening to the Housing Market Now?
Texas has seen housing prices calm down over the past few months. People aren’t buying up homes as soon as they hit the market, and there are far fewer bidding wars. Houses sit on the market for longer, and while supply levels are far from their historical norm, the shortage is less severe. Austin, in particular, has seen the market peak, with data from Altos Research showing the following regarding seven-day median list prices:
- It saw a pandemic high of $999,500 early in 2021.
- The annual high was $850,000 in May.
- The median list price dropped to $695,000 earlier in December 2022.
One should take this with a grain of salt; December is typically a slow season. But all in all, the data tentatively supports the opinion that housing prices are falling. However, they’re unlikely to fall to pre-pandemic levels, regardless of high inflation, potential recessions, or ramped-up construction. What we will see is a higher new normal.
There Are Still Pockets of High Demand Across Texas
The industry’s broad generalizations about the Texas and national markets are generalizations. Some areas, like north DFW, may continue to see surging markets long after the markets in El Paso cool. Pockets of high demand can be even more granular, with adjacent neighborhoods seeing very different demand levels, even if most are going downward. All homeowners must protect their interests by filing for all the exemptions they’re eligible for and consistently protesting their property taxes. However, it’s especially vital for homeowners in markets that still see too much demand.
What a Cooling Market Means for Tax Assessment House Values
Whether the market is going from a rapid boil to a simmer or cooling off, will that result in lower property taxes? Unfortunately, the answer is probably not, and there are a few different reasons why:
- Continued buying and selling: The housing market is still very active. It may not be that everyone’s potential house prices are dropping; it could be that different houses are on the market. Homeowners with smaller homes at a lower price point may be the star in this cycle. There needs to be more data to know for sure.
- High purchase prices are permanently part of the equation: Just like a single 0 in the grade book can sink an A+ average, peak house prices of $995,000 won’t disappear just because the subsequent sales prices in the neighborhood fall back to $700,000 or so. That number affected the comparables of houses sold and taxed right after the sale, and all of those comparables affected the subsequent sales and tax assessments, and so on. Property value assessments simply can’t go back to how they were — not without catastrophically low numbers to even out the average.
- The general movement is upward: If we ignore the currently wild ebbs and flows, the property valuation trend line is generally upwards. Growing cities, better construction practices, more local amenities, and general, healthy inflation will raise almost every property’s value nearly every year.
Related: House Prices and Property Taxes: How Are They Related?
What to Expect for Your Future Property Taxes
Because of the market’s potential return to more typical prices and behaviors, one thing many homeowners can look forward to is a less extreme rise in property taxes. The broad trend will likely be upward, perhaps even precipitously upward. However, individual property owners can take multiple steps to protect their interests and ensure they’re paying the fairest tax bill instead of overpaying. Those measures include filing for exemptions, protesting property tax assessments, and keeping their knowledge up to date on market and property tax trends.
Here are some expectations to keep in mind:
A Homestead Exemption Is Still Essential…
Suppose you are eligible for a homestead exemption, file for it. This exemption — for properties used as a primary homestead by the owner — comes with many benefits. First, it exempts $40,000 of your home’s value from local school district taxes. Secondly, it caps potential rises in your property’s assessed value, so it can’t grow more than 10% in a given year (excepting any increases due to renovations on the property). This one maneuver can bring you significant savings.
…But the Benefits of a Cooling Market Won’t Reach Your Property Taxes
However, because assessed property values are likely to continue surging beyond 10% increases every year, a cooling market won’t change anything for you. A drop in house price growth from 30% to 20% only reaches you if that 10% cap already protects you. However, there will be some relief for new buyers and people renting out properties (who can’t access the benefits of a homestead exemption for their properties).
Assessments and Comps Will Still Substantiate High Taxes
As we discussed earlier, market stabilization won’t erase the costly effects of high house prices soon. Local tax assessors consider house purchases in your area, property improvements, and other valuation factors, providing a long-term look. Also, counties and cities face high materials and labor costs for their budgets’ maintenance, service, and construction demands. Even if your property tax value starts to calm down, your effective tax rate may creep up so your local governments can meet budgetary needs.
Protesting Your Property Taxes Is More Essential Than Ever
Ultimately, you must keep a vigilant eye on your tax assessments and bills. Property tax assessments come out in the spring, while property tax bills are mailed out starting October 1. If you notice that something doesn’t add up or think your property’s assessed value isn’t correct, you have the right to protest the value and present a case about what’s wrong and why it should change. At the end of the process, you’ll either have a lower tax bill or be sure you’re paying the fairest possible amount.
Related: The Myths and Facts Surrounding the Property Tax Protest Process
Home Tax Shield Is Here to Help You Fight for a Fair Property Tax Bill, No Matter the Market
The Texas comptroller’s office has established a concrete process for protesting your property taxes, but it can still be complex and time-consuming. That’s why Home Tax Shield is here to help. We can calculate your property’s assessed value, manage the protest process on your behalf, and help you navigate the ins and outs of property taxes. Contact us today to get a headstart on your property tax strategy for 2023, no matter where the housing market takes us in the months ahead.