Category Archives: Property Value Series

The Homestead Market Value Exclusion, MN property taxes going higher.


Minnesota State Capitol

Image by Mulad via Flickr

There are some recent changes to the way the State calculates their tax rates for your property taxes.  We are currently under the Market Value Homestead Credit (MVHC) formula, but  will now be under what they are calling the Homestead Market Value Exclusion.

Basically your property taxes are going up.   The State will longer be covering levies, so the jurisdictions are picking that portion up.  I am still trying get a better understanding of this formula, so I am holding my opinion off until I understand the entire legislation better.  Even though I don’t like the result right now, in the overall picture it might be a better system.  I have thought for years they should scrap the whole “homestead” value all together, because a  House is a House and should be taxed as a House (whether it is rented or owner-occupied, or a vacation house.)

But in the mean time we can go into what it will mean to the Homestead property owner.  The following information comes from the House legislators website. (read full document here)

How It Works
The exclusion provides for a portion of each home’s market value to be excluded from its value for property tax calculations.  The amount of value excluded is directly proportional to the MVHC the home received under the old law.  In this way, each home contributes a smaller amount to each taxing jurisdiction’s tax base.  The tax rate tends to be a little higher because of the reduced tax base, which is why taxes increase for the other types of property.   The tax burden on any given homestead could be lesser or greater depending upon the mix of properties in the jurisdiction (more nonhomestead properties increases the likelihood that homestead taxes will be reduced and vice versa) and the level of the tax rate (higher tax rates make it more likely that homestead taxes will be reduced and vice versa).

Rather than pasting the entire document, I will jump to the visuals of what this means to the Homestead owner.  Below is how the Calculations used to work, and how they will work.  If you are anything like me you will re-read this 14 times and still be scratching your head.

Homestead Market Value Exclusion - How it's calculated

 
Below they put it to a “practical” demonstration, making it more understandable.  Let’s get to the point, we are looking at about 4.24% increase on our property taxes according to their sample.
 

Homestead Market Value Exclusion sample property tax calculation

 
 
 
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Decline in home sales July 2011 – the headlines read


Start Tribune  wrote about the National Realtor Associations July 2011 report on the housing market. 

Existing-home sales declined in July from an upwardly revised June pace but are notably higher than a year ago, according to the National Association of Realtors®. Monthly gains in the Northeast and Midwest were offset by declines in the West and South.

Total existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.5 percent to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June, but are 21.0 percent above the 3.86 million unit pace in July 2010, which was a cyclical low immediately following the expiration of the home buyer tax credit.

A couple key points on this report which I believe are the biggest obstacles to the housing market recovering right behind jobs is all the new lending and appraisal regulations:

Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price – were unchanged in July, reported by 16 percent of NAR members. In addition, 9 percent of Realtors® report a contract was delayed in the past three months due to low appraisals, and another 13 percent said a contract was renegotiated to a lower sales price because an appraisal was below the initially agreed price.

If you dig much deeper into this report, we discover their data by Metro region.  I was even more disappointed by the Minneapolis/St Paul ranking on the median price change on this chart.. (remember, this is Median price – not every house..)  I was very impressed with our increase in sales though!

This is certainly disappointing news, but we should also keep in mind what we know about our local real estate market.  We are doing much better than we were a year ago.  We still have a long ways to go, but we are trending the right direction.

Even though the news is not all rosey, we are still seeing rays of hope.

July 2011 Closed Sales July 2011 Pending Sales

To view more about the local market statistics, check out The Thing from the Minneapolis Area Association of Realtors.

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St. Paul Mayor Coleman proposes 6.5 pct. levy hike | Minnesota Public Radio News


Downtown St. Paul from the southwest in the wi...

Image via Wikipedia

In a desperate attempt by St Paul not to be out done by Minneapolis, they propose a 6.5% property tax hike!!

WOW!  Where do they think people are going to get the money to keep their homes?  Aren’t foreclosures high enough in these Cities?  How is raising the monthly housing payments for these homeowners going to help them?

St. Paul, Minn. — St Paul mayor Chris Coleman delivered his budget address Monday, which calls for a property tax levy increase of 6.5 percent and $6.2 million in budget cuts. Coleman blames the Minnesota Legislature for both.

St. Paul Mayor Coleman proposes 6.5 pct. levy hike | Minnesota Public Radio News.

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Minneapolis property taxes, not so bad??


City hall of Minneapolis, Minnesota (USA).

Image via Wikipedia

More on the Minneapolis Property Tax hike…  Here is a related article on the subject. 

Has anyone stopped to ask, what am I getting for an additional 2% or 4.7% in property taxes?  Are we getting more services?  Is there value in paying more?  As a consumer we have the freedom of choice on whether or not to buy the product.  As a taxpayer, the only freedom we have is to VOTE.

The owner of a $200,000 home in Minneapolis will pay $3,142 in property taxes in 2011. That’s far more than some Hennepin County neighbors, like Edina ($2,275), Plymouth ($2,315) and Orono ($1,860). But a Minneapolis tax bill is less than in Brooklyn Center, where a $200,000 homeowner will pay $3,340 in 2011. 

In 2010, the most recent year of data collected by the LMC, only 15 of 142 metro municipalities had higher property taxes than Minneapolis. 

Since that data was calculated, however, property taxes in Minneapolis have increased by 4.7 percent, though homeowners were hit harder. The owner of a $200,000 Minneapolis home in 2010 paid $2,725 in property taxes, compared to $3,142 in 2011.   Read Full Story from the Downtown Journal

What about for the homeowners who are struggling to make ends meet with fuel and food prices stretching their budgets to a maximum.  Did they all get a pay increase this year where they can easily afford additional monthly property tax payments?

 

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Case Shiller Home Value Index MN vs. MN Property Tax revenue


 

Post Series on the 5 key areas pushing property values down.

If you own real property (real estate) in Minnesota, you are well aware of 2 things:  Your property value is falling and your property taxes continue to go up.

I have suspected there was a correlation between the escalating property taxes and deflating property values, but have found it difficult to put together proof.   This may not be solid proof because there are other factors at work here, it is however evidence supporting the theory.

To start off, let’s look at the Property Tax Revenue in Minnesota.

Minnesota Property Tax Collections

The grey bars indicate recessions.  There is a dramatic spike between 2002 and 2004 in property tax collections. The housing crash started in 2005-2006. (or inversely, 2005-2006 was the peak of the boom).

Here is the Case-Shiller House Price Index for Minneapolis, MN.

Case-Shiller Index Minneapolis, MN

 
 
 
 
 
 
 
 
 
 
 
 
Below the chart indexes the Minnesota Property Tax Collection with the Case-Shiller Index for Minneapolis. 
 

Case Shiller Index Mpls vs MN Property Tax collections

 It does not prove the property taxes contributed to the market stall.  But it is interesting that there was a huge tax collection spike just before the peak of the market.

What I find most interesting is how the property tax collections continue to climb while the values are dropping.

Correcting that trend would help stabilize the values.  Property taxes are not the only thing impacting the values; foreclosures, financing difficulties, and high unemployment are huge negative pressures on values as well.  This is just one that no one is talking about lately.

Let’s put this in perspective a bit.  I’ve selected some random samples of homes that sold in the last couple weeks.  Three in Plymouth and Three in South Minneapolis all between $200,000 and $300,000.  Right in the median price bracket of the twin cities.

Plymouth Sample Property Taxes

South Mpls Sample Property Taxes - SoldsPlymouth/S.Mpls Percent Increase in Taxes 1999-2011

  In South Minneapolis, 2 of the 3 samples had about a 140% increase in taxes.  The Plymouth samples did a little better.
 The Tax values seem to be on par judging by the sold prices.  The mill rate seems to have gone up pushing the taxes up which makes it really difficult to dispute the assessor.
To put this into real terms, we are talking about $200 more per month in South Minneapolis from 1999 to 2011.  You know what $200 per month can do in your own personal budget; help pay for groceries, gas, and utilities.  In terms of financing on a 30 year mortgage, $200 pays for roughly $35,000 in financing on a 30 year mortgage at 5%. (As a seller, that becomes how much less a buyer can pay for your home because that money is now going to taxes.)
 

Plymouth/S.Mpls Percent Increase in Taxes 1999-2011

Sure, Good Schools is important in the eyes of perspective buyers.  But the next time you vote on school referendums or support property tax increases of any kind – make sure the money is going to count, because the added cost to your taxes is coming off your property value when you go to sell. 
 
Maybe you can afford to lose that equity, but many people have negative equity as it is now…  So be kind to your neighbors and help keep your property taxes low. 
 

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