Let’s take a look at the year that was 2018 and see if it offers insight into what’s in store for 2019 as it relates to real estate here in Reading and Berks County.
Yes, it is that time again! Time to reflect on the year that was and time to dust off the crystal ball and see if it can foretell what the future holds. It is my humble opinion that the big real estate story here in Reading and Berks for 2019 was the low home inventory. Yes, I believe it is even a bigger story than the ever-rising property taxes that plague our area year in and year out.
Home Inventory ~ Supply and Demand
With just four calendar days left in 2018, there have been 6,344 residential homes listed for sale. A total of 6,833 homes were listed in 2017, a year-over-year decrease of 7.1%.
Home sales for 2018 are at 5,055 units compared to 5,325 units in 2017, a decrease of 5.1%. Even though there were fewer sales in 2018, the ratio of sales to listings is better. The result of an improved listing to sales ratio is often climbing home prices and fewer days on the market. In 2017 the time a house was on the market until it sold was 99 days. That number dropped to 76 days on market in 2018. Here is where things start to make less sense. The median sales price of a residential home here in Reading and Berks County in 2017 was $164,900. Even with the low inventory, good listing to sales ratio, and lower days on market, the median price only climbed to $164,990. Yes, a slim $90!
Mortgage Interest Rates
There was a lot of noise this year regarding rising interest rates. The year started with 30-year mortgage rate around 4%. Presently rates are around 4.625%, down from 5% in November. For comparison sake, 2017 began with mortgage rates around 4.3% and ended at 4 % as mentioned earlier.
I believe when it comes to mortgage rates it is more about consumer perception. Rates dipped to below 3.5% in 2016 and have since rebounded approximately 1%. Most interest rate prognosticators believe that mortgage rates will top out around 5.5% in 2019. If that happens, it will be a rise of 57% since their lows in 2016. That is the kind of number that makes news and sells papers. In real dollars, the difference between a $100,000 mortgage payment at 4% and 4.625% is approximately $37 per month. In any case, rising interest rates, perception or not, is never really good for property values.
Thoughts and Predictions
As I have stated in the past, home values here in Reading and Berks are more a product of policy and law than statistics. Until we get a grip on out of control property taxes, all other sales metrics remain a distant second. High property taxes are hurting the new home market which aids in keeping home inventory absurdly low. Improving what is fast becoming an aging population of homes can be a problem if they are reassessed due to existing tax policies. Owning a home above $400,000 often comes with property taxes that have an aggressive negative impact on the homes true value. Without upside leadership from the new house and upscale market, our area may continue to be value capped.
We are about to finish a year which saw low home inventory, good sale to listing ratios, rising but handleable interest rates, and a rising national economy and yet our median home prices barely moved. How many years will these good housing statistics prevail? What will happen if interest rates start to rise, the national housing market cools, and the economy waivers?
I believe the Reading and Berks County real estate market is likely to be a carbon copy of 2017 and 2018. The low inventory will likely continue and our strongest sales months will be June through August. Watch out if interest rates start to move faster than expected, the national housing market cools too quickly and the media jumps on a “Sky is Falling” mantra. These events would likely lead to increased inventory due to lack of buying and then all bets are off.
Listen to me on WEEU in January for much more on this subject, and remember. Knowledge is Power!
Happy New Year!
Jeffrey C. Hogue
The glaring property tax issue seems to shine more brightly in Berks than almost anywhere else in Pennsylvania. Is it time we start thinking of ways to help ourselves. Could that help begin by revisiting how the process of property tax appeals are handled?
Virtually everyone who owns property in Berks and many that do not are aware that property taxes are out of control. Our Pennsylvania State Legislators cannot seem to agree on a fix. For this and other reasons, I have long been a proponent of not waiting for someone else to help our great county out of its property tax misery and take action unilaterally.
Each year many home buyers and sellers ask me about the property tax appeal process here in Berks. The central question asked is “when can I appeal the taxes.” To appeal your property taxes, you have to fill out an application and submit it to the Berks County Assessment Office between July 1 and August 15, a 46-day window. You can find the Assessment Appeal Application on their website at http://www.co.berks.pa.us/dept/assessment/Pages/default.aspx. It is unfortunate when someone asks me this question on August 16th. They now have to wait a whopping 10 1/2 months to appeal their property taxes. At best they will not see any relief for almost two years! You see if by next year they successfully appeal their property tax the results of that decision would not take effect until the following tax year.
The exception to the assessment period rule is new home construction. When someone builds a new home, they receive a new assessment, and they have 40 days from the time they receive it to appeal that assessment no matter what time of year it is. Any change to the assessment is enacted the following fiscal tax year.
I understand there are economic expenditure reasons that these timelines exist but maybe some consideration should be given to broadening the appeal period. Along with expanding the assessment period I also suggest allowing the newly appealed tax assessment to be enacted within 60 days of the ruling.
Many of our seniors are on fixed incomes and take property taxes on the chin. It is hard for even seasoned professionals to stay up-to-date or easily understand complicated issues relating to the latest information on property taxes like the common level ratio, property value fluctuations, and policy issues. I would recommend allowing our seniors to appeal their property taxes anytime much like those purchasing new homes. I would also suggest swiftly enacting the newly appealed tax assessment to for Berks Countians over the age of 55, so they get immediate relief.
If we here in Berks continue to wait for the Pennsylvania State Legislature to get the property tax situation worked out the issue may reach a critical stage if it has not already. Our property tax situation here in Berks will not be solved by continuing to do the same things and expect different results.
Remember the definition of insanity: Doing the same thing over and over again and expecting different results. Every little bit can help.
Knowledge is Power!
Jeffrey C. Hogue
It is that time of year in Pennsylvania when the economists and mathematicians meet and play with the Common Level Ratio. So what did they do this year and how will it affect property taxes in Reading, PA, and Berks County?
Any news relating to property taxes here in Reading, PA and Berks County is always a hot-button issue and garners much attention. We are aware that all too often news relating to property taxes is bad. That said, I am pleased to report that for the fifth consecutive year the Common Level Ratio has increased! Yes, this is one time when you can use the words increased and taxes in the same sentence, and it is a good thing.
What the Heck is a Common Level Ratio
If you check out the PA Department of Revenue website and the State Tax Equalization Board (STEB) website, it may give you an idea of what it is, or it could provide you with a raging headache. You can visit my website where I have links available if you desire to research the issue for yourself.
Ill attempt to cut through the clutter and simplify the answer. The Common Level Ratio is a mathematical way for Pennsylvania counties to avoid the effort and cost of completing countywide reassessments each year. Counties in PA are evaluated on the strength of their home sales. If the data shows a rise in property value, a more significant gap between the market value and assessed value emerges. The Common Level Ratio is applied to create a fair playing field. While this is a novel way of doing things it does not stop the million dollar home built in 1800 from having lower taxes than the newly constructed $350,000 property in the same school district.
The Benefit of a Higher Common Level Ratio
According to the economists we are in an improving value market as it relates to property in Berks County, Pennsylvania. This year the Common Level Ratio Factor (CLR Factor) increased to 1.46. Using the 1.46 CLR Factor a home valued at $100,000 would assess for approximately $68,500 or 68.5% of its market value. We arrive at this figure by dividing $100,000 by 1.46 = 68.493%. Last year the CLR Factor was 1.38 or approximately 72.5% of a homes market value. The more your assessment goes down, the less you will pay in property tax.
Things to Consider Before Rushing Out to Appeal Your Property Taxes
It is always a good thing when you are taxed less on your home. One way to take advantage of the higher CLR Factor is to appeal your property’s value assessment. The window to appeal your property taxes in Berks is July 1 through August 15.
Be very careful if you decide to look into appealing your property taxes. Property tax appeals can go both ways. When you file the appeal, you are opening up the record. If the appeals board determines your home is under assessed, they can adjust it up. You may find out your property is presently under-assessed even with the higher CLR Factor. You can check your assessment by visiting the Berks County Assessment Office Website. Before filling out that Assessment Appeal Notice consider the present value of your home by either hiring an appraiser or contacting a real estate agent. There will likely be a fee for the valuation service with both. You can also do your best to assess the value of your home with the many available tools on the web. This method is less accurate but can get you started. As described above, take the perceived value of your home and divide that number by 1.46. If the new number is less than your present assessment figure, you may want to consider the appeal.
It may sound a bit self-serving, but in my opinion, it is always a good idea to speak with a knowledgeable Realtor before embarking on the assessment journey.
Think this is complicated? Me too. It would just be much easier if our legislators simply did away with the whole School Tax thing.
Knowledge is Power!
Jeffrey C. Hogue
Check out your Property Tax Rate by using my Berks County Property Tax Calculator.
What is PA Senate Bill 1285 (SB 1285) anyway? You may want to know since it is something you will be voting on November 7th here in PA. Let’s take a look at what it is, is not and see if it is just more lazy legislation in the quest to rid ourselves of property taxes.
It seems we have reached the next episode in the saga of property tax elimination in Pennsylvania. Will our fearless legislators in Harrisburg get the job done this time, drop the ball, or kick the can down the road until another election year comes along?
Enter Senate Bill 1285. I can safely say that most people have no idea what it is or what it does. I can further contend that many don’t even know it exists. My understanding is the bill will be on this year’s ballot as a referendum so let’s start by describing what a referendum is.
The Definition of a Referendum.
Wikipedia describes a referendum the following way: A referendum is a direct vote in which an entire electorate (YOU) is invited to vote on a particular proposal. This vote may result in the adoption of a new law. In some countries, it is synonymous with a plebiscite or a vote on a ballot question.
So a referendum is a poll.
What are You Being Polled About?
PA Senate Bill 1285 is a ballot question relating to the Pennsylvania Constitution regarding the uniformity clause. You will have the opportunity to make a yes or no vote.
Here is the official title of PA Senate Bill 1285 that will be on the ballot: “Proposed Constitutional Amendment Amending the Homestead Property Tax Assessment Exclusion.
Shall the Pennsylvania Constitution be amended to permit the General Assembly to enact legislation authorizing local taxing authorities to exclude from taxation up to 100 percent of the assessed value of each homestead property within a local taxing jurisdiction, rather than limit the exclusion to one-half of the median assessed value of all homestead property, which is the existing law?”
What Happens if the Measure Passes?
According to Ballotpedia, the measure would make changes to Resolution 1, a constitutional amendment passed in 1997. Resolution 1 was designed to allow local taxing authorities—counties, municipalities, and school districts to exempt up to 50 percent of the median value of all homesteads within their jurisdictions from taxes. The value amount exempted from taxes is known as a homestead exemption. This 2017 amendment would increase the homestead exemption amount that local taxing authorities would be allowed to offer homeowners. Rather than 50 percent of the median value of all homesteads, this amendment would allow for exemptions of 100 percent of the value of each homestead. In other words, this amendment would allow local taxing authorities to charge homestead owners zero property taxes.
This, of course, can only take place after the bill has been signed into law. The first step is the public vote which does not guarantee it will ever make it through the PA legislature.
Speaking to the Professionals.
I had the great opportunity to speak with three of Berks County and Pennsylvania’s property tax elimination warriors this past week. They are Senator Judy Schwank, Senator David Argall, and David Baldinger who is a grassroots activist and heads up the PA Coalition of Taxpayer Associations. All three believe we should all vote YES. They feel a yes vote sends a message to Harrisburg that anything associated with even the slightest possibility or intent to lower or eliminate property taxes is in the public favor.
The referendum vote will do little or nothing in the near term to change the way homeowners are taxed in PA. Even if the public votes yes the bill would have to go through the legislative process to become law and amend the Pennsylvania Constitution. We all know how long our government takes to legislate and agree on almost anything. Just ask Senators Schwank and Argall how things are going with the Pennsylvania budget. The last time there was real legislative action relating to PA property taxes was in 2006, (ACT-1), remember that? Likely not.
Understanding why there has to be a poll to ask Pennsylvanians if they want property tax relief is beyond me. Does this mean our state legislators don’t know we want property tax relief and have to ask again? This referendum is just another way to kick the property tax can down the road while our government attends to other pressing matters like the state budget, liquor stores, etc.
David Baldinger stated that there are plenty of special interest groups against ridding homeowners of property taxes. It is way past time that we the people again become the special interest that matters.
Senator Schwank is concerned that any new homestead tax deduction will negatively affect farmers and the forestry trade. I am worried that if all property taxes are taken away for residential real estate, it will place the full burden on our businesses, especially small business. Driving out business owners is no way to increase property values and create jobs.
Senator Argall could offer no timeline as to when or if the bill if voted for, would become law. You see we can all vote for PA Senate Bill 1285 and it still may not make it through Harrisburg. What Senators Schwank and Argall do know is that the crown jewel of property tax relief, Senate Bill 76 does not have the votes to pass.
I believe the three pros are correct and we should vote yes in favor of PA Senate Bill 1285 for precisely the reason they stated. So send a message we must if we want property tax reform sooner than later.
If Pennsylvania is truly the State of Independence we need to be free of oppressive property taxes which do the exact opposite.
Knowledge is Power!
Jeffrey C. Hogue
Could this be the year that school property taxes disappear? We have been hoping that would be the case for many years to no avail. So is there anything we here in Berks can do about property taxes if it does not happen? Here is one plan “B” idea that could get things started.
When discussing school property tax here in Berks, we are often told what a valuable commodity our children are. While I believe this statement could not be more accurate, I also think our senior citizens are just as valuable of a commodity. We here in Berks want our kids to get the best education possible. We should also want them and the seniors who already live here to stay and use that education to advance our community not move away because of high housing expenses.
Over my 24 years as a Realtor here in Berks I have heard more than my share of high tax stories from seniors. High property taxes are one of the main reasons our community loses our valuable seniors to other states that have better retirement economics. In many cases, these seniors do not want to move but have little choice.
I am often told there are not enough housing choices here in Berks for seniors who do not want to go into assisted living. At present, there are only a handful of age-restricted communities in our county. In some cases, the property taxes of the homes in these age-restricted communities is as high as the larger homes they are selling. It makes little sense for seniors to sell their home and buy a place that is half the size but has the same property taxes as the house they sold.
The Plan “B” Idea
Age restricted communities have less of an impact on schools, roads, and overall municipal services than non-restricted communities. By reducing the property tax burden, more developers may consider Berks County for their next building project thus creating more choices.
What if Berks created a property tax reduction plan for age-restricted communities? The plan could be like Clean and Green (Act 319) which reduces property taxes 10% if you have ten or more acres or use a majority of your property for agricultural means. How about Act 55+ which would lower all property taxes 50% for people who own homes in an age-restricted community?
Many are hopeful that this is the year our legislators work out a property tax plan that will reduce or, better yet, eliminate property taxes. The trick is to do this without hurting our great teachers and students here in Pennsylvania. At the same time, they need to consider the overall growth economic of our communities and find a way to keep our valuable seniors here at home. It is quite a balancing act.
There are plenty more plan “B” ideas to consider. I will be posting more soon. If you have ideas, please email me at [email protected] or visit my website at JeffreyHogueRealtor.com and add your thoughts to the BLOG. You can also call your Berks County Commissioners, a local official, or state legislator and let them know your thoughts.
In the case our state legislators do not get tax reform done, we here in Berks County need to consider our situation and take positive and decisive action. As it relates to property taxes, Berks County may be the sickest person in the hospital. You never want to leave your kids or seniors without a remedy!
Knowledge is Power!
Jeffrey C. Hogue
High property tax in Berks County is the gift that keeps on taking. Here is yet another way high property tax affects value and affordability for home buyers and sellers.
In 2016 almost half of all home sales in Reading, PA and Berks County included some degree of seller credit. Through the first two months of 2017, there have been 568 total home sales. Of these sales, a whopping 277 included a seller credit or approximately 49%.
So what gives? Why do seller’s need to credit buyers money for purchasing their house? Many home sellers believe there is something inherently wrong with this practice. Not really, read on.
Last year I wrote an article entitled “What Would Happen to Home Value if There was no Seller Credit.” The article stated that if seller credit were disallowed by lenders property values overall would fall, (visit my website to read the full article). This is particularly the case in Berks County due to challenging economics.
In my opinion, the issue is not the actual credit but the amount of that credit.
Lenders, or should I say the Fed, allows up to six percent of the purchase price to be credited to buyers by the seller. The six percent can only be used towards the buyers closing costs. If the closing costs equal five percent, then five percent is the limit.
For many home buyers to acquire a mortgage, the lender requires them to escrow taxes and insurances. The escrow is part of the buyers closing costs. Homes with high taxes require more escrow and thus more seller credit. Property tax proration is also a part of the buyer’s closing costs. All this means that close to a full year of taxes instantly become part of the buyer’s closing costs. It is plain to see why high property tax leads to larger seller credit amounts.
It is a blessing that lenders have the flexibility to allow seller credits. The credit creates more willing and able buyers in the market which leads to stable sale prices. It is once again those darned high Pennsylvania property taxes that spoil the party.
Don’t forget to let your local congressperson know how you feel about your property taxes. You make the difference!
Knowledge is Power!
Jeffrey C. Hogue