Why are Taxes so high (Pittsburgh, Washington: foreclosure, insurance, mortgage)

[jayman1981]

Good day to all me and the family are thinking about relocating. I just happened to discover the low cost of living out in the Midwest and Pittsburgh. However after checking on the property taxes, I was kinda floored.

Why exactly is Pittsburgh's taxes so high. I'm coming from Washington D.C. area (Charles County, MD), If I were to purchase a house for 260,000 would I be looking at paying 6120.40 per year? If that is the case there is no point in me moving. If you can help a brotha out with this I would greatly appreciate it.

[BrianTH]

Governments need taxes to provide services, and taxes ultimately have to come from business or personal income, indirectly or directly. And if you look at median property taxes paid as a percentage of median income, Pittsburgh is actually middle of the road:

Pittsburgh's Future: Are Property Taxes High in the Pittsburgh Region?

As explained there:

Why do we look so much better when you compare property taxes to income rather than home value? Because homes here are so much more affordable than in other regions.

Note the same thing happened in Texas: the Texas cities also had relatively low housing prices as a function of income but relatively high property tax rates, and again that is because ultimately taxes really have to come out of income.

Anyway, this creates an appearance problem:

This problem [the appearance of high property taxes] is exacerbated for people who move to Pittsburgh from other places. They usually think property taxes are extremely high here because they are able to buy a bigger, better house here than they had elsewhere and that results in much higher property taxes.

So, for example, you are comparing houses in Washington and Pittsburgh, but likely an equivalent house in a comparable neighborhood would cost a lot more in Washington, not the same amount. And as that article concludes:

The bottom line is that property taxes are somewhat less affordable in the Pittsburgh Region than in other places, but the housing here is dramatically more affordable. Although nobody likes paying the tax man more than they have to, it's no fun paying the mortgage company more either. It's likely that if you added mortgage costs and property taxes together, you'd find that the total cost of a home of equivalent quality is still much cheaper here than in most other regions. And that's a powerful economic advantage for the Pittsburgh Region.

In fact, we were cross-shopping the Washington area and Pittsburgh before we settled here, and that was certainly our experience: a home equivalent to ours in a comparable neighborhood would have cost much, much more in Washington, so the total housing cost in Washington would have been much higher, even thought the property tax rate was much higher here.

[jayman1981]

Interesting. Well you broke it down for me. So what is the average cost of a house in Pittsburgh. I guess instead of paying 260,000 for a 2300 sq foot house, I would pay what in Pittsburgh?

[groar]

it depends a lot on the neighborhood. my 2400 square foot house cost $36k (in decent condition), but it's in an area a lot of people on this board wouldn't move to. and we did get a bit of a deal because it was a foreclosure.

i googled really quickly and found this in an undated about.com article -

Recent surveys indicate an average home price in Pittsburgh of ranging from about $110,000 to $162,000 for a 3/4 bedroom, 2 bath home - about 40% below the national average.

[tmorrisn]

While your mortgage ends up being about the same, I prefer areas with lower property taxes and higher home prices. I am paying more into my home each month and less to the government - and when I sell my home, I'll make a lot more money too.

At the same time, I concur with BrianTH - home prices are low here but are probably comparable to Charles County. How close to DC do you live? I'd guess a home for 260k within commuting distance to DC is a steal. You can get 2300 sq ft homes for under 200k but it depends on what neighborhoods you are looking in.
What neighborhood are you living in now (and/or what are some of the comparable neighborhoods near you) and I can try to give you the Pittsburgh equivalent.

[BrianTH]

Originally Posted by tmorrisn

While your mortgage ends up being about the same, I prefer areas with lower property taxes and higher home prices. I am paying more into my home each month and less to the government - and when I sell my home, I'll make a lot more money too.

You have to be careful when making these calculations. Anything you pay in mortgage interest is just as much out of your pocket as property taxes (and both are tax deductible). The same goes for insurance (which, while a smaller component, does scale up with price). Meanwhile, what you pay into equity (as a downpayment or as the principal portion of your mortgage payments) is money you could be investing in something else. And historically, the average real return on housing hasn't been terribly high (around 1%), and this is an undiversified investment (which means you are taking financial risks for which you aren't being compensated in the form of higher rewards).

The upshot is that most people would probably be better off paying less for an equivalent house and investing the extra cash flow in a well-diversified portfolio of assets instead (this is assuming you can get an equivalent house for less annual cash flow total, meaning with mortgage, insurance, and taxes all accounted for). Of course what counts as an equivalent house depends on the individual, so it isn't necessarily irrational for people to pay more for a house in a city/location where they would rather be.

[BrianTH]

Originally Posted by jayman1981

So what is the average cost of a house in Pittsburgh. I guess instead of paying 260,000 for a 2300 sq foot house, I would pay what in Pittsburgh?

So obviously it all depends on location, and this is a dynamic situation. But per this data:

http://www.realtor.org/wps/wcm/connect/882586804e108aadb922ffec21680fb0/REL09Q1T.pdf?MOD=AJPERES&CACHEID=882586804e108aadb 922ffec21680fb0 (broken link)

The median home price in the Washington Metropolitan Area in 2008 was $343,400. In the Pittsburgh Metropolitan Area it was $118,400. Those are actually likely to be fairly equivalent structures, but of course location is very difficult to compare in cities of such different sizes. You will likely see the greatest difference closer in, with the ratio dropping as you go farther out (particularly these days). Still, it wouldn't be a bad bet that you could get an equivalent house in a roughly comparable suburban neighborhood for somewhere in the low 100s.

[bbrian12]

taxes are so high cause of poorly run goverment, 3 new stadiums and years of population decrease. our gov't answer to everything is keep raising taxes to pay for their own salaries and pet projects. but yet the same road that hasnt been paved for years and the state and city workers cant get paid cause the state is too busy spending all the money on stuff we dont need like the largest legislature in the counrty

[Stephanie P]

My husband put in for a position in the Pittsburgh area, we are currently outside of Houston.
After researching homes there, I discovered the homes are more expensive, and the property taxes are much higher than I thought they would be, considering PA has a state income tax - which TX does not. The property taxes seem less than what we pay here, but still expensive.
But, we are still very hopeful about the move. The higher prices are worth a better place to live.

[robrobrob]

One thing to consider when looking at the Pittsburgh housing prices is that we generally have an older housing stock than a lot of cities. Some people like the charm of older houses and others don't. I am always amazed at how much cheaper McMansions are in other cities than they are in some of the "nice" suburbs of Pittsburgh. I am told this is because it costs more to build a new house here than in Texas for example.