Real Estate Taxes (Seattle, Olympia, Port Townsend: sales, real estate market, rental)

[timetogo]

Hi,

Real estate taxes in washington are somewhat confusing.

I live in California so I have been spoiled by the simplicity of real estate taxes having an annual cap or rising by no more then 2%, unless taxpayers approve by a large majority new bonds. Homeowners are protected by the ravages of insane increases in taxes caused by huge home price increases.

The tax rates ( levy rates) vary so widely in washington yet there are caps on how much the rates change becauses local governments set a budget that has limited upside by law. still voters can approve new fundings and higher tax rates. Worse yet, if you happen to live in a community where home values significantly outpaced others areas, you get stuck with a larger tax bill. I believe that residnet in Port Towsend recently had a 100% increase in their real estate tax.

Yes, I know that washington has no income tax . However, real estate taxes are not indexed to inflation whereas income taxes are indexed to inflation. Over 20 years, real estate taxes can surpase a combination of real estate and income tax. My bigest fear as a retired person .

So, here is my convulted question:

Which counties have the lowest tax rates and have a history where tax payers do not approve alot of new bond. Oak harbor has very low tax rate.

Or maybe, I just do not understand how real estate txes are done. The MLS that I get have very reasonable taxes on them, but the tax rates are higher , so there is some kind of disconnect.

[RodFarlee]

It sounds like you understand Washington property taxes pretty well! Better than most of us who live here do.

Average property taxes by county are available on the state department of revenue web site, specifically Tables 24, 25 and 26 here:
http://dor.wa.gov/content/statistics...5/default.aspx
However, please realize that this is almost irrelevant, because these rate differences are completely dwarfed by the wide disparity in the average cost of homes in different areas of the state.

Regarding the newspaper report of a resident in Port Townsend who complained of a 100% property tax increase, please realize:
(1) Jefferson County reassesses property values only once every FOUR years, not every year as most counties do. So that's 100% for 4 years, not one.
(2) Values in exclusive waterfront developments (Kala Point, in this case) have recently increased by more than 20% a year, more than doubling in the last four years. Especially in this development, which has it's own private beach and marina and backs to a beautiful, forested state park.
(3) Property tax rates in Jefferson county have gone down steadily every year, as the total tax base has grown (see above tables).
(4) WA state has property tax deferral and exemption programs for seniors on limited incomes (<$40k).
(5) If one's income is too high to qualify for that, but one has a windfall million dollar home equity, then one can easily qualify for a small reverse mortgage to pay the 1.1% property tax (i.e. defer taxes until one sells).

Macroeconomic factors make the current bubble in housing prices unsustainable. So I think that fear of runaway assessments is unfounded. This is purely a short-term jump, which will soon go flat in the next recession.

More relevant is the total state tax revenue as a percentage of income, and WA is right in the middle of the pack. The average household pays more in sales tax here than in property tax. And if one's income is above average, then our regressive tax structure (no income tax) is beneficial.

[ruby2zdy]

I'm from CA too, used to Prop 13. I've owned a house & a rental in Olympia for a year & a half, and my prop taxes actually went down on my house for some reason. Actually, there really seems to be no rational thought when it comes to property taxes. For example, I make $300/yr too much to qualify for the Sr. citizen's discount. Couldn't they graduate it?

The real killer is the excise tax when you sell your house. Here it's 1.8% I think.

The tax system in WA is totally upside down. State income taxes are not usually all that painful. High sales tax, this stupid excise tax when you sell your home, absence of prop 13 tax limits to protect older people from getting taxed out of their homes, and that punitive gasoline tax they passed before I got here. How are we supposed to get from Olympia to Seattle -- by train? What -- the one Amtrak that comes through a day? There are enough very wealthy people in Seattle to institute a graduate income tax, eliminate the excise tax, & lower the sales tax.

[timetogo]

Hi,

I did not know about the 1.8% exercis tax. I hope the seller pays all of it.

Actually, I think Washington has capped by law the increase in county budgets to the inflation rate but how thoses increases are spread across homeowners is based on home values and when assements are revised. This law offers a modicum of protection but is complictaed, and confusing.

Reverse mortages are the biggest rip off .

I have heard that if you build a house, an 8% tax is due. Sounds like a law to pad the wallets of the builders.

[timetogo]

Hi,

A Quasi-Regressive property tax:

Since the county budget is limited to CPI increases ( or the highest budget ever), then other homes in Jefferson County should see a reduction or a nominal change in property taxes.

Those who can afford to live in the best area ( better areas tend to appreciate more is my implied assumption) bear a bigger portion of the property tax. Those who can afford to live in the best areas are the ones who most likely have higher incomes.

[timetogo]

Originally Posted by RodFarlee

xes

Macroeconomic factors make the current bubble in housing prices unsustainable. So I think that fear of runaway assessments is unfounded. This is purely a short-term jump, which will soon go flat in the next recession.

More relevant is the total state tax revenue as a percentage of income, and WA is right in the middle of the pack. The average household pays more in sales tax here than in property tax. And if one's income is above average, then our regressive tax structure (no income tax) is beneficial.

Is Washington a bubble real estate market? Is this bubble now showing signs of deflating?

California is deflating now as we speak. Inventories up 50% to 150%, new homes are being dicsounted by tens and tens of thousands of dollars, and demand has been stifled by higher short terms rates which in the past was a way around the affordability issue here.

What is the current housing situation in Washighton?

[RodFarlee]

Originally Posted by timetogo

Is Washington a bubble real estate market? Is this bubble now showing signs of deflating?

The US overall had a real estate bubble, which peaked in 2Q 2005. Rising short term interest rates ended the bubble. The bubble was unsustainable anyway, due to zero/negative national savings rates and stagnant income growth after inflation. The housing affordability index has reached a low that clearly marks the end of the cycle. That's a very short overview of the macroeconomic factors.

I don't have any special insight into the WA housing market, but it appears that supply and demand are in better balance now than they were a year ago. There are more homes on the market, the average time on market is longer, and prices aren't rising at the previous high rates. There hasn't been "deflation", but things are less crazy than they were. It's approaching a balanced market. The WA economy remains strong, and as long as it does, job creation, population growth, and housing will remain strong as well.

The question is: what will happen next year? The macroeconomic factors all suggest that a national recession is due. Washington state tends to have sharper economic swings than the nation overall. If so, housing may indeed deflate, and remain deflated for many years. Debt and demographics cannot be ignored forever.

[timetogo]

Originally Posted by RodFarlee

The US overall had a real estate bubble, which peaked in 2Q 2005. Rising short term interest rates ended the bubble. The bubble was unsustainable anyway, due to zero/negative national savings rates and stagnant income growth after inflation. The housing affordability index has reached a low that clearly marks the end of the cycle. That's a very short overview of the macroeconomic factors.

I don't have any special insight into the WA housing market, but it appears that supply and demand are in better balance now than they were a year ago. There are more homes on the market, the average time on market is longer, and prices aren't rising at the previous high rates. There hasn't been "deflation", but things are less crazy than they were. It's approaching a balanced market. The WA economy remains strong, and as long as it does, job creation, population growth, and housing will remain strong as well.

The question is: what will happen next year? The macroeconomic factors all suggest that a national recession is due. Washington state tends to have sharper economic swings than the nation overall. If so, housing may indeed deflate, and remain deflated for many years. Debt and demographics cannot be ignored forever.

Most of what I have been told is that Washington real estate is defying the national trend in a flat market. I found this hard to believe but real estate is local.

I am moving from a market which is in a clear decline so my fear is that I sell low and buy high.

An interesting sidenote is the ECRI National housing price index has declined for the first time ever in its 40 years. A sign of weak prices going forward.

[RodFarlee]

Originally Posted by timetogo

I did not know about the 1.8% exercis tax. I hope the seller pays all of it.

Washington state real estate excise tax rate is 1.28%. Cities/counties can add up to 0.5% local excise tax. Here's a table of local rates:
http://dor.wa.gov/Docs/forms/RealEst...tExTxRates.pdf
Yes, sellers typically pay it directly, which simply means that buyers pay it indirectly at closing anyway.

Originally Posted by timetogo

Actually, I think Washington has capped by law the increase in county budgets to the inflation rate but how thoses increases are spread across homeowners is based on home values and when assements are revised. This law offers a modicum of protection but is complictaed, and confusing.

Your facts are essentially correct. (Actually, total property tax revenue increases are capped at 1% per year, unless authorized by voters.)

I beg to offer a different opinion. Property taxes in WA are more equitable, and in the long term more predictable, than in CA. The current WA state budget surplus and CA and OR state budget deficits are typical of the last 20 years, and clearly foretell what's in store for their taxpayers.

Originally Posted by timetogo

I have heard that if you build a house, an 8% tax is due. Sounds like a law to pad the wallets of the builders.

There is no such statewide builder's tax. A few localities have real estate impact fees to pay for new roads, water, parks, schools, etc. Mostly these are in rapidly growing areas near Puget Sound. A few other towns have imposed them on particularly large developments, either commercial or residential, on a case-by-case basis.

All localities do have various fees for building permits and utilities, and state sales taxes are due on all building supplies and labor. Together, these might add about 12-15% to the cost of homes in WA, perhaps half of what they add to homes in CA? By the way, none of these taxes or fees are left in the wallets of builders.

Before we get further lost in details, we might wish to stand back and take in the big picture? The concern in your original posting was the impact of state taxes on retirement. Here is one overview:
http://www.retirementliving.com/RLwealthfriendly.html (broken link)

[timetogo]

Originally Posted by RodFarlee

Washington state real estate excise tax rate is 1.28%. Cities/counties can add up to 0.5% local excise tax. Here's a table of local rates:
http://dor.wa.gov/Docs/forms/RealEst...tExTxRates.pdf
Yes, sellers typically pay it directly, which simply means that buyers pay it indirectly at closing anyway.



Your facts are essentially correct. (Actually, total property tax revenue increases are capped at 1% per year, unless authorized by voters.)

I beg to offer a different opinion. Property taxes in WA are more equitable, and in the long term more predictable, than in CA. The current WA state budget surplus and CA and OR state budget deficits are typical of the last 20 years, and clearly foretell what's in store for their taxpayers.



There is no such statewide builder's tax. A few localities have real estate impact fees to pay for new roads, water, parks, schools, etc. Mostly these are in rapidly growing areas near Puget Sound. A few other towns have imposed them on particularly large developments, either commercial or residential, on a case-by-case basis.

All localities do have various fees for building permits and utilities, and state sales taxes are due on all building supplies and labor. Together, these might add about 12-15% to the cost of homes in WA, perhaps half of what they add to homes in CA? By the way, none of these taxes or fees are left in the wallets of builders.

Before we get further lost in details, we might wish to stand back and take in the big picture? The concern in your original posting was the impact of state taxes on retirement. Here is one overview:
http://www.retirementliving.com/RLwealthfriendly.html (broken link)

Hi,

California real estate taxes are much more and significantly more predictable than washington. Ca real estate taxes go up2 % each year,. A figure you can budget on, unlike Washington real estate taxes: Washinftom taxes are not predicatble given how theyare computed.

I gues you live in washington, so can you explaind in detail how real estatate taxes change each year? It is an arcane and obsolete tax system which above all needs to be indexed to inflation like all other taxes.

Please explain how real estates can double over five years when inflation averaged under 2% for those same five years.( see Port Townsend relpies). Is this predicatable???. No the tax system in washington for real estate is 20 years out of date.

Californis real estate tax is brillant: all real estate taxes go up 2% per year plus new taxpayer assesments plus new buildings. The net effect is that taxpayers know what to pay each year
and the county cangrow it's revenue base base in excess of the inflation rate . A win Win situation unlike Washington.