When Raj Agarwal and his wife decided to start shopping for a house in Silver Spring last summer, the high prices shocked and deterred them.
“It seemed as if the prices were ridiculous,” Agarwal, an accountant, said. “After scoping a lot of places in June, July and August, we sort of decided that buying a home is not within our reach, at least in the area.”
But when Agarwal checked back in December, the prices had dropped substantially. Now, he says, they’ve fallen another 5 to 6 percent, and he and his wife are waiting for prices to go down a bit more before making an offer.
Agarwal has reason to be optimistic. Though the assessed values of residential property across the state have risen by an average of 56.6 percent since 2004, sale prices have decreased by an average of 6.1 percent over the last year.
That’s bad news for homeowners, who are paying higher taxes on their newly-appreciated homes but can’t put them on the market at the same prices as a year ago. But it can also be bad news for house hunters like Agarwal, who may be able to afford a home’s sticker price, but may be wary of the higher property taxes.
The housing market in general has suffered setbacks in recent months, with the collapse of the sub-prime mortgage industry and record numbers of bank foreclosures on homes. This, coupled with increased property values and an economic downturn that is also affecting food, gas prices and job security, has created a less-than-ideal climate for real estate sales in Maryland.
“There are a number of things affecting the market right now,” said Joe Petruccelli, a real estate agent with Weichert Realtors in Montgomery County. “So you can’t just point at assessment values and say, ‘this is what it is.'”
But assessment values, in which the Department of Assessments and Taxation determines a property’s worth, do affect the real estate market in some cases by creating a gap between a house’s sale price and the amount on which prospective buyers would have to pay property taxes.
“If property taxes go up, it does affect affordability,” said Mike McDermitt, a real estate agent with Llewellyn Realtors in Montgomery County.
In this situation, a buyer who can afford a house priced at $500,000 may not be able to afford the taxes on the same house’s assessed price of $600,000, said Petruccelli.
McDermitt and Petruccelli’s sales region is among the central Maryland locations feeling the crunch of this gap. In Montgomery County, where they sell most of their properties, values have increased by 60.8 percent but sales prices have dipped 1.8 percent, which Petruccelli called unexpected.
“Assessed values have always gone up incrementally,” he said. “But they’ve really jumped a lot in the last five years. Everyone was fine with that because they thought the market values were going to increase as well, but [facing a] recession, market values are coming down. The trend is actually going backwards – people are saying, ‘why should I be paying taxes on a house that’s assessed at $600,000 that’s really only worth $450,000?'”
Homeowners can appeal their assessments, which are performed on a third of the state’s properties each year, but Petruccelli said h