Property value declines flatten out across the Gulf Coast, but with many local governments facing deficits, taxes may still rise.
What. Taxable property values reaching bottom.
Issue. Will tax rates rise as values begin to turn up?
Impact. Retiring boomers and job growth are keys to higher values.
After watching property values in Pasco County plummet more than 24% in the past two years, the pace of property value decline appears to be slowing, giving some a reason for optimism.
Among the optimistic is Pasco County Property Appraiser Mike Wells. He says he's pleased with the county's preliminary 2011 tax roll, which shows that the county's taxable values slid only 2% last year.
Although still a drop, it's a significant improvement compared with a more than 10% drop a year earlier and a greater than 14% decline from 2008 to 2009. Across the eight counties of the Gulf Coast from Pasco to Collier, taxable values fell by an average of 4.6% in 2011, with each falling by only single-digit percentages.
But it's Wells' outlook on next year that puts a really big grin on his mug. “I predict next year that the tax roll in Pasco County is going to go up,” he says.
That's a statement that's not likely been heard around these parts for five years or so. Since Pasco County's values peaked with the Jan. 1, 2007 tax roll, its taxable values have fallen 31.6%, based on the county's new preliminary value of $20.32 billion, down from $20.74 billion last year.
“We were very diligent in coming up with actual numbers as the market was going down,” Wells explains. “In doing that we were right on top of it. Things are not wonderful yet, but things are turning around.”
Wells gets agreement from the south end of the region. Shelton Weeks, a real estate professor and chairman of Florida Gulf Coast University's Economics and Finance Department sees a bottom forming, though not a fast recovery. “When you look at where our markets are today, all in slightly different places, we've retreated back to a point where the valuations are low enough where people say, 'Hey, that's a pretty good deal.'”
A new normal
The worst of the single-digit drops falls on Charlotte County, where taxable values fell 7.2%. “That's the first single-digit reduction in seven years,” says Frank Desguin, the county's property appraiser. Last year the county's values fell nearly 14%, and slid nearly 17% from 2008 to 2009. “It's kind of slowing down; we'll see what happens next year,” says Desguin.
Values peaked in 2006 in Charlotte, a year earlier than the other seven Gulf Coast counties, likely because of the after effects of 2004's Hurricane Charley. Desguin observes that rebuilding coincided with rising new housing demand fueled by a solid supply of relatively low-priced single-family vacant lots, especially around Port Charlotte.
“Percentage-wise it's been the vacant residential lots that have taken the biggest hit,” Desguin says. “Since 2006, vacant residential overall total value is down about 85%.” He says that $6 billion in taxable value losses — more than half of the $11.7 billion drop since 2006 — is attributed to vacant single-family lots, and about $3 billion from single-family homes.
That history may largely explain why since its peak the county's values have fallen the most percentage-wise — by nearly half — with the one-year head start. For all eight counties, taxable values have fallen a combined $171 billion from a combined peak value of $497 billion, or 34.5%, to an estimated $325.8 billion.
Charlotte's neighbor to the south, Lee County, hasn't fared much better since its 2007 peak of $96.3 billion, when it led the region and topped both Hillsborough and Pinellas counties.
Estimated at $53.6 billion after a late upward revision of $1 billion in its preliminary taxable value, the county figure has declined nearly $43 billion, more than 44%, since 2007. Lee County now ranks fourth in taxable value in the eight-county region.
Still, there's good news for Lee County, too. Based on the 2011 estimate, taxable values fell just 3.8%, better than last year's 15.3% drop or the prior year's 23.2% tumble. Each of the last two years, Lee County took biggest-loser honors among Gulf Coast counties, but now the county's decline in values is nearly a percentage point better than the region as a whole.
“The single-family residential properties does look like it's flattening out based on 2011 sales,” says Roger Desjarlais, chief deputy property appraiser for Lee County. “Values are beginning to increase,” he adds, confirming what Wells sees in Pasco.
But Desjarlais also cautions, “We're a little concerned about the next wave of foreclosures, the shadow foreclosures.” Desjarlais believes the first batch of foreclosures took down people “living paycheck to paycheck.” Now, he says, “There's this other class of folks.” He predicts, “They're going to be running out of cash sometime.”
Commercial property values also concern Desjarlais. “When we send our trim notices out people are going to see a decline in commercial values,” he says. “There are a lot of properties that need to be refinanced over the next couple years, but probably won't be,” he adds, referring to the shorter 3- to 5-year terms of commercial loans that investors took out near the peak.
“We probably have a couple more years in a decline in commercial values yet,” guesses Desjarlais. “We're not sure what the new normal is actually going to look like.”
In Hillsborough County, Chief Deputy Property Appraiser Warren Weathers offers this explanation why the drop in values is flattening out: “The primary reason is because of the absorption of a lot of the inventory.” Weathers adds, “The market is taking care of itself.”
While seeing some stabilizing in some residential neighborhoods, Weathers sides with Lee's Desjarlais with a similar view of how foreclosures might impact values going forward. “We probably will see more foreclosures in certain markets and certain neighborhoods,” says Weathers.
Still, Weathers shares Wells' optimism looking out a year, noting stronger apartment values. Although that may reflect new demand from foreclosed homeowners in need of cheaper rent, he's looking forward.
“Baby-boomers retiring in huge numbers will probably come down and absorb this.” Plus, Weathers sees foreign investors, particularly Canadians and South Americans, adding to housing demand. “They think it's still very prestigious to have a home in Florida,” he says.
Tax rates decision time
While Hillsborough and Lee counties' taxable values went from percentage declines that were worse than the regional average last year, to better than this year's 4.6% average decline, Sarasota County went the other way.
Sarasota County's taxable values slid 6.5%, making it second worst in the region. Last year, the county's taxable value tied Pinellas County with the smallest drop at 9.5%.
Sarasota County Commissioner Nora Patterson, who has a real estate background, explains, “Our prices went up and inflated more than the average, so where you have a higher inflation beyond what's realistic, you're going to have a bigger crash.”
Despite its nearly $23 billion in lost taxable value since its 2007 peak, a 37% slide, Sarasota County's general fund millage rate fell 5.1% from 2007 to 2010, helped by a hefty reserves balance.
In contrast, the other seven counties in the region either kept general fund tax rates essentially unchanged or increased them significantly, averaging an increase of 7.4% in three years' time. Charlotte's has gone up 34%, Pasco 17.2% and Collier County's increased 13.3%.
While Sarasota County dipped into the reserves to balance its budgets lately, it still holds $70 million to $80 million in reserves, according to Patterson. She's uncertain if commissioners will move to raise tax rates, though she says there are concerns about rates being adequate for ambulance services and the mosquito control district.
“It's not long term, a rosy picture,” she says. “On the other hand, we do have enormous capacity to raise property taxes, but we're all reluctant to do that in this economy.”
And with unemployment rates ranging from 9.9% to 10.8% across the Gulf Coast region — and the national rate now inching up to 9.2% even as the labor force shrank — local officials have much to sort out before setting property tax rates later this summer.
In the meantime, Pasco's Wells remains optimistic enough to offer some free property value advice for Pasco that local governments might also consider before raising tax rates: “Now is the time to buy because the stuff's going to start going up.”