PROPERTY TAX INCREASE: THE IMPACT Home values, sales could take hit - Some deals have fallen through; more foreclosures are feared By Jeff Swiatek and Tim Evans The Indianapolis Star, 7 July 2007 The dramatic and widespread jump in Marion County property taxes threatens to depress housing prices or at least freeze the steady rise in home values that property owners have come to bank on. "I see values coming down to adjust to buyers' ability to afford the home and the taxes that come with it," said Kevin Kirkpatrick, president of the Metropolitan Indianapolis Board of Realtors. The tax hike averages 34 percent in Indianapolis, but increases of 100 percent or more are not unheard of in some older neighborhoods.Kirkpatrick described as "maddening" the higher tax bills, which are arriving during the July 4 holiday week when many people are off work. Real estate professionals say some sales are falling through as the impact of higher taxes pushes some properties out of reach for buyers. Others say the increases could result in even more foreclosures. Tom Ellis and his wife had planned to sell their two-story College Park home, where they've lived for 30 years, and move into a newer one-story home in the area. But now the Pike Township couple are holding off on putting their home up for sale and seriously considering moving out of state. "We had been counting on getting a certain amount out of our house, but there's too much stigma about the taxes to sell it now," Ellis said. A retired property appraiser, Ellis estimates their house lost about 10 percent of its value, or $20,000, because of its higher tax load. The Ellis' annual property tax bill jumped from $2,200 to $3,352, or nearly $100 more a month. Economist Morton Marcus, who has tracked economic activity in Indiana for 30 years, says higher taxes will cut into consumer spending as homeowners have less cash in their wallets. Just how severe a blow it will deal to the city's already struggling residential real estate market is unclear. By many accounts, the arrival of the tax bills this week already has shaken a market that last year saw home sales drop by 1 percent from 2005. Realtors report some closings of home sales have been abruptly called off, while offers are being renegotiated to reflect the unexpectedly higher tax bills. And some homeowners, particularly retirees on fixed incomes, may find they can't afford to stay in their homes as the new, higher tax bills come due in late July. "If you think the foreclosure rate is bad now, just wait," said David Matters, mortgage consultant in Indianapolis for Nationwide Mortgage Funding. Indianapolis ranked third among U.S. cities in overall home foreclosures last year. "Some people have got to come up with $6,000 (extra) by the end of July" to pay their new taxes and avoid foreclosure, said Pegg Kennedy, a Realtor for F.C. Tucker Co. in Indianapolis. "My voice mail is almost full from people saying, 'Help me, help me.' " First Mortgage of Indiana called off one of its closings in the past week when the buyer no longer qualified for the loan covering the mortgage, taxes and insurance on the home. Once the new taxes were figured in, the sale "blew up," said Michael Strawn, a vice president at First Mortgage. Across the city, he said, the tax hike "is going to have an impact -- no ifs, ands or buts. It's going to make it harder to own a home." The impact of rising assessments is likely to vary significantly in other Indiana counties, based on how much home values and tax rates changed. Residential assessments in Hamilton County, for instance, increased about 25 percent, but some of that sting was offset by lower tax rates in most townships. In Hendricks County, newer custom-built homes took the biggest hit -- at least 20 percent in most cases -- prompting about 1,200 homeowners to file appeals. Kurt Flock, vice president of Flock Real Estate Group, which primarily sells homes in and around Downtown, said his company represents a buyer of a house in the 1000 block of North Alabama Street, on which taxes have just soared from $2,574 a year to $12,388. His buyers might lower their offer for the house to reflect the heavier tax burden they'll have to shoulder, he said. "This is the kind of nonsense we're running into," Flock said. "If everybody is in the same ridiculous sinking boat, where's the life raft?" he asked. "It's going to have a chilling effect on the market for quite a while." Jessica Hoffman, who's selling her Massachusetts Avenue condominium through Flock, said she wonders whether the closing will go through now that she's received word that the tax bill on the unit will jump to $1,800 a year from $600. "I'm hoping they (the buyers) are thinking it's OK," said Hoffman, who called herself "a little surprised" to get the tax notice. State lawmakers have promised rebate checks averaging $240 to help offset the impact of higher property taxes statewide. "Everyone is laughing at the check" because it won't cover the rise in taxes for many Indianapolis homeowners, who face bigger increases than in rural counties, said G.B. Landrigan, president of Landrigan & Co. It sells residential properties, mostly in northern Marion County. Marcus, the former Indiana University economist, said one silver lining in the issue is that tax revenue stays local and ends up being used to pay those who run or contract with the government, such as road-building companies and schoolteachers. "Government tends to buy labor, services and hire people. The possibility of more spending in the county could lead to more employment," he said. "I think it is possible that the positive may outweigh the negative in the big picture. People always tend to think about the negative, but if government spending makes the community more attractive, it will encourage more people to come here, and attracting more people tends to be a good thing."