The real estate bust threatens to sock homeowners with an unwelcome combination of blows over the next few years, as North Carolina counties undertake the periodic cycle of property revaluation. Counties, cities, and towns have to keep enough money coming in from property taxes to balance their budgets. So when property valuations fall, tax rates either must rise, or local governments must get by with less.
State law requires counties do a revaluation at least every eight years, but counties can decide to revalue more frequently. Mecklenburg is the state’s largest county revaluing its property this year. Between 2005 and 2006, Mecklenburg County’s real estate valuation grew about 4 percent, adding almost $4 billion of property to the tax rolls. Cumulatively, North Carolina counties saw their taxable real estate value grow $95 billion at the peak of the boom, reports the North Carolina Association of County Commissions.
That said, the N.C. Department of Revenue says the counties with the largest spike in value during the boom also are most likely to see the greatest fall in value this year. Brunswick County leads the bunch, with the median home sold having an assessed value of nearly 114 percent of its sales price. The median home sold in Carteret County had an assessed value of nearly 113 percent of its sales price.
Definition: Those homes sold for prices lower than their tax values.
Local elected officials are not eager to raise tax rates. “I don’t think citizens are particularly interested in seeing a tax increase. I’m sure there are a good number who’d like to see a decrease, but I’m not sure I see a tax increase in the mix here,” said Carteret County Commission Chairman Doug Harris. “I think we will be looking for additional ways to cut spending.”
The Cannonsgate development in Carteret County is a prime example of what’s happening in many North Carolina subdivisions that were developed over the past decade — particularly in resort or vacation areas. Land in the 525-lot development on the Bogue Sound sold for prices approaching (and in some cases exceeding) $1 million in 2005 and 2006, when the real estate market spiked. Now, foreclosures are rife, only two homes have been built, and a mere handful of houses are under construction.
“It poses a problem when you’re trying to get construction loans,” said Riley Horne a board member of the Cannonsgate Homeowner’s Association and a builder in the neighborhood. He also is fighting a negative image the neighborhood gained after closing documents showed former Gov. Mike Easley received a $137,000 discount when Easley purchased one of the coastal development’s two prime lots.
Property records show how significantly the values have tanked. The lot at 617 Cannonsgate Drive suffered one of the worst losses in value. In November 2006 it sold for $439,000. In March 2010 it sold for $31,500. That’s a 93 percent loss.
The lot at 111 Michelle Manor Court shows a similar reduction in value. County tax records list its market value as $884,957. It recently sold for $90,000, just 10 percent of its tax value.
Neither lot has a home built on it.
Horne says lots sold at the height of the real estate bubble had realistic prices. “At that time, up and down the whole east coast, that was the value of lots. It’s just like the stock market or anything else,” Horne said. “Something changed.”
What changed is the bottom fell out of the real estate market. State data reflected the boom and may be predicting a significant fall.
From 2005 to 2006, Carteret County saw its appraised property value jump 117 percent, according to the county commission association. The county added more than $10 billion of real estate valuation. It wasn’t alone. Brunswick County’s property value grew almost 106 percent, adding nearly $16 billion of real estate. Both are doing a revaluation this year.
The two coastal counties far outpaced other counties revaluing real estate this year. As landowners in Cannonsgate and countless other neighborhoods in North Carolina know, homes that are selling are doing so at far below their peak prices.
The Department of Revenue also is predicting a precipitous decline of value in Lincoln County. County Commission Chairman Alex Patton acknowledges the likelihood that home prices in the desirable area surrounding Lake Norman have dropped from their peak in the boom years.
The county did its last revaluation in 2008. Patton said home values were sky-high just two years ago. “We felt because the last revaluation was so high, right at the very height [of the market], it was unfair to the citizens to be stuck with that revaluation for six to eight years.”
Between falling home values potentially leading to higher tax rates and the inability of the General Assembly to contribute to local budgets, Patton says the county’s homeowners have been hit with a double whammy.
“The state is $3 billion in the hole,” he said. “With that and a property revaluation that is going to come back lower — we just don’t know how much lower — it’ll be an extremely interesting year.”
Patton, a Republican, excoriated the Democrat-led General Assembly for digging the state into a deficit that many believe approaches $4 billion.
“They have to change,” Patton said, referring to the new Republican majority in the General Assembly. “They have to quit spending money. It’s not an income problem. It’s a spending problem. If these folks don’t change, they need to be voted out too.”
While government leaders are fretting over how to balance their budgets, Riley Horne sits in one of the only houses in Cannonsgate, trying to convince others to build in the neighborhood. It’s a difficult task. He’s working to overcome the negative image, but says the lots in the neighborhood are now a deal.
“I would say we’re the strongest homeowner’s association and the strongest subdivision anywhere around,” Horne said.
Anthony Greco is an associate editor of Carolina Journal.