Magazine article Mortgage Banking

Falling Property Values Ail U.S. Cities

Magazine article Mortgage Banking

Falling Property Values Ail U.S. Cities

Article excerpt

Property tax revenue declines this year could keep most cities from meeting their fiscal needs, according to a survey of city finance officers conducted by the National League of Cities (NLC), Washington, D.C.

City finance officers who relied on property and sales taxes equally said their cities were less able to meet fiscal needs this year. The survey showed 87 percent reported their cities as "less able to meet fiscal needs in 2010 than the previous year," and 80 percent forecast the same for 2011.

"Unfortunately, because of the loss in revenue, cities will face even more difficult circumstances in the months, if not years, to come," said Christopher Hoene, director of the center for research and innovation at NLC.

NLC found property tax revenues, driven by residential and commercial property values and assessed by local governments, increased by 4.2 percent in 2009, but projected that property tax revenues for this year were down by 1.8 percent. Hoene said industry diversification among major metropolitan areas also factors into value declines.

"The central core [of residential real estate] in the metropolitan areas remains pretty strong in terms of property values, but suburban and exurban communities have been hardest hit in terms of very dramatic reductions in residential value," Hoene said. "On the commercial property side, how that plays out is still a little bit in question."

NLC said the "full weight" of housing and commercial real estate value declines will likely hit property tax revenues in 2011 and 2012 as city property tax assessments and collections only begin to reflect falling property values.

Michael Pagano, dean of the college of urban planning and public affairs at the University of Illinois at Chicago, said commercial mortgage maturities in the next couple of years could further cause property value declines in cities across the country.

"In 2012, there will be some payments due in the commercial real estate sector that are going to be difficult," Pagano said. "If that is the case, if those become difficult to collect on and the value of commercial real estate declines after 2012, the mix of commercial plus residential real estate that results in property tax collections--even if the residential market begins to improve by that time--will be held down by the challenges in the commercial real estate sector. …

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