(Jan. 11, 2013) Though it has been more than four years since the beginning of the 2008 economic recession, and despite signs of a gradual recovery, the effects of the market dip, at least for tax purposes, are still being figured out.
But the man who does the figuring, Worcester County Assessor Bob Smith, reported relative calm this week after having mailed new assessments for the county’s “group one” sector of properties at year’s end. Although the re-assessment has seen considerable drops in home values for Berlin, Ocean Pines, and other areas of the county, the effect on the resort has been limited, given that group one encompasses only Ocean City’s commercial property below 25th Street.
“We prefer to expect no complaints, but the number of calls for commercial property right now has been at a minimum,” Smith said.
Although some properties have leveled out or even risen in value, most have gone down. But the aggregate loss, Smith estimated, was only around 6 percent for the city’s downtown commercial property.
“I can tell you that the overall assessment is less this year than it was last time for the same area,” Smith said.
Despite the impression that re-assessments will mandate a huge dip in value, Smith said this is mostly reflective of residential sales, given the bottomed-out real estate market.
“Commercial can almost be a stand-alone,” he said. “It can do pretty good even with the market in the residential doing as bad as its doing. Depending on the community, you just have to get people to keep coming into your restaurant or store or whatever [regardless of the market for the real estate itself].”
Maryland assessments are done on a three-year cycle. New values for property assessed in a given calendar year go into effect in July of the following year, when governments collect property taxes as revenue for the new fiscal year, which runs on a July-through-June cycle.
Thus, Smith’s assessments done in 2012 will have an effect in July 2013 – the beginning of FY14 – when the city and county levy property taxes.
“It’s going to affect us somewhat, but not a lot,” said Ocean City Budget Manager Jennie Knapp. “It’s not a big hit, comparatively speaking.”
Relative, of course, to the 2011 reassessments that saw the Town of Ocean City to lose $1.6 billion – about 15 percent – of its total assessed value, and subsequently raise its FY13 tax rate from 39.5 to 45.85 cents per $100 of assessment, order to bring in the same amount of money.
While increases in value are phased in, for tax purposes, over the three years between assessments, decreases are effective immediately in their entirety. This gives property owners the immediate full benefit of lower taxes, but shields them from sudden hikes if their property gains value rapidly. On the other hand, it means that governments face revenue drops immediately.
“It’s designed to be the best for the taxpayer, not for the municipality,” Knapp said.
But the brunt of the 2011 decrease was in residential property. Knapp said if Smith’s estimate of a 6 percent decrease for the south end commercial holds true, the city would lose only about a half million dollars in tax revenue. Due to assessment appeals, and any construction that occurs between now and July, the loss will likely be a bit less.
Further, since residential and north-end commercial properties were re-assessed in the last cycle – what Smith identifies as “group 3” – the next reassessment cycle of “group 2” will not affect Ocean City at all.
“What happened to us last year [in terms of decreases] should be it,” Knapp said.
What would really shore the city up would be a return in the residential market. But this is tied less to homeownership and more to property investment, given that – according to Smith – 91 percent of the residential properties in the resort are not owner-occupied.
Due to the pre-2008 real estate bubble, Ocean City has been living on a stock of largely unsold housing. But, according to Smith, this excess has gone from about 1,800 units down to about 1,000 over the past years.
“That doesn’t mean we’re out of the water yet, it just means that the water is getting more shallow,” he said.
Jennifer Cropper-Rines of the Coastal Association of Realtors told the city’s Economic Development Committee this week that, while prices for 2012 were down 6 percent, sales were up 8 percent. The inventory of unsold homes is now estimated at a 14-month supply, down from an 18-month inventory.
“The bulk of the properties that are selling are under $400,000,” Cropper-Rines said. “The high-end market is still a little slow to catch up.”
According to the CAR’s November 2012 report, condo sales for the year through November were up 5.6 percent over the same period in 2011. Units under contract were up 14.1 percent, and the market glut had shrunk considerably, with 25 percent fewer listings. For single-family properties, settled sales were up 18.3 percent, contracts up 12.7 percent, and listings down 13.7 percent.