Ocean City Land Values Plummet
OCEAN CITY - Assessments of real estate values in Ocean City were officially completed last week, and while it should come as no surprise to property owners that the assessed value of their homes and businesses have gone down since the last assessment three years ago, the results reveal a downward trend not seen in recent memory.
When Ocean City property owners retrieve their reassessment notices from their mailboxes in December, most will likely be relieved to discover the steady if not soaring increases seen over the last six years or so during the most recent real estate boom have veered in a decidedly different direction. The last time real estate was reassessed in Ocean City three years ago, the average annual increase came in at around 25 percent per year, or 75 percent for the three-year assessment period.
This time around, Ocean City property owners will see the assessed value of their real estate decrease by an average of about 13-15 percent, according to Robert Smith, director of the State Department of Assessment and Taxation (SDAT) for Worcester County. The average decrease in assessed values represents an about face for Ocean City, which saw property values spiral upward in the last two assessment periods dating back six years.
'Ninety-five percent of Ocean City probably went down,' he said. 'The remaining five percent saw their values either stay the same or even increase slightly in some cases.'
This time around, the values have not only stabilized, but have reversed direction in a downward trend not seen in years, if ever, according to Smith.
'In all my years of doing this dating back to 1973, I have never seen a downward trend to this magnitude,' he said. 'I've seen modest gains and I've seen leveling off, but I've never seen it go in the opposite direction quite like this. The needle has definitely moved in a different direction and it has taken property values with it.'
A stagnant real estate market along with a shaky at best and collapsing at worst economy is the reason for the downward trend in property assessment values, according to Smith.
Of course, sagging property values can be a double-edged sword. For residents who have no intention of moving or selling their property, the decrease can result in some relief on the taxes they pay for their homes and businesses. For those hoping to sell their properties, declining values lessen the potential return. In either case, the assessed values are directly related to the market and decreased values mirror declines overall.
'Assessments are always market-driven,' said Smith. 'When the market is thriving, the values go up. When the market is sagging, as it is now, the assessments follow suit. In Ocean City right now, and everywhere on the Eastern Shore, the market is doing a big, downward trend. Ocean City, because it's a resort area, hasn't been hit as hard as some areas in the state.'
Because it is in a resort area, Ocean City is typically subject to greater swings in real estate values than other, more stable areas. For example, the real estate market in the resort soared for a long time in recent years before the latest downward trend, taking assessment values with it. When the market cools, as it is now, the assessed values follow suit, a trend Smith hopes does not continue.
'Everybody enjoyed this tremendous market for about six years,' he said. 'I've never seen a market do what it did during those six years. Hopefully, this latest trend won't last another six years.'
While resort property owners will see their assessed values decline this year for the first time in many years, the overall values of their property will still be more than they were before the last big real estate boom. For example, if a property assessed at $100,000 six years ago saw its value increased to say $125,000 when it was reassessed the last time, it might find its value drop back to $110,000 in the assessment notices coming out in December. While the assessed value is considerably lower than the last reassessment, it is still much higher than it was six years ago.
Of course, declining property values in Ocean City will cause a drop in property tax revenues collected by the town and Worcester County next year. The property tax revenue decreases could make it difficult for local governments to balance their budgets, but there will likely be no interest in raising property tax rates to make up the difference.
Each year, local governments consider the constant yield, or the amount of property tax that needs to be collected to maintain the same level of spending, and each year elected officials decline to lower the property tax rate to the constant yield level, although they do lower the tax rate sometimes.
When the reverse happens and property values go down, taking tax revenue for the local governments with them, an argument could be made to increase the tax rate to maintain the same level of increase, although that is unlikely given the current economic situation.
'When the values decrease, there is likely a temptation to raise taxes to maintain the same level of revenue, but I'm guessing that would be extremely unpopular right now,' said Smith. 'They will have their work cut out for them when they get to budget time this year, but I wouldn't expect them to consider raising taxes. They will have tough decisions to make when they look at where they are and where they have to cut.'