When the Market Recovers
Restoring Prop 13 Values When the Market Recovers
Between 2007 and 2012 as real estate prices fell during a statewide economic recession, Assessor staff temporarily reduced values on over 12,000 properties as permitted by law. By January 1, 2018, almost 10,000 of those properties had either been sold or restored to its Proposition 13 factored base year value. There is no limit as to how rapidly the Assessor can reduce values temporarily below the factored base year value to track market conditions. While there is also no limit as to how rapidly the Assessor can restore values in a recovering market, our policy has been to phase in the restoration over several years.
When fully restored, the assessed value can not exceed the Proposition 13 factored base year value unless there has been a change of ownership or new construction during the temporary decline in value. Under Proposition 13 the base year value established at the time of transfer of a property must be increased by an inflation factor not to exceed 2% per year. This adjusted value is known as the factored base year value and remains as the ceiling beyond which values cannot be increased.
The housing bubble that began in 2005 started returning to a more normal real estate market beginning in 2012. We have been restoring value for many, but not all, of the 12,000 properties in a decline in value status beginning with the 2015-2016 assessment year. Notices of any adjustment will be posted on the county website by July 15 of each year. You will be able to see the notice by putting in your parcel number or street address on our parcel data page.
To illustrate the reduction and restoration process let’s look at a hypothetical example. In August 2006 at the height of the market, Sam and Dorothy purchased a home for $800,000. $800,000 became their Proposition 13 base year value. The real estate market suffered a severe and steep decline between 2006 and 2012 so that as of January 1, 2008, their home was only worth $725,000 which we enrolled as a temporary decline-in-value. By January 1, 2012, their value had continued to decline to $575,000. As of January 1, 2013, the real estate market had begun to recover so their value was adjusted upward to $625,000. For the 2014-2015 assessment year, their value had increased again by 25% to $781,250.
Their January 1, 2014, Proposition 13 factored base year value had increased to $874,386 still above their temporary decline in value of $781,250. For each succeeding year, we will continue to make gradual upward adjustments to the temporary decline in value as market conditions improve. Assuming the market has fully recovered by January 1, 2016, the current market value of their home hypothetically could be $950,000. By January 1, 2016, the factored base year value of their home will be to $923,672. For 2016 we will enroll Sam and Dorothy’s factored base year value of $923,672 which is once again below the current market value of $950,000.