Property values in northeast Indiana have been rising rapidly in recent years, with assessments for homes and land jumping far beyond typical year-to-year increases.
Whether that’s good or bad for property owners, well, that’s a matter of perspective and priorities.
Spiking property values can be described with some Economics 101, with the recent trend being fueled primarily by supply and demand forces, local assessors and real estate agents said.
Rapidly rising values can present both positives and negatives for the community and that determination can hinge on whether you’re looking to buy or sell property and/or your tolerance for paying taxes.
But what appears clear is that, at least for now, the increases don’t appear to be slowing down, so rising property values may be here to stay unless market forces change and impact the trajectory of prices.
What is assessment?
To start understanding why values are going up and why that matters, you need to understand a few basics of the assessing process in Indiana.
At its most basic level, assessing is the process by which your local county values your property — the land and structures on it.
That value comes into play in two ways. First, it can give you an idea of what a property is worth and help you determine its value buying or selling on the real estate market. But second, assessed values are also part of the equation used for local taxation when property taxes come due.
Assessed values are the pool local government uses to levy taxes and determine what your tax rates are and how much your tax bill will be.
When governments set their annual budgets and determine how much money they need to raise from taxes to support their operations, that dollar total — the tax levy — is divided by the total value of properties in the taxing district. Levy divided by assessed value give you a tax rate.
For example, if local governments need $1 million in taxes and the total value of properties is $100 million, the tax rate is 1% or $1 per $100 of assessed value on your property.
Your tax bill is then determined by taking that tax rate and applying it to the taxable value of your property. So if your farmland is valued at $200,000 and the tax rate is 1%, your tax bill would be $2,000.
Homes work a little differently, because Hoosiers get deductions that decrease the taxable value of their house and, therefore, decreases the tax bill. So a person with a $150,000 home, after deductions would have a taxable value of only about $65,000, meaning a 1% tax rate would result in a tax bill of $650, not $1,500.
To summarize, total assessed values are used to determine the tax rate that everyone pays, while your property’s assessed value will influence your individual tax bill.
How are assessments determined?
Indiana utilizes market-based assessing, which dictates that assessments should reflect the actual market value of your property to buyers.
Ideally, if your house is valued at $150,000, that’s what it should be worth if you put it up for sale today.
Granted, there are a lot of other factors that can influence the value of your property positively or negatively — its condition, its location, what’s around it, what school district its in, etc. — but assessors try to adjust property values to reflect real market values as closely as possible.
So how do assessors update values?
They’re taking a look at actual sales and the prices that properties are selling for, then comparing those to similar properties in neighborhoods and nearby areas.
For example, if a subdivision is filled with $150,000 houses, but several recent sales are being made at $175,000-$200,000, assessors would look at that neighborhood and may considering increasing the values of the other houses that didn’t change hands closer to the prices of the recent sales to reflect the current market.
That’s an annual process called trending, where assessors will review sales and then determine whether updates up or down need to be made, or whether current values still appear to be appropriate.
So when properties sell, it not only updates the value of that property, but can influence the value of its neighbors and community.
What’s happened in the local area?
Over the last three years, local counties have seen property values rise more sharply than in the past.
Looking at a period from 2017 to certified values for the 2022 tax year, countywide assessed values in DeKalb, LaGrange, Noble and Steuben counties were up in about the 3% in 2018 compared to 2017 and up about 2-3.5% in 2019.
Over the last three years, however, prices have risen more sharply.
In 2020, values in DeKalb County were up 8.1%, while up 6.8% in Steuben County compared to the year prior. LaGrange County saw a 4.92% increase, smaller but still above average, while Noble County had a more typical 3.41% increase.
In 2021, pandemic forces appear to have tamped down values a bit — Noble County had a bigger-than-usual increase of 6.93%, while Steuben County was up 4.74%. DeKalb and LaGrange counties had more normal years, at 2.19% and 2.29%, respectively.
But coming into next year, countywide assessed values are up sharply in all four counties. For the 2022 tax year, Noble County’s total assessed value increased a huge 11.07%, with Steuben County up 8.32%. DeKalb County increased 6.22% and LaGrange County values are up 5.84%.
Those values are much higher than what’s normal for the region. Retired Purdue economist and Indiana tax expert Larry DeBoer said, for example, the average assessed value growth in Noble County over the prior seven years was about 2.9% per year.
DeBoer said home prices in Indiana are up sharply, while farmland values have been stable and commercial prices have dropped as vacancies have gone up. Although the U.S. is coming out of a pandemic-caused recession, it’s not having the impact on values like was seen during the Great Recession.
“After the Great Recession, in Noble County, gross assessed values fell three years in a row, pay years 2011-13, by an average of -1.7% per year. So this recession is way different than the last one,” DeBoer said. Of course, last time the recession was caused by trouble in the housing market, and home values were falling. Not this time, of course.”
Over the last six years, Noble County’s total assessed value is up over 30%, while Steuben County is up 25% and DeKalb and LaGrange are both up over 20%.
What’s driving the increase?
This is primarily supply and demand, local sources said.
While new development like new home building, new business growth or industrial expansion can add to a county’s total assessed value, home and land sales and the trending that occurs with them makes up a large chunk of the changes.
Ask any real estate agent and they’re tell you that supply is extremely low and demand is extremely high, and those two factors combined lead to spiking prices.
“We have a lot more offers on homes when they go on the market, where it becomes a bidding war,” said Kendallville-based Hosler Realty co-owner Jennifer Streich. “You have buyers that are willing to forego their inspections and even writing in that they’re willing to pay over appraisal value. Without needing the checks and balances, that increases the issues with houses selling for more.
“When someone’s desperate for a house, they’re willing to do that,” Streich said.
The housing market was turning into a seller’s market a few years back, as demand was outstripping supply. But Streich said it’s gotten even more overheated in the last two years. The COVID-19 pandemic put a dent in a lot of corners of the economy, but Streich said it didn’t do much to cool off the buying frenzy.
“I have clients I have shown 20-30 homes to. We’ve written so many offers, multiple offers over asking price and we still don’t get them. I’ve had listings this year that went $20,000-$25,000 over asking price,” she said.
Those supply and demand forces then translate directly back into assessments, and sharply rising home prices are fueling the increase in values, local assessors said.
“Changes in assessed values mirror the real estate market. While the supply of available properties, especially homes, is fairly low, the demand for real estate is extremely high. This combined with low interest rates results in an increase in real estate values. This is obviously not unique to NE Indiana, it is a nation-wide phenomenon,” Noble County Assessor Ben Castle said.
“We’ve all been hearing, even through realtors and everything, back again to that supply and demand, and I think it’s been an issue for several years and its just not letting up. I would say, it just snowballs a little bit more every year,” DeKalb County Assessor Sheila Stonebraker agreed.
That snowball effect occurs because rising sale prices increase the values of homes that sell, and then assessors, during their annual trending, look at the neighborhoods where those sales are happening and if the prices are over what other homes nearby are valued at, the values on those other properties get adjusted upward.
“The valid sales of properties within a given neighborhood are compared to the assessed values in the same neighborhood,” Castle said. “If the market sales are higher than assessments, then the assessments must increase to market value. The opposite is also the case, if market values are lower than assessments, then those assessed values will decrease.”
There’s just not a lot of decreasing happening right now, which means values continue shooting upward.
Are rising values good or bad?
It’s both, but the answer to that question depends on your perspective.
On the positive side, increasing total assessed values help drive down annual tax rates, which could save you some money on your annual tax bill. And for someone looking to sell their home or it’s good for someone who is a young owner and is enjoying wealth-building as their real estate increases in value.
On the negative side, people looking to buy are facing sharply increased prices. For owners, while rising overall values can reduce tax rates, your tax bill may still increase year-to-year if the percentage rise in your property assessment is greater than the percentage decrease in your tax rate.
“While all homeowners enjoy rising real estate values, the same cannot be said about the corresponding rise in assessments. It truly can be a double-edged sword for homeowners. However, a rise in assessments does not necessarily correspond with a rise in property taxes. Explaining this to taxpayers is definitely one the most challenging role as county assessor,” Castle said.
Streich noted, too, that rising values can also affect the rental market, since bigger assessments can leader to bigger taxes, which likely means increased rents.
If rents are higher, that can make it even harder for first-time buyers to save up the money needed to go after their first house, which is already becoming more expensive as it is.
Right now, there’s not a lot slowing down the housing market. In order for the runaway supply/demand dynamic to change, something will have to change.
Streich said low interest rates make money easy to borrow, which gives buyers increase capacity and allows them to pay ever-rising prices. If interest rates increase, even a point or two, that will reduce buying power and could tamp down some of the demand.
DeBoer also noted that if supply increased, it could meet some of that overflowing demand and ease price gains. But the problem is, since the Great Recession Indiana has been seeing high demand, and while building permits are up, they’re not making a dent yet.
“Supply is the curious thing about housing. With prices rising so fast—even before the pandemic—why isn’t the home construction industry responding? Building permits statewide are still well below the levels of 1995-2005,” DeBoer said. “Maybe a lot of companies left the industry after the big crash in 2007-10, and many construction employees left for other jobs, so that the industry never recovered. Anyway, I’m guessing that an increase in supply is what it will take to stabilize prices, but I’ve been waiting for that to happen now for several years.”