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Property Tax Delinquency Varies Across States

Tax Delinquency Rates Declined Since the Economic Downturn in 2008

Dingxi Qiu    |    Housing Trends

An earlier Insights blog provided an overview of property taxes with a summary of property tax delinquency trends at the national level.  In this post, we examine state-level trends in property tax delinquency and how best to compare apples to apples.

The tax delinquency rate is the percentage of properties with a mortgage that have not paid the property taxes by their due dates. Property tax delinquency rates are affected by macroeconomic conditions, such as the health of the overall economy, which can impact homeowners’ ability to pay.  Additionally, the severity of the delinquency penalty has an effect on property tax delinquency rates.  States have different rules regarding tax payment frequencies, due dates, late fees, penalty interest rates and time period before the taxing agencies can take foreclosure action. As such, it’s typically not a good idea to compare tax delinquency rates across states since you’re dealing with apples and oranges. Instead, evaluating the relative change in tax delinquency rates by state is more helpful to understand the true differences. Figure 1 illustrates state-level percentage point improvement in tax delinquency rates between 2008 and 2014.

The blue colored states are those in which tax delinquency rates decreased by more than 3 percentage points between 2008 and 2014, and the red colored states are those in which tax delinquency rates decreased by less than 1 percentage point over the same time period. All 50 states and the District of Columbia had decreases in delinquency rates between 2008 and 2014 that were largely attributable to the employment and income growth from the trough of the Great Recession through 2014.  More cautious underwriting practices adopted by banks have also contributed to the decline in both loan default and tax delinquency rates.

California has experienced a substantial improvement in its economy and housing market since the Great Recession, and, as a result, its tax delinquency rates have dropped more than any other state over the last few years. Other states such as Alabama, Georgia and Mississippi also had large declines in their delinquency rates, primarily because they all had high initial tax delinquency rates in 2008. In fact, all of the blue colored states had an initial tax delinquency rate of more than 6 percent in 2008. On the other hand, most of the red colored states had very low tax delinquency rates in 2008 so there was not much room for improvement compared with the blue colored states. For example, the tax delinquency rates for Virginia and New Hampshire were only 2.8 percent and 4.8 percent in 2008, respectively.

List of states that had the most or least reduction in tax delinquency rates

List of states that had the most or least reduction in tax delinquency rates

Figure 2 lists the states that had the most or least reduction in tax delinquency rates measured as the percentage-point decline in the tax delinquency rate between 2008 and 2014.

Note: Matt Cannon and Mark Liu contributed to this blog.

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