OCEAN CITY – Property assessment notices will hit mailboxes throughout Ocean City next week, and for the first time in several years, most homeowners will find their values have declined this year.
Assessments of real estate values in Ocean City were officially completed in October, but property owners will not receive the notices with their new values until next week. While it should come as no surprise to most that the assessed value of their residential and commercial properties have gone down since the last assessment three years ago, the results reveal a downward trend not seen in recent memory.
The last time Ocean City property was assessed three years ago, the average annual increase came in at around 25 percent, or 75 percent for the three-year assessment period. This time around, Ocean City property owners will see their assessed values decline by an average of around 12-15 percent, according to Robert Smith, director of the State Department of Assessment and Taxation (SDAT) for Worcester County.
Smith pointed out around 95 percent of Ocean City property owners will see their values decline, while others see their property values stay the same and a handful, mostly new construction, will see their values increase slightly. The change is remarkable considering how almost all of the 35,000 tax accounts in the resort increased dramatically over the six years prior.
“We haven’t seen a decrease like this one in a long time,” he said. “We’ve seen some come close, but this decline is really rather remarkable.”
Smith attributed the turnaround to a stagnant real estate market and a shaky at best and collapsing at worst economy. If it’s true what goes up must come down, then real estate values in Ocean City have returned to where they likely should be after years of steady increases.
“It really represents a correction,” he said. “We’re seeing the property values stabilize after several years of spiking upward dramatically.”
Smith said assessed values in Ocean City spiked dramatically in the period from around 2003 to 2007. Typically, market fluctuations are marked by cycles, and the last six years were characterized by basically two huge upward cycles.
“We’ve never seen a market that went up that much for that period of time,” he said. “It was really two cycles. One cycle is great, two cycles is fantastic. Now, we’re seeing it come back to reality. For six years, the market was very unpredictable.”
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.
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 in recent years before the latest downward trend, taking assessment values with it. When the market cools, as it has now, the assessed values follow suit, a trend Smith hopes does not continue.
“Ocean City has a unique character all its own when it comes to property values,” said Smith this week. “It doesn’t always follow national trends or even state trends for that matter. If you think of property values as a bucket of water, then there is a small hole in the bucket that is leaking, but the bottom hasn’t fallen out like it has in some places.”
When property values increase, like they did for several years, the assessed values are phased in over a period of three years to soften the blow somewhat in terms of taxes. Because most resort properties saw their values decline this time around, there will be no phase-in and the values will stay constant.
“The good news is, because most saw their values go down this time around, there will be no phase-in, which is only done when they go up,” he said. “When Ocean City property owners get their assessments, the value shown will be the assessed value for the next three years in most cases.”
Because of the resort nature of the community, most of the 35,000 properties assessed in Ocean City this time are not owner-occupied. In fact, just 2,795 are owner-occupied, meaning 91 percent are second homes or vacation homes. Owner-occupied properties are protected from sharp increases by the Homestead Cap, but with values declining, the cap is irrelevant for most this time.
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.