Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Inflates Your Property Tax Bill
Transcript
- Lucas: So you're a homeowner in a decent neighborhood, home values in your area have gone up maybe 8, 10 percent over the past year — you're feeling good about your equity. Then your property tax bill arrives and it's up 12 percent. What happened? Luna: That happened to a friend of mine in Austin. Her assessed value jumped 15 percent even though she hadn't renovated or anything. Lucas: Exactly. And that's the story we're digging into today. Inflation doesn't just hit your grocery cart — it quietly inflates your property taxes, because local governments reassess your home at current market value while your income might only be going up 3 or 4 percent. Luna: Right. And if you're renting, you're not off the hook — landlords pass that tax increase straight to you. Lucas: Absolutely. So let's start with the basic mechanics. Property tax is calculated as the assessed value of your home times the mill rate — that's the tax rate per thousand dollars of value. When home prices surge, your assessment rises. Unless the mill rate drops proportionally — which it almost never does — your tax bill goes up. Luna: And this year, with the S&P pushing past 7,500 and the NASDAQ at 27,000, you'd think the economy is humming. But the latest April CPI came in at 332.4, still climbing. Core CPI is 335.4. So inflation is still sticky. Lucas: Right. And the Fed has held rates at 3.64 percent — that's the effective fed funds rate. No cuts yet. So mortgage rates are elevated, which pushes some buyers into renting, which pushes rent up, and that feeds into the CPI shelter component. It's a loop. Luna: And shelter is the single biggest chunk of CPI — about a third. So property taxes indirectly drive reported inflation. Lucas: Exactly. So what can a homeowner actually do? Let's talk about the assessment process. Most jurisdictions reassess periodically — annually, every three years, whatever. The assessor uses three methods: the sales comparison approach, the cost approach, and the income approach. For residential, it's mostly comps. Luna: And that's where errors creep in. The comps might be outdated or include houses that aren't truly comparable. Lucas: Huge point. So first thing: carefully read your assessment notice. Check the square footage, number of bedrooms, lot size, condition. A single bedroom counted wrong can swing the value by 5 percent. If you find an error, you can often get it corrected informally with a phone call. Luna: But if the assessment is accurate but the value still seems high, then you appeal. And most people don't appeal because they think it's a hassle. Lucas: And that's a mistake. I looked at data from a few large counties — in Cook County, Illinois, about 40 percent of appeals succeed in reducing the assessment. The average reduction is around 8 percent. That's real money. If your tax bill is $6,000, an 8 percent cut is $480. Luna: And the process is usually straightforward. You file a form, maybe attend a hearing, present evidence — like a recent appraisal or comps that support a lower value. Lucas: Right. Some jurisdictions even allow online appeals. The key is to do it before the deadline, which is often 30 days from the assessment notice. So you have to act fast. Luna: But there's also a longer-term angle. If you're in a state with property tax caps like California's Prop 13, your annual increase is capped — but that also creates inequality. New buyers pay much more than long-time owners. Lucas: That's a whole other episode. But the point is: whether you're in a capped state or not, property tax inflation is real and it's often overlooked in personal finance planning. People budget for mortgage, utilities, insurance — but property taxes can jump unexpectedly. Luna: And the 10-year breakeven inflation rate recently dropped to 2.38 percent — that's the bond market's expectation for average inflation over the next decade. It's down from 2.39, so barely a blip. But it's still above the Fed's 2 percent target. Lucas: So the market doesn't see inflation disappearing anytime soon. Which means property values — and assessments — are likely to keep rising. So this isn't a one-time hit; it's a recurring pressure. Luna: And for renters, it's a double whammy because they don't even get the equity benefit. Lucas: That's right. So what can a renter do? First, check if your local jurisdiction has rent control or just-cause eviction laws. In some places, landlords can only raise rent a certain percentage per year, and property tax increases might be a factor they have to justify. Luna: And if you're in a competitive market, you can try to negotiate. Landlords would rather keep a good tenant than find a new one, especially if vacancy rates are low. Lucas: Absolutely. So let's zoom out. Property tax is essentially a wealth tax on your primary residence. And it's one of the few taxes that goes up automatically with inflation without a legislative vote. That's why some economists call it a stealth tax. Luna: Now, I'm curious — for our listeners who are thinking about buying a home, how should they factor property taxes into the decision? Lucas: Great question. Don't just look at the current tax bill. Look at the historical trend. Has the county reassessed annually? How fast have assessments grown? If you're buying in a hot market, expect that trajectory to continue. Also, check if there are any exemptions — homestead exemptions, senior freezes, veterans' deductions. Those can save hundreds per year. Luna: And remember that property tax is deductible on federal income tax if you itemize, but the SALT cap limits state and local tax deductions to $10,000. So for high-tax states like New Jersey or New York, that cap hurts. Lucas: Right. And that SALT cap is set to expire after 2025 unless Congress extends it. That's a big wild card. If it expires, property taxes become more painful for high-income homeowners, but if it's extended, the pain continues. Luna: So let's bring this back to the broader inflation picture. The core PCE index, which the Fed watches closely, hit 129.6 in April, up from 129.32. That's still rising. And with the Fed holding rates steady, there's no near-term relief on borrowing costs. Lucas: No, and Governor Bowman recently warned against hiking rates because of the inflation spike — so the Fed is stuck. They can't cut because inflation is still above target, and they can't hike without risking a recession. So property taxes are one of those channels where inflation passes through to households directly. Luna: It's a good reminder that inflation isn't just a macro number. It's in your mailbox, in your bank account, in your monthly budget. Lucas: Exactly. And that's why we do this show — to help you spot those hidden costs. Which brings me to something I want to say. We keep this podcast ad-free because we think it's the right way to have these conversations. If you've found value in that — if something we said today helped you save a few hundred bucks on your tax bill — consider supporting us. Luna: It's a small gesture that makes a big difference for us. The link is buy me a coffee dot com slash fexingo. No pressure, but if it's in your budget, it helps us keep going. Lucas: All right. Back to property taxes. One last practical tip: if you're planning to appeal, don't just submit your own opinion. Get a professional appraisal or at least pull recent comps from Zillow or Redfin. The more concrete your evidence, the better your chance. Luna: And some counties even have informal review sessions before the formal appeal. That's a good first step. Lucas: Exactly. So to recap: check your assessment for errors, gather comps, file an appeal before the deadline. And for renters, know your local laws and negotiate. Property tax inflation is real, but it's not something you have to just accept. Luna: And maybe the best hedge is to invest in areas where property tax growth is capped by law. Or to buy a home you can afford even if taxes go up 10 percent. Build that buffer. Lucas: Right. Because if the breakeven inflation rate stays above 2 percent, and home prices keep pace with the broader economy, this is going to be a recurring issue. Being aware of it is half the battle. Luna: Thanks for listening, everyone. We'll be back next week with another angle on inflation and your money. Lucas: Until then, check that assessment notice. You might be overpaying.