The city's housing and commercial real estate is worth about $150 million less this spring after a reassessment dropped the value of homes by an average of 4.4 percent.
Real estate assessments fell this year because foreclosures are up and home sales are down, said City Assessor Ray Anderson. The city had 335 qualified sales last year compared to an average of 1,100-1,200 sales in recent years. It recorded 405 foreclosures in 2009 compared to an average of 30-40 homes per year in the 1990s.
The lack of sales and girth of foreclosures created a large supply of available homes, which forced prices down as buyers waited for the best deals.
"If you don't have many buyers, you have a larger supply," Anderson said. "It's basic Economics 101. If you have a big supply, you get a buyer's market."
"This is the slowest I've ever seen the market," Anderson added, noting he was a real estate agent in the 1980s before becoming an assessor.
Racine's housing and commercial properties are worth a combined $3.75 billion, according to Anderson. The number doesn't include manufacturing properties, which is determined by the state, or the value of assessed personal property in the city, Anderson said.
The drop in assessments wasn't a surprise. Based on the recession and the housing slump, city officials had projected the decline last year.
While housing values dropped, the city's commercial properties held the line, Anderson said. Assessments on commercial buildings fell 0.3 percent this year. The city had 23 commercial sales last year, and most of those properties held their value.
City assessments are important because they're the primary source of revenue for local governments. Declining values mean the city, Racine Unified, Racine County and Gateway will have to increase their property tax rates to bring in the same amount of money as they did in 2009, or cut spending to match the decline in property values.
City Administrator Tom Friedel said the public should evaluate local governments based on spending, not tax rates. If government spending is flat than people's tax bills will be flat, he said, even if the actual property tax rate increases, he said.
The city's 2010 budget is a good example, Friedel said. City unions agreed to forgo pay raises this year and city officials found a way to cut about $683,000 in spending. The city's property tax rate increased less than 1 percent last year.
Another example is you can actually have a decrease in the property tax rate and an increase in city spending, which happens when assessments increase at a rate greater than the decline in the property tax rate.
Friedel said government spending is a better measure because it more accurately reflects the decisions elected officials make.
Anderson said his office pays no attention to the political decisions to be made based on property assessments.
"We call it as we see it," Anderson said. "We're not influenced by that at all."
He added the declining assessments led some residents to call and complain that their assessment was too high. The complaint is a little misguided because a property's assessed value is not the same as its market value. The assessed value has little influence on how much a property actually sells for. Arguing for a higher assessment essentially means you're arguing for a higher property tax bill.
There are exceptions, Anderson said. People trying to refinance their home may benefit from a higher assessment, and some home owners may be forced to pay a PMI (private mortgage insurance) if the assessment drops too low, he said.
But other complaints were emotional, Anderson said.
"For most people, a house is their biggest asset," he said. "They get upset when they see its value go down."