Can homeowners save money by moving to a place with lower property taxes?

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I heard some people the other day saying they had moved to Pennsylvania from New Jersey because the property taxes we're so much lower in Pennsylvania. (And there reason was to "save money," not any ideological opposition to taxes.)

But you can't save money this way: all property taxes known of at the time of the sale are going to already be factored into the market price of the home. So the house in New Jersey with the higher taxes will sell at a reduction in price equivalent to the discounted future value of those higher taxes.

That analysis of course applies to a perfect market with full knowledge on the part of all participants. Real people don't have perfect knowledge and are not rational calculating machines. But, to the extent that many people think like the couple I heard at the hot dog stand, it will tend to make houses in the region with lower taxes over-priced compared to the ones in the high-tax area!

So, save money on your next home purchase, and buy in a high-tax state!

Comments

  1. Samson Corwell3:11 PM

    Okay, I don't get it.

    ReplyDelete
    Replies
    1. gcallah3:27 PM

      Do you understand the idea of the new present value of a series of cash flows?

      Delete
    2. Samson Corwell3:41 PM

      No. I don't even understand some of the phrases in that question.

      Delete
    3. gcallah3:48 PM

      Oops, "net present"!

      See here: http://gene-callahan.blogspot.com/2015/02/discounting-taxes.html

      It includes a wikipedia link on present value.

      Delete

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