Because of Prop 13, you wouldn’t need to ask, nor would you qualify, for a downward reassessment if you had bought when prices were sane.
The only reason a reassessment would apply is that your assessment is more than the value of the house. Because of prop 13, that would never happen on properties that were bought during non-bubble times.
As far as the base is concerned, consider this example. If you bought 2 years ago for $1 million, and today prices are $800,000 then you can apply for reassessment down to $800,000. If two year from now, prices go back to $1 million, your tax base jumps right back up. Your taxes will be $12,000/year at 1.2%.
Someone who buys the same house today for $800,000 will have a tax basis of $832,320 (2% per year increase)two years from now, assuming that prices get back to $1 Million. They will pay $9988/year in taxes. You bought 2 years earlier than your neighbor but you’re paying $2,012 (20%) more in property taxes for the privilege of living in the same neighborhood. Over time that’s many thousands extra, not hundreds.
If prices continue to drop, as I expect there will, difference in taxes will be very substantial. Remember, your $1 million starting point will, over 30 years, get much larger than that of someone who buys for $600k at the bottom.
Looking at it another way.
House #1 bought at peak.
Purchase in 2005 for $1,000,000
in 2035 the taxable basis is $1,811,362 (2% compound annual)
Taxes in 2035 = $21,736
Neighboring House #2 bought at bottom.
Purchased in 2010 for $600,000
in 2035 the taxable basis is $808,470 (2% compound annual)
Taxes in 2035 = $9,702
Difference in taxes due to purchase timing = $12,035 in year 2035 (not counting all taxes “over-paid” over the years).
Sure inflation will eat away at value of money. But when you are retired, couldn’t use an extra $12,035+/year? Plus House #2’s owners could invest all the property tax money they had saved over the years so they would have another stash of funds.
I would say that $12,035+ per year is a nice vacation, each year, for you and wifey when you’re old and bored. That can sure make retirement much more pleasant! Why give the money to the taxman when you can enjoy it yourself!!
