As millions of Americans lose sleep over record mortgage costs, many overlook one of the biggest expenses they’ll incur as homeowners: property tax.

According to real estate data analytics firm ATTOM, property taxes jumped by 6.9% or more than $4,000 in 2023—the largest annual increase in five years. It's also double the gain from a year earlier.

“Property taxes took an unusually high turn upward last year, pushing effective rates up, while huge gaps in average tax bills between different parts of [the] country remained in place,” said Rob Barber, ATTOM’s chief executive.

Barber said the tax hike was partially due to strong inflationary pressures and the need for local governments to increase revenue to pay for higher employee wages and other expenses.

ATTOM tracked property taxes across 89.4 million single-family homes and found that local governments collected a whopping $363 billion last year alone.

States with the highest property taxes in 2023 were Illinois, New Jersey, Connecticut, New York, and Nebraska. Unsurprisingly, three of the top five counties with the highest property taxes were in New Jersey and New York.

A total of 21 counties with at least 10,000 single-family homes had annual property tax bills that exceeded $10,000.

Rising property taxes present yet another impediment for Americans struggling to purchase their first home. As it turns out, surging home values are partly to blame.

A chicken or egg situation

While it’s true that property taxes don’t move entirely in lockstep with the value of a residential area, experts say higher home values typically lead to a bigger tax bill.

Counties claim that property taxes are rising because of higher operational costs and persistent inflation. But that’s only one part of the equation.

Property taxes are also based on the assessed value of the land and underlying property, which is constantly changing.

Lawmakers have already addressed this problem, with 29 states and D.C. enacting so-called “circuit breakers” that essentially cap property tax hikes on homeowners.

With the housing affordability crisis spiraling out of control, some lawmakers now want to do more.

“The biggest problem was they just went up so quickly,” Idaho Rep. John Monks said of property taxes. “I think that’s one of the reasons why it became this rallying cry from the people asking for tax relief.”

That’s why Monks approved new measures in Ada County, home to Boise, that delivered more than $500 in property tax savings per home. The total size of the property tax relief program amounted to $100 million.

Jared Walczak, vice president at the Tax Foundation, said he expects many more states to follow suit.

“In virtually every state where the legislature meets this year, property tax relief bills will be filed,” he said. “This is a front-of-mind issue for many legislators across the country.”

The good news is that existing homeowners don’t have to worry about elevated mortgage rates since nearly two-thirds of them financed their purchase when rates were below 4%.

The bad news is that many homeowners are struggling to keep a roof over their heads, regardless of the mortgage rate they pay.

Low mortgages and still house poor

Rising homeownership costs don't only concern potential buyers but also those who already own homes.

According to Creditnews Research, nearly 31% of homeowners are considered “house poor,” meaning at least 30% of their monthly gross income goes toward housing costs.

Perhaps the most shocking part is nearly 21% of homeowners without mortgages fall into the same category.

Many Americans are still struggling to afford their home even when their largest monthly payment—their mortgage bill—has been fully paid off.

It seems like the only segment of the mortgage-free population that’s living their best life are baby boomers.

Census Bureau data shows that the biggest increase in mortgage-free homes comes from cash-flush late boomers, or those ages 65 to 74.

The number of mortgage-free homes in this group shot up by 2.8 million between 2012 and 2022. The second-largest increase came from those 75 and over, with a net increase of 1.2 million mortgage-free homes.

“Baby boomers are holding onto their homes largely because there’s not much financial incentive to let go of them,” according to Redfin, which found that 54% of boomers who own homes are mortgage-less.