Plaws,
Yep - because of the 5% rule. I've been in my house 11 years, and it's still appraised under value. Between 1999 and 2007, the value (real) went from 69k (what I paid) to 121k (what a house two doors down with a similar floor plan and sq. ft. sold for - I realize that's not a real appraisal with multiple comps, but it's what I have to work with). At that point, my assessment (capped at the 5% increase per year maximum) was only 101k.
However, in the next two years, comps in my neighborhood have dropped, and my house today is only worth about 110k. If I get a 5% increase next year my assessment will go to 112k, but unless the market takes off again, it won't be worth that. If the assessor is honest, my assessment should go from wherever it is to what the house is actually worth, and track the market from there. However, the assessors don't "value" every house every year - they take the average % change in the area overall and apply it by formula to all houses in their district that haven't sold. Except the formula takes into account the "carry-over" from prior years.
Assessments go down three ways.
1) a house is sold. The new owner starts their assessment at the price they paid. My house was assessed at 48k the year I bought it, but my 1st assessment was 69k. If your house sells for less than its assessment, you get no benefit, but whoever buys it will pay less in taxes than you did the prior year.
2) The whole market goes down and stays down, for a long time. If prices go up 2% a year, then assessments go up 2%. If prices go down 2%, then assessments go down 2% - in theory. However, if assessments go up 6% a year for 5 years, then the assessment is 5% "behind", and it will go up 5% the next year EVEN IF values went down overall. You only see the assessment go down (in the above case) if values dip again the next year. However, if you've been in your house 30 years with 10% per year increases then you are 60% behind and your assessment can keep going up for another 10 or 12 years. (ie, your house is 60% under assessed (a 60k assessment on a 100k house), therefore you get the max 5% for 10 more years to "catch up", assuming a totally flat market).
3) There are other factors that depress the value of certain pockets of homes below the surrounding market value (like a new airport being built and the nearby houses being devalued by the noise factor). In that case, until enough of them sell to show lower values, the assessor has nothing to go on - and then you challenge.
Of course, in most places, the assessors raise the assessments of ALL properties the max amount regardless, but that's another story. (If you want to discuss who to vote for assessor, we'll have to take this to The Tavern).
Where your assessment should not go up 5% is if you bought a house recently (within 2-3 years before the real estate bubble burst). It hasn't been long enough in the up market for your assessment to get "behind", therefore in the first couple of years of a down market the assessment should go the direction of the market, and by the amount of the market's change - up or down.