Think that the demand for housing is all about mortgage rates, inventory and personal income? Guess again.
All these items are examples of external influences on property values. In Manhattan, its Wall Street, in San Francisco, its the dot coms, in Redmond/Seattle its Microsoft, in Detroit, its the auto industry. The anchor industries of a region determine the overall fate of the housing market.
And what about real estate taxes? Do higher real estate taxes affect real estate values? Often they can if the services are no better for the greater money spent than in a competing market. In the New York region, Westchester County, NY generally has higher real estate taxes than those of the adjacent Fairfield County, CT for the same services and school systems quality. The result? Property values in Fairfield County (this is an anecdotal observation) tend to be higher, all other amenities being equal.
Since real estate tax rates tend to lag prices [Seattlepi], real estate taxes tend to peak as the housing market cools.
In other words, supply and demand are influenced by outside factors that can be pretty obscure or very obvious.