Transcript Gauging the Impact of Home Foreclosure on Neighborhood
Gauging the Impact of Home Foreclosure on Neighborhood Property Values Improving Assessments to Help Struggling Homeowners Community & Economic Development Committee City of Milwaukee October 26, 2009
Robert Weissbourd, RW Ventures, LLC
Why Should We Care?
The Tax System Mediates the Role of Housing in Neighborhoods, Markets, and Local Government
Real Estate Matters
Housing Defines Our Communities
Real Estate Matters
Breakdown of Net Worth by Asset, 2002 (Top Asset Classes; Outliers Excluded)
70% 60% 50% 40% 30% 20% 10% 0%
41.7% 53.8%
11.4% 8.2% 7.4% 7.9% 2.6% 6.3% All Households Lower Income Households
Source: Net worth and the assets of households, US Census Bureau 2002.
Housing Builds Individual Wealth
Home Equity Stocks 401K Bank Savings
Real Estate Matters
Source: US Census Bureau Housing Supports Government
When Real Estate Markets don’t Work...
Housing Bubble Aftermath: One in Four Homes Are Now “Underwater ”
Bad Things Happen to Our Cities
Photo: Doug Benz, The New York Times
The Devastating Impact of Foreclosures Source: Center for Responsible Lending Press Release, May 2009
Greatest Impact in Low Income Neighborhoods Data: HUD, Neighborhood Stabilization Program
A Good Property Assessment System is Key to Households, Communities, and Government.
Property Assessments influence
• • • • Investment in housing stock Which communities residents choose Households wealth Government receipts
Property Taxes: A Significant Household Expenditure
In 2007, the typical U.S. homeowner spent 2.91% of annual income ($1,838) on property taxes.
In Illinois, this figure was 4.76% of annual
income, or $3,203.
For Struggling Homeowners, Property Taxes are a Substantial Additional Burden Source: Property Taxes on Owner-Occupied Housing by State (2007 Tax Foundation report)
The Assessor’s Role in the Tax System Assessments Are Intended to be Accurate, Uniform, and Equitable
The Assessor’s Role in the Tax System Accuracy Ensures Uniformity and Equity in the Tax System
The Assessor’s Role in the Tax System Non-Uniformity: Similar Houses Assessed Differently
The Assessor’s Role in the Tax System Inequity: Different Assessment Ratios for Different Values
But Current Market Conditions Present Serious Challenges...
Dramatic Decrease in Sales Volume
Total Sales of Residential Properties 68,241 24,445 Source: Cook County Assessor's Office, Single Family Only Volume Has Dropped by 64% Between the Peak in 2005 and 2009
Compounded by Skyrocketing Foreclosure Rates Source: Cook County Assessor's Office, Single Family Only
Result in Legal Challenges, a “Flood” of Appeals...
“...Officials across the country say there is no question that the number of [assessment] appeals has risen from the usual trickle to a flood.” (NYT, July 4, 2009)
Lou Dobbs Tonight reports on assessments and property tax protests (CNN, April 1, 2009)
City of Philadelphia sued over assessment practices
And Serious Community Development Implications
Greatest challenges in neighborhoods that are most affected by foreclosure crisis
Risk of over-assessments for homeowners who can least afford them
The Cook County Assessor’s Office (CCAO) Took Action Project Goal: Enhancing the Assessment Process to Better Estimate Property Values in the Current Environment
•
How to account for the recent downturn in the market after years of steady growth?
•
How to account for the increased influence of foreclosures?
About Cook County
1.8 Million Total Parcels North 2010 & 2013 (450,679 parcels) City 2009 & 2012 (855,140 parcels) South 2011 & 2014 (526,799 parcels)
About Cook County
The CCAO Is One of the Largest and Most Sophisticated Assessor’s Offices in the Country
Assessment Practices and Considerations Vary Widely
Size of Jurisdiction
Method and Technology
• • •
Manual Re-calibration Computer assisted mass appraisal GIS Systems
Frequency of Reassessment
Governmental Considerations
• •
Tax Base and Levy Assessment Caps
Project Structure
Build from Existing Models
Operate within current systems (data, software and staffing)
Deliver under tight timeline dictated by assessment process
Criteria for Success
Accuracy, Uniformity, Equity
• • •
How close are assessed values to actual market values? Are similar homes assessed at similar values?
Are different value homes assessed at the same rate?
Practical Considerations
•
Ease of implementation, transparency
Process and Diagnostics
Evaluation of current model
Introduce modifications, from simple to complex
Evaluate each step using rigorous statistical techniques
Review outcomes
Develop recommendations
Evaluation via Out of Sample Testing Enables readily determining quality of current systems and modifications
Detailed Reports Generated for Each Model Modification
DISCLAIMER
To preserve confidentiality, the following graphs and figures were constructed for illustrative purposes only, and do not reflect specific project data or results.
Defining the Problem: A Major Market Downturn
That Impacted Neighborhoods Differently
Model Improvements Goal: Accurately Capture Both Trends
Tested Multiple Foreclosure Measures
Number of foreclosure filings in the neighborhood within the past year
Presence of foreclosure filings on the same block within the past year (dummy)
Also tested: Block-level number instead of dummy, REO instead of filing, different distances (1/32 mile, 1/16 mile, 1/8 mile)
Accounting for the Impact of Foreclosures
Created new variables that capture and account for nearby foreclosures
New variables better assess the value of the foreclosed property as well as non-foreclosed properties on the same block
What Does This Mean for the Assessment of Individual Properties?
No Filing Nearby Filing Nearby
Accounting for the Downturn in Housing Trends
Created new variables that track the housing market on a more “real time” basis
New variables adjust to market trends – regardless of whether they are up, down or flat
Capturing Market Trends: Time Dummies vs Linear Model
Capturing Market Trends: Time Dummies vs Linear Model
Capturing Market Trends: Time Dummies vs Linear Model
Capturing Market Trends: Time Dummies vs Linear Model
Capturing Market Trends: Time Dummies vs Linear Model
Capturing Market Trends: Time Dummies vs Linear Model
Model Enhancements Make a Big Difference Graphics are for illustrative purposes ONLY
Improvements Change Distribution, not Tax Collection Amount Changes do not Affect Overall Tax Collection (a Function of Levy), but Preserve Accuracy and Equity in the Tax System
Project Impact
Savings for lower income homeowners (holding aggregate tax revenue constant)
in the order of sixty million dollars.
The changes have been incorporated into the current round of assessments and will be applied to all future assessments.
Additional assessment model improvements have been identified and are being explored together.
The “New Frontier” of Property Assessments
Opportunity to apply newest statistical and data mining techniques to assessment models
Potential to deliver assessments more accurately, equitably and efficiently, leading to a new generation of property assessment practices
In Sum...
Time to revisit “one of the most important, easily documented, and manipulable of all influences upon the social geography of cities, and also one of the most neglected.” (Harris and Lehman, 2001)
A modest investment generates a large financial impact for neighborhoods and homeowners who sorely need help.
The approach, techniques and solutions of the project are easily transferable to other counties.
Gauging the Impact of Home Foreclosure on Neighborhood Property Values Improving Assessments to Help Struggling Homeowners Community and Economic Development Committee City of Milwaukee October 26, 2009
Robert Weissbourd, RW Ventures, LLC