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
NATIONAL LEAGUE OF CITIES
September 25, 2009
Robert Weissbourd, RW Ventures, LLC
Why Should We Care?
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%
53.8%
41.7%
Home Equity
40%
Stocks
30%
401K
Bank Savings
20%
11.4%
10%
8.2%
7.4%
7.9%
6.3%
2.6%
0%
All Households
Lower Income Households
Source: Net worth and the assets of households, US Census Bureau 2002.
Housing Builds Individual Wealth
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
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)
A Good Property Assessment System is Key
to Households, Communities and Government.
Assessments are intended to be
accurate and uniform.
Poor assessment practices influence:
• investment in housing stock;
• which communities residents choose;
• households wealth; and
• government receipts.
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
Total Parcels: 1.8 MM
Total Assessed Value: 72.5 BB
85%
44.9
4.0
10%
23.5
5%
Residential
Commercial/Industrial
Other
The CCAO Is One of the Largest and Most Sophisticated
Assessor’s Offices in the Country
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
– How close are assessed values to actual market values?
 Uniformity
– Are similar homes assessed at similar values?
 Equity
– 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.
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
Changes do not Affect Overall Tax Collection
(a function of levy), but do 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
NATIONAL LEAGUE OF CITIES
September 25, 2009
Robert Weissbourd, RW Ventures, LLC