Gauging the Impact of Home Foreclosure on Neighborhood Property Values Improving Assessments to Help Struggling Homeowners - PowerPoint PPT Presentation

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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.

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Gauging the Impact of Home Foreclosure on Neighborhood Property ValuesImproving Assessments to Help Struggling Homeowners

Community & Economic Development Committee

City of Milwaukee

October 26, 2009

Robert Weissbourd, RW Ventures, LLC


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The Tax System Mediates the Role of Housing in Neighborhoods, Markets, and Local Government

Why Should We Care?


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Housing Defines Our Communities

Real Estate Matters


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Housing Builds Individual Wealth

Real Estate Matters

Source: Net worth and the assets of households, US Census Bureau 2002.


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Housing Supports Government

Real Estate Matters

Source: US Census Bureau


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Housing Bubble Aftermath: One in Four Homes Are Now “Underwater”

When Real Estate Markets don’t Work...


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Bad Things Happen to Our Cities

Photo: Doug Benz, The New York Times


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The Devastating Impact of Foreclosures

Source: Center for Responsible Lending Press Release, May 2009


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Greatest Impact in Low Income Neighborhoods

Data: HUD, Neighborhood Stabilization Program


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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


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For Struggling Homeowners, Property Taxes are a Substantial Additional Burden

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.

Source: Property Taxes on Owner-Occupied Housing by State (2007 Tax Foundation report)


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The Assessor’s Role in the Tax System

Assessments Are Intended to be Accurate, Uniform, and Equitable


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The Assessor’s Role in the Tax System

Accuracy Ensures Uniformity and Equity in the Tax System


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The Assessor’s Role in the Tax System

Non-Uniformity: Similar Houses Assessed Differently


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The Assessor’s Role in the Tax System

Inequity: Different Assessment Ratios for Different Values


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But Current Market Conditions Present Serious Challenges...


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Volume Has Dropped by 64% Between the Peak in 2005 and 2009

Dramatic Decrease in Sales Volume

Total Sales of Residential Properties

68,241

24,445

Source: Cook County Assessor's Office, Single Family Only


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Compounded by Skyrocketing Foreclosure Rates

Source: Cook County Assessor's Office, Single Family Only


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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


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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


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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?


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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


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The CCAO Is One of the Largest and Most Sophisticated

Assessor’s Offices in the Country

About Cook County


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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


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Project Structure

  • Build from Existing Models

  • Operate within current systems (data, software and staffing)

  • Deliver under tight timeline dictated by assessment process


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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


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Process and Diagnostics

  • Evaluation of current model

  • Introduce modifications, from simple to complex

  • Evaluate each step using rigorous statistical techniques

  • Review outcomes

  • Develop recommendations


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Evaluation via Out of Sample Testing

Enables readily determining quality of current systems and modifications


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Detailed Reports Generated for Each Model Modification


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DISCLAIMER

To preserve confidentiality, the following graphs and figures were constructed for illustrative purposes only, and do not reflect specific project data or results.


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Defining the Problem:

A Major Market Downturn


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That Impacted Neighborhoods Differently


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Model Improvements Goal:

Accurately Capture Both Trends


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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)


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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


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What Does This Mean for the Assessment of Individual Properties?

Filing Nearby

No Filing Nearby


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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


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Capturing Market Trends:

Time Dummies vs Linear Model


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Capturing Market Trends:

Time Dummies vs Linear Model


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Capturing Market Trends:

Time Dummies vs Linear Model


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Capturing Market Trends:

Time Dummies vs Linear Model


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Capturing Market Trends:

Time Dummies vs Linear Model


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Capturing Market Trends:

Time Dummies vs Linear Model


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Model Enhancements Make a Big Difference

Graphics are for illustrative purposes ONLY


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Changes do not Affect Overall Tax Collection (a Function of Levy), but Preserve Accuracy and Equity in the Tax System

Improvements Change Distribution, not Tax Collection Amount


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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.


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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


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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.


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Gauging the Impact of Home Foreclosure on Neighborhood Property ValuesImproving Assessments to Help Struggling Homeowners

Community and Economic Development Committee

City of Milwaukee

October 26, 2009

Robert Weissbourd, RW Ventures, LLC


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