Foreclosure Effects on Neighborhood Property Assessments
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Transcript of Foreclosure Effects on Neighborhood Property Assessments
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Gauging the Impact of Home Foreclosure on Neighborhood Property
ValuesImproving Assessments to Help Struggling
Homeowners
Community & Economic Development CommitteeCity of Milwaukee
October 26, 2009Robert Weissbourd, RW Ventures, LLC
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Why Should We Care?
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Why Should We Care?
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Why Should We Care?
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Why Should We Care?
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Why Should We Care?
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Why Should We Care?
The Tax System Mediates the Role of Housing in Neighborhoods, Markets, and
Local Government
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Real Estate Matters
Housing Defines Our Communities
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Breakdown of Net Worth by Asset, 2002(Top Asset Classes; Outliers Excluded)
41.7%
53.8%
11.4%7.9%8.2%
2.6%7.4% 6.3%
0%
10%
20%
30%
40%
50%
60%
70%
All Households Lower Income Households
Home EquityStocks401KBank Savings
Source: Net worth and the assets of households, US Census Bureau 2002.
Real Estate Matters
Housing Builds Individual Wealth
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Source: US Census Bureau
Real Estate Matters
Housing Supports Government
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When Real Estate Markets don’t Work...
Housing Bubble Aftermath: One in Four Homes Are Now “Underwater”
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Photo: Doug Benz, The New York Times
Bad Things Happen to Our Cities
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Source: Center for Responsible Lending Press Release, May 2009
The Devastating Impact of Foreclosures
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Data: HUD, Neighborhood Stabilization Program
Greatest Impact in Low Income Neighborhoods
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A Good Property Assessment System is Key to Households, Communities, and Government.
Property Assessments influence
• Investment in housing stockhousing stock• Which communities communities residents choose• HouseholdsHouseholds wealth• GovernmentGovernment receipts
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Source: Property Taxes on Owner-Occupied Housing by State (2007 Tax Foundation report)
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
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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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68,24168,241
24,44524,445
Source: Cook County Assessor's Office, Single Family Only
Dramatic Decrease in Sales Volume
Volume Has Dropped by 64% Between the Peak in 2005 and 2009
Total Sales of Residential Properties
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Source: Cook County Assessor's Office, Single Family Only
Compounded by Skyrocketing Foreclosure Rates
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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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NorthNorth2010 & 2013(450,679 parcels) CityCity
2009 & 2012(855,140 parcels)
SouthSouth2011 & 2014(526,799 parcels)
1.8 Million Total Parcels1.8 Million Total Parcels
About Cook County
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Total Parcels: 1.8 MM Total Assessed Value: 72.5 BB
85%4.0
23.5
44.9
5%10%
OtherCommercial/IndustrialResidential
Total Parcels: 1.8 MM Total Assessed Value: 72.5 BB
85%4.0
23.5
44.9
5%10%
OtherCommercial/IndustrialResidential
About Cook County
The CCAO Is One of the Largest and Most Sophisticated Assessor’s Offices in the Country
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Assessment Practices and Considerations Vary WidelySize of JurisdictionMethod and Technology
• Manual Re-calibration• Computer assisted mass appraisal• GIS Systems
Frequency of ReassessmentGovernmental Considerations
• Tax Base and Levy• Assessment Caps
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Project Structure
Build from Existing ModelsOperate within current systems (data, software and staffing)
Deliver under tight timeline dictated by assessment process
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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
Criteria for Success
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Process and Diagnostics
Evaluation of current modelIntroduce modifications, from simple to complex
Evaluate each step using rigorous statistical techniques
Review outcomesDevelop 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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To preserve confidentiality, the following graphs and figures were
constructed for illustrative purposes only, and do not reflect specific
project data or results.
DISCLAIMER
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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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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)
Tested Multiple Foreclosure Measures
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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?
No Filing Nearby 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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Graphics are for illustrative purposes ONLY
Model Enhancements Make a Big Difference
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Improvements Change Distribution, not Tax Collection Amount
Changes do not Affect Overall Tax Collection (a Function of Levy), Changes do not Affect Overall Tax Collection (a Function of Levy), but Preserve Accuracy and Equity in the Tax Systembut Preserve Accuracy and Equity in the Tax System
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Project Impact
Savings for lower income homeowners (holding aggregate tax revenue constant) in the order of sixty million dollarssixty 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 CommitteeCity of Milwaukee
October 26, 2009Robert Weissbourd, RW Ventures, LLC