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Gauging the Impact of Home Foreclosure on Neighborhood Property Values Improving Assessments to Help Struggling Homeowne

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?. Local Government. Property Tax System. Economic Development.

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Gauging the Impact of Home Foreclosure on Neighborhood Property Values Improving Assessments to Help Struggling Homeowne

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  1. Gauging the Impact of Home Foreclosure on Neighborhood Property ValuesImproving Assessments to Help Struggling Homeowners NATIONAL LEAGUE OF CITIES September 25, 2009 Robert Weissbourd, RW Ventures, LLC

  2. Why Should We Care? Local Government Property Tax System Economic Development Sustainable Neighborhoods

  3. Real Estate Matters Housing Defines Our Communities

  4. Real Estate Matters Source: Net worth and the assets of households, US Census Bureau 2002. Housing Builds Individual Wealth

  5. Housing Supports Government Real Estate Matters Source: US Census Bureau

  6. Housing Bubble Aftermath: One in Four Homes Are Now “Underwater” When Real Estate Markets don’t Work...

  7. Bad Things Happen to Our Cities Photo: Doug Benz, The New York Times

  8. The Devastating Impact of Foreclosures Source: Center for Responsible Lending Press Release, May 2009

  9. Greatest Impact in Low Income Neighborhoods Data: HUD, Neighborhood Stabilization Program

  10. 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)

  11. 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.

  12. But Current Market Conditions Present Serious Challenges...

  13. 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

  14. Compounded by Skyrocketing Foreclosure Rates Source: Cook County Assessor's Office, Single Family Only

  15. 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

  16. 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

  17. 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?

  18. 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

  19. The CCAO Is One of the Largest and Most Sophisticated Assessor’s Offices in the Country About Cook County

  20. Project Structure • Build from Existing Models • Operate within current systems (data, software and staffing) • Deliver under tight timeline dictated by assessment process

  21. 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

  22. Process and Diagnostics • Evaluation of current model • Introduce modifications, from simple to complex • Evaluate each step using rigorous statistical techniques • Review outcomes • Develop recommendations

  23. Enables readily determining quality of current systems and modifications Evaluation via Out of Sample Testing

  24. Detailed Reports Generated for Each Model Modification

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

  26. 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

  27. 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

  28. What Does This Mean for the Assessment of Individual Properties? Filing Nearby No Filing Nearby

  29. 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

  30. Capturing Market Trends: Time Dummies vs Linear Model

  31. Capturing Market Trends: Time Dummies vs Linear Model

  32. Capturing Market Trends: Time Dummies vs Linear Model

  33. Capturing Market Trends: Time Dummies vs Linear Model

  34. Capturing Market Trends: Time Dummies vs Linear Model

  35. Capturing Market Trends: Time Dummies vs Linear Model

  36. Model Enhancements Make a Big Difference Graphics are for illustrative purposes ONLY

  37. Changes do not Affect Overall Tax Collection (a function of levy), but do Preserve Accuracy and Equity in the Tax System

  38. 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.

  39. 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

  40. 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.

  41. Gauging the Impact of Home Foreclosure on Neighborhood Property ValuesImproving Assessments to Help Struggling Homeowners NATIONAL LEAGUE OF CITIES September 25, 2009 Robert Weissbourd, RW Ventures, LLC

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