RW Ventures' recent analysis of the impact of foreclosures on neighborhood property values has begun to garner attention from civic sector stakeholders. Bob Weissbourd and Michael He have presented the findings of the firm's work for the Cook County Assessor's office in addresses to both the National League of Cities' Community and Economic Development Committee and the City of Milwaukee's Community Economic Development Committee.

1. 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

2. Why Should We Care?

3. Why Should We Care?

4. Why Should We Care?

5. Why Should We Care?

6. Why Should We Care?

7. Why Should We Care?

8. Real Estate Matters
Housing Defines Our Communities

9. 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 Equity
Stocks
401K
Bank Savings
Source: Net worth and the assets of households, US Census Bureau 2002.
Real Estate Matters
Housing Builds Individual Wealth

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

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

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

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

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

15. 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

16. A Good Property Assessment System is Key
to Households, Communities and Government.

17. A Good Property Assessment System is Key
to Households, Communities and Government.
Assessments are intended to be
accurate and uniform.

18. 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 stockhousing stock;
• which communitiescommunities residents choose;
• householdshouseholds wealth; and
• governmentgovernment receipts.

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

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

21. 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

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

23. 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

24. 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

25. 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?

26. NorthNorth
2010 & 2013
(450,679 parcels) CityCity
2009 & 2012
(855,140 parcels)
SouthSouth
2011 & 2014
(526,799 parcels)
1.8 Million Total Parcels1.8 Million Total Parcels
About Cook County

27. 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

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

29. 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
Criteria for Success

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

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

32. Detailed Reports Generated for Each Model Modification

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

34.  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

35. 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

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

37. 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

38. Capturing Market Trends:
Time Dummies vs Linear Model

39. Capturing Market Trends:
Time Dummies vs Linear Model

40. Capturing Market Trends:
Time Dummies vs Linear Model

41. Capturing Market Trends:
Time Dummies vs Linear Model

42. Capturing Market Trends:
Time Dummies vs Linear Model

43. Capturing Market Trends:
Time Dummies vs Linear Model

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

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

46. Project Impact
 Savings for lower income homeowners (holding
aggregate tax revenue constant) in the order of sixtysixty
million dollarsmillion 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.

47. 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

48. 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.

49. 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