The Skinny

Home Prices Down, Property Tax Assessments Up

Despite slumping housing prices in pretty much every neighborhood of the Twin Cities, the assessed home value on homeowners' property tax statements aren't decreasing at the same rate and, quite commonly, are actually increasing.

So what gives? Is this just government greed? Or is there a legitimate reason for the increases? The answer, as usual, lies somewhere between the two.

From an MPR story from this morning:

"Assessors are working with a bit of a lag here," said Gordon Folkman.

Folkman directs the property tax division for the state's Revenue Department. He said the information that assessors used to determine home values for next year was actually collected in 2006 and 2007, before this year's economic meltdown.

Good, old-fashioned, inefficiency is partly to blame. Woefully outdated information from 2006 and 2007 is still being used to find comparable sales for assessment purposes, despite the fact that the housing market has shifted downward dramatically since then. Whether this questionable choice is due to a pre-mediated strategy or something less sinister like a simple lack of up-to-date sales information is unknown, at least to this author.

Regardless, the approach is showing much higher assessed values than actual market value, in some cases, and people ain't happy:

"I'm going to get really pissed in about 10 seconds if someone doesn't explain this to me."

Christopher Rocco of St. Paul is big enough to be a bodyguard. He's standing an inch from the county assessor, arguing that the valuation for his townhouse is too high.

According to the county, the value of Rocco's home is $120,000. But he says that can't be right. Seven of the 21 units in his complex are in foreclosure. "They're selling for $20,000 apiece. So if they're trying to tell me that they're going to tax me on a $120,000 home when everyone's property values is $20,000, I'm not going to stand for that."

This raises another question: do city or county assessors consider bargain-priced foreclosures, which are sometimes in distressed physical condition, to be useful comparative sales? In other words, will the $20,000 sales in Mr. Rocco's building be considered "market value" eventually? There doesn't seem to be a uniform policy on this question amongst the region's patchwork of assessors. With some areas seeing more than half their sales mediated by a lender through a foreclosure or short sale, one would have to think they can't be ignored for much longer.

Time will tell. For information on how to contest your tax assessment in the City of Minneapolis go here. For St. Paul, go here.

Tax Man:

Weekly Market Activity Report 9.8.08

Like Adam West as Batman, the market for home sales in the Twin Cities went POW! during the week ending August 30. For the week, there were 965 purchase agreements signed—a whopping increase of 51.3 percent from the same week last year. That's the highest year-over-year increase in pending sales since we began tracking that figure on a weekly basis in 2004. Home-buying activity is particularly heavy relative to last year due in all likelihood to a) the historically sluggish showing in August of last year as the credit crunch took hold, b) a bevy of buyers taking advantage of the final days of FHA's seller-funded downpayment assistance program, which sunsets on October 1 of this year and (c) new home buyers getting off the fence and taking advantage of the new home buyer tax credit of up to $7,500.

This week's edition of the MAAR Weekly Market Activity Report features updated figures for several key metrics. Days on Market Until Sale dipped slightly to 143 but remains up from last year by 5.8 percent. The Percent of Original List Price Received at Sale increased slightly to 92.7 but remains down from the healthier levels of the past several years. The Housing Affordability Index increased to 151, thanks to falling prices and interest rates.

The Months Supply of Inventory fell to 9.9 months. This means it will take the current crop of properties for sale approximately 9.9 months to completely sell through, given current sales rates. This is dead-even with this time last year, another indication that the market isn't continuing to shift in the buyer's favor anymore for the time being. A balanced market is thought to have a 5- to 6-month supply rate.

Click here for the full Weekly Market Activity Report, and take a look at the roller coaster ride that is pending sales in the image below.

Paul Krugman on the Housing Stimulus Bill

A fair warning: we're all going to hear A LOT in the media and blogosphere in the weeks ahead about the recently passed congressional housing legislation.

And it's not because Americans have suddenly turned into staunch economic policy wonks.

In part it's because the public is hankering for some sort of action from their elected officials in the face of recession (though how effective that action will be is highly questionable), and also in part because the whole housing mess is so darn complicated -- so many ins, so many outs -- that we're all still trying to wrap our collective heads around how exactly we got to this low point.

Paul Krugman -- famous economist, New York Times columnist, Wellstone book title thief -- chimes in with a piece on how effective the impending legislation may or may not be, and a mostly right-on look at how the financial sector's complete lack of risk aversion brought us to where we are. As most economists tend to, Krugman points to perverted financial incentives:

"Lenders ignored the warning signs because they were part of a system built around the principle of heads I win, tails someone else loses. Mortgage originators didn’t worry about the solvency of borrowers, because they quickly sold off the loans they made, generally to investors who had no idea what they were buying."

Policy and a Pint

If you listened to 89.3 The Current anytime in April or May, you likely heard this: "Everyone knows the mortgage market is in crisis and that it's dragging down the rest of the economy. But what caused it? How can we get out of it? And how can homeowners and potential buyers in Minnesota protect themselves?"

That was the call to action for a May 15 "casual gath" at the Varsity Theater in Dinkytown called "Policy and a Pint," a periodic event cohosted by the Citizens League and 89.3 The Current that involves yummy appetizers, comfortable couches, and, yes, beer. I had a pint of Grain Belt Premium.

Richard Todd from the Federal Reserve and personal finance writer Kara McGuire from the Star Tribune were on hand, and the event was moderated by 89.3 The Current DJ Steve Seel.

Before things really got going, Richard Todd thankfully echoed a message MAAR has been sending for a couple of years now:

"There just isn't one story," he said. McGuire backed up that notion with a funny little foray into blame gaming. She pulled out a sheet of paper and rattled off a list that included mortgage brokers, the lending industry, Wall Street, rating agencies (Moody's, The Fed), regulators, and the buyers themselves (as part of "irrational exuberance"). Kara called today's situation an "ugly cocktail of events."

The event was titled "The Mortgage Meltdown" so lending was the primary topic of the day. There was some foundation-laying talk about adjustable rate mortgages, Fannie Mae, Freddie Mac, credit scores, and foreclosure. Todd, again, offered a learned voice to the cyclical nature of homeownership and pricing.

It was noted that people in the mortgage industry expect to see an explosion in FHA loans, maybe because these loans don't look so closely at credit scores. All the same, folks can now expect 5 to 10 percent down and proof of viable employment to be the norm. With home prices still not in the same ballpark as incomes for a lot of metro residents, even 5 percent could be a problem.

Why are buyers waiting to take advantage of this incredible buyer's market? Maybe they aren't waiting. Maybe they simply don't have the money. A down economy means a down economy, yo, and sometimes a $600 economic stimulus check represents just a month of gas and groceries, not the earnest money for an offer on a new home.

The question-and-answer session was terrific. Like this:

How come someone who can't afford their $150K home gets pushed into foreclosure by a spiking ARM and then the bank turns around and sells to someone else for $50K? Why not just restructure the loan rather than allowing this emotional and financial loss?

The answer is complex, of course, but the basic reasoning is because many banks believe they would just be extending the inevitable for the homeowner in trouble. If they got into the mess in the first place, they are likely to do so again. Still, loan modification products are out there and may see an increase if the foreclosure numbers continue to head upwards beyond basic irresponsibility.

The rental market came into question as one attendee noted that his rent just went up $100. "It's important to maintain a healthy renter market," said Todd. There is, however, a feeling that rents are on the way up as more people seem to be remaining in rentals, whether by choice or force of market. It was suggested that we can expect to see a return to favor of contract-for-deed and rent-to-own arrangements.

There was an event afterparty hosted by the Citizens League at the Loring Pasta Bar in a private room on the second floor. I had a Fat Tire, talked to some PR people and some homeowners, and, overall, had a much better time than I thought I would. More on that tomorrow.

Minneapolis Advantage Loan Program

The City of Minneapolis is tired of sitting back while foreclosures pockmark the visage of parts of their fair city. Fearing neighborhood degredation, they're trying to spur some of the kinds of redevelopment that city councils and neighborhood groups always love.

Basically, anything but rental conversions.

Thus enters the Minneapolis Advantage Loan Program, a downpayment and closing cost assistance program which offers $10,000 zero percent interest rate loans forgivable over five years to anyone buying a home in one of the city-defined eligible neighborhoods.

How does the city define an "eligible neighborhood?" It's actually quite objective and reasonable, much to our delight. Areas of the city which have been affected significantly by foreclosures, as expressed by a ratio of foreclosures compared to all properties, are the programs' focus. Click here for an excellent (but unsurprising) map.

For more information, check out some FAQ's and a general run-down.