Charlottesville

More on City Assessments

I requested from the City a breakdown of all residential assessments for 2013 and the adjustments by neighborhood. They were kind enough to respond very quickly. I have reformatted what they sent to me, and thought I would pass it along here.

Below, you will find the 22 Neighborhoods that saw decreases in 2013 assessments from last year. This list does not mean that EVERY property in the neighborhood was treated the same. It means that barring any new information provided to the assessor’s office, this is the adjustment due to “General Reassessment”. The other 25 neighborhoods in the City did not have any adjustments this year due to General Reassessment.

DecliningAssessments

In looking for a pattern, there is nothing that stands out. Three of the ten most expensive neighborhoods saw declines, while eight of the bottom ten saw declines. Of those top three, two were university area (although oposite sides) and one was near downtown. Of those that declined, some were detached homes and some were condos. Some were new construction (Carter’s View / Brookwood / Burnet Commons) and some were among the oldest homes in town (Fifeville / Fry’s Spring / Ix – Belmont). Every elementary school district seems to have some neighborhoods that declined and some that stayed flat.

The flip side to all of these numbers is that inventory is currently at a 7 year low in the City, and competing offers are common. The fact that the Assessor’s Office is showing a decline from 2012 is not mirrored by the current exuberance for City properties.

 

Value of Tax Value

The City of Charlottesville released their 2013 tax assessments this week. Mailings have been sent to home owners, and the web site has been updated to reflect the changes.

Assessments cause all kinds of a ruckus. There is an erroneous perception that prices should instantly adjust to match these new numbers. Nothing could be further from the truth. Reality is, this is the City’s best effort to meet state requirements to estimate the values of the parcels in the city. No one in the assessors office would argue they are perfect. I won’t go so far as to say they are even close in many cases.

There are, however, certain times when assessments should be darn easy. Like the day a home sells. If a home sells for $745,000 after being offered on the open market, and the transaction is indeed an arms length transaction, it makes total sense that the City would be able to assess that house without really thinking about it. The value at which a seller is willing to sell and a buyer is willing to buy is $745,000. That is the definition of market value. And that’s why it’s truly bizarre to see the assessment today on this house at $381,000. (Assessing this home at 51.2% of its market value.)

From the City assessors web site:

Real Estate Assessments are required by the Codes of Virginia and the City of Charlottesville to be at 100% of fair market value.  Assessments are made each year by the City Assessor’s Office and are effective January 1.

and

As required, the City’s assessment is an estimate of fair market value as of January 1 each year, based on property sales for the previous calendar year.

The City breaks down the city into neighborhoods and then samples that neighborhood to determine what is happening price wise over the course of the year. Then, barring changes to a home, they apply a % change to all the houses in that neighborhood. There are certainly some places where there is more specific work being done, but in general, this is the practice. I pulled up a sampling of 10 homes in the neighborhood that is bounded by Rugby Road, Emmett Street, Westview Road, and Wayside Place. The tax assessments I pulled changed from -4.68% to -4.7%. You can’t tell me that is an accident. So, the question is, how accurate is this practice. I would say we can bicker about whether -4.7% is the correct amount, but in general, I agree with the practice. If my neighbor’s home goes up 5% or down 3%, it is fairly accurate to say mine did too — UNLESS one of us has done improvements or allowed our house to waste away, in which case, they certainly change at different rates.

So, I focused on this one neighborhood and pulled every house that sold in 2012 to see if the new 2013 assessments were accurate for these homes. Nine homes total ranging in sales price from $367,000 to $1,250,000. How’d they do? Mixed Bag.

  • 938 Rosser Lane – Sold for $367,500 – Assessed for $443,600 – 121% of Sale Price
  • 901 Rosser Lane – Sold for $450,000 – Assessed for $449,200 – Spot On.
  • 1865 Field Road – Sold for $469,000 – Assessed for $511,900 – 109% of Sale Price
  • 1825 Edgewood Lane – Sold for $530,000 – Assessed for $734,100 – 139% of Sale Price — (NOTE: On the market for nearly a year)
  • 1859 Wayside Place – Sold for $706,000 – Assessed for $590,000 – 84% of Sale Price
  • 1863 Wayside Place – Sold for $745,000 – Assessed for $381,600 – 51% of Sale Price
  • 920 Rosser Lane – Sold for $753,000 – Assessed for $735,000 – 98% of Sale Price
  • 1872 Edgewood Lane – Sold for 890,000 – Assessed for $778,800 – 88% of Sale Price
  • 1820 Edgewood Lane – Sold for $1,250,000 – Assessed for $993,000 – 79% of Sale Price

Don’t get me wrong, I totally respect the fact that assessing homes that the City has likely never been in is extremely hard. And I respect the fact that the city has a good process. But no one can argue that a group of nine homes that all sold in the past year, arguably the easiest homes to assess, range in values compared to their sale price from 51% to 139% all in the same neighborhood is anything close to useful, valuable, or accurate.

My point here is not to say that all assessments are bad, or that we should be challenging every one. What I want people to realize is that basing listing and offering prices on City (or County) assessments is dangerous. While it can be a guide, and certainly should be considered, it has to be a single tool of many in pricing a home. We look at comps all day long. And the price you paid four years ago for your home will affect its sale price far more than the new City assessments. Prices in the Venable neighborhood did not go down 4.7% this week with the new assessments. The only thing that changed is that the taxes these home owners will pay went down by 4.7%.

 

 

2012 Year End Report

NestReportLogo

 

We released our 2012 Year End Report today, and it is a very different report from the past. The format will look familiar but the content seems almost opposite from the past.

Since 2009 when we first formed Nest and started putting out the region’s most complete and authoritative study of the market, we have looked at the Charlottesville area market with cautious optimism at best, and in many cases very clear concern for our future pricing. For the first time, we are very comfortable stating that all of our indicators are positive. Across almost every product type in almost every geographic part of our area, we are seeing growth: Growth in sales, Growth in Median Prices, Drops in Inventory, Drops in Days on Market. You name it, things look good.

We have said since 2009 that we wouldn’t feel comfortable until was saw 18 months of growth. Well, guess what? For 6 straight quarters, we have seen year-over-year growth in sales numbers.

SalesByQtr

 

This graph shows the total number of sales in Charlottesville City and Albemarle County going back to 2002. But the graph is for a full trailing 12 months, not individual quarters. It allows us to see the sales patterns while removing the seasonality of quarter-to-quarter changes. When you look at it on a visual basis, the trend becomes incredibly obvious. Here’s to a great 2013. Follow the link above and check out our whole report.

Unemployment Revisited

I first addressed unemployment in April of 2008 as being the best harbinger of a declining market in Charlottesville. At the time, we had local unemployment of 2.5%. The market, especially in the City, was still moving pretty well. Days on market had degraded substantially, but prices were actually up a (now stunning) 7.5% from the year prior while the actual deal volume had increased nearly 10% from the first quarter of 2007. At a time when the market was being called stable by many, I called a coming decline. Fourteen months later, Charlottesville had unemployment of 6.4%.

So, now, as we see definite signs of an improving market in the close of 2012, what other larger macroeconomic indicators can we look to? Well, unemployment would be my first pick.

 

Jan2013UnemploymentThere is no question that purchasing decisions for big ticket items are determined in large part by consumer confidence. There is no large ticket item for which this is true more than homes. Who would buy a home when they don’t feel comfortable that they will have a job in 9 months?

So, where is Charlottesville in all this mix? Our current rate of 4.5% looks pretty good, whether compared to the Virginia rate of 5.6% or the National rate of 7.8%. When you think that the national rate has not been lower since January of 2009, it all looks pretty good.

But go back to April of 2008 and you find Charlottesville at 2.5%. Look at the graph above and notice that Charlottesville is always significantly below the national curve, and most often below the Virginia number as well. Just because we compare well against the National numbers doesn’t give me comfort. Back in 2008, we were frequently in the top 15 cities in the country (#13 at the time of the above cited article.) For Charlottesville to be back at #13 right now, we would need to find 551 jobs for the 5,100 unemployed people in our MSA. That is a TREMENDOUS number. To get us back to 2.5% unemployment, we need businesses to create more than 2,250 jobs. And that needs to be done without bringing a single employee in from out of town to fill those jobs.

The good news is that we don’t need to get to 2.5% to be healthy. In fact, most economists would say that any unemployment rate below 5% is pretty darn healthy. The question is, does having a National unemployment rate hovering over 7.5% bring confidence? I don’t think so. If we see the national number in the 6’s, even the high 6’s, and Charlottesville can stay in the 4’s, we will see a high consumer confidence in our area. At that in turn, should provide some stability.

Right now, the market is moving quickly. City properties are getting sold in very short order in terms of Days on Market. But the question remains, are these buyers looking to take advantage of a perceived bottom of the market curve, or is this a sustained return to the market?

Decade of New Construction

Better to Buy or Build?

This question comes about in almost every new client conversation I have. There are those diehards that refuse to live in a new house, and there are those who want a maintenance free home from the start. (no such thing by the way – but new homes are certainly less). Personal tastes aside, there is always a financial question regarding which is better. It is the goal of every seller, whether builder or homeowner, to maximize their price at the sale of a home. There may be some other factors on the table regarding timing, but it all comes down to the final net price to seller. Always.

So, prices tend to go up and down in tandem for resale and new construction. Sometimes, one lags the other, but in general, when prices are rising, they are going up for both types of sellers. For that reason, the percentage of sales that are new construction tend to be pretty flat in good times and bad. I’m not saying that new homes keep selling, I’m saying that as a percentage of total sales, they remain fairly constant.

When we look at the last decade, this is certainly what we see. From 2003 to 2011, the percentage of total sales that were new construction (Albemarle and Charlottesville only) remained between 16.7% and 18.0%, and in 7 of those years, it was even tighter, between 16.6% and 17.1%. Not a lot of variance.

But in 2012, we saw a major shift. In Oct of 2011, builders began getting advance warning from their suppliers that prices were going up. Drywall, lumber, you name it… Prices went up. And we’re not talking 2% here. In 2012, prices on drywall went up roughly 30%. And in January of this year, prices went up another 20%+. 2012 saw lumber prices up 44%. And that drives new home prices up. Nationally, the average new home contains roughly 45% of it’s cost in materials. And when they go up as significantly as they have, there is little way to protect the profit without ratcheting prices up.

But good news may be on the horizon. Lumber commodity future point to as much as a 25% decline in prices from mills as China demand decreases and output from Canada increases.

So, here is the interesting thing. 2012, saw the first major drop in new construction. Builders may not have even noticed. The actual number of new homes sold in 2012 (266) was the highest in any year since 2007 (376 – so we are still a long way off the bubble path). But while there was a 4.7% increase in new construction sales in Charlottesville and Albemarle, that paled in comparison to the 15.7% increase in total sales. End result is that the percentage of homes sold in Charlottesville and Albemarle that were new construction went from 16.7% to 15.1%. (Explanation of the Graph: Blue and Green columns represent the total number of homes sold and total number of new construction homes each year. The yellow line is the ratio of new construction to total market.)

NewConstructionWhat brings this back? Two things are possible, likely a combination of the two will play out.

The first is that material prices come back down. As the lumber news points, there should be some relief from manufacturers as output increases. This won’t bring it back to par, but it will allow some relaxing of prices.

The second option is that resale homes will see a price increase. (It has been many years since I said that and it feels pretty good.) As long as resale prices remain depressed, the builder market will have a tough time competing. My bet is that 2013 sees better numbers than 2012 for new construction, but not back to the 2011 16.7%.

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