City

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%.

 

 

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%.

Mid-Year Report – Condos

On Friday, we put the finishing touches on the Nest Report, Nest Realty Group’s Midyear report. (For a pdf version, click here.)

One of the interesting things that we started talking about in the office was the future of Condo projects in and around Charlottesville. From the Nest Report:

Both City and County condominium sales continue to slide as well. There have been a total of 32 condos sold in the County so far (off 25.6%) and 25 sold in the City (down 46.8%). However, Charlottesville City condo sales rebounded quite well in the Q2 2009 with 22 total sales, bouncing back from a dismal Q1 which saw only 3 transactions close. There are still condo projects in front of the City Planning Department with the potential for near-future development. Whether or not those projects can obtain funding, and when they will be built is still up in the air. Additionally, we fully expect the absorption rate (time it will take for new condos to be purchased) to be lengthy compared to years past, as some of these projects are approved to include more housing units than have sold across the whole city this year.

I thought I would expand a tad on what I said in that last sentence. There are some projects that have been approved that include more units than have sold in the last year. This is absolutely the case, and its not a small number. I called the city asking for a current “development report” and they have not put one together in the last 15 months. So, what I have is not on the newer side, but the projects that haven’t been built yet, are still lingering out there with approvals ready to go.

200907201710.jpg

The only major condominium project downtown that is under construction at this point is The Gleason. According to the most recent City report, the Gleason was approved for up to 65 units. The Gleason web site shows 36 residential units are being built, along with two floors of office and two (partial) levels of retail space. Of the 36 residential spaces, 16 are shown as sold, leaving 20 units, 80% of the city sales thus far this year. In addition to The Gleason, other projects in the downtown area that are approved by the City are:

  • Comyn Hall Condos – Approved for 11 units – Park and Parkway
  • Waterhouse – 65 Units – Between Water and South Street
  • The 550 – 12 Residential Units and 10,000 S.F. of Commercial located on Water Street in the old train station. (7 of the units are priced at $1.195 million for the shell)

Projects that have gone before the planning commission, but whose outcome has not been updated by the Neighborhood Development Services on their web site include:

  • Grove Square – Applied for 24 Units – Rosie Brown Blvd and Grove, along the RR Tracks
  • Coal Tower Property – Applied for 287 Units – Running the North side of the RR Tracks from Carlton to 10th Street
  • Sycamore 10.5 – Applied for 16 Units – On West Main in the old Under The Roof location
  • 201 Avon Street – 100 Units – The old Beck-Cohen building
  • The Station – 25 Units – Across from the Gleason on Garret Street

And this listing is still partial, and focuses only on the area in downtown. Further, it does not touch on the condos that have been built and have not yet been sold. Condo sales can be driven up by a great project, but the buyers have to be there to make these projects make sense. The Beck Cohen project for instance was once announced to be a LEED registered project. With 100 units on the line, a developer is going to need more than 70 reservations / contracts for sale to make this project move forward.

Most likely, what you will see is a few of these projects getting built in the next few years, but they will be scaled back. It would not surprise me to see the Gleason be the last condo project of its size built for at least 3 years. Other projects are going to look for smaller footprints, lower costs, and easier break-even points. And even then, developers are going to be looking for enough contracts to guarantee they won’t lose money even in the worst case scenario.

——-

2009 Condos sold Jan 1, 2009 – June 30, 2009

8 in 1800 JPA
3 at Monticello Overlook
2 at The Randolph
1 at McGuffey Hill
5 at Walker Square
2 at Cream Street
1 at Belmont Lofts
2 at Melbourne Park
1 at Wertland Commons
1 at The Corner Village  
and 1 at The Economod Condo

(NOTE: There are 27 condos listed here. The Nest Report states 25. The difference results from Realtors who input sales late. We pull data for the Nest Report on one day to write the larger report. However, the information here was pulled today, July 20, 2009.)

The City By Month

For about two years now, I have been creating reports on various neighborhoods throughout the city and subdivisions in Albemarle County. One of the things I have done is to look at homes by the price per square foot, hoping to minimize as much as possible any bias toward the product mix of homes being sold. Last year, big homes were selling, this year, it is the entry level homes that are selling. (When I can get time on my PC and do a histogram in Excel I will. Apple number crunching bites.) One of the things I haven’t done, until now, is to look at the entire city of Charlottesville as a single unit in the same manner.

At first, when I looked at this graph, I was shocked. I thought for sure the market had moved more than the graph appears to demonstrate. Then I calculated out the percentage shifts and realized that actually the market is about where most people thought. In general, pricing in the City is down. And, as known, the pricing is, at best, erratic and, at times, somewhat irrational. The most obvious part of this graph is a quick look at Days On the Market (DOM). We have known that it was going up, and this sure makes that obvious. I had originally figured that I would need to do two scales, one for DOM, and one for Price per S.F. But alas, the DOM actually exceeded the Price / S.F. at one point.

The graph below is fairly straight forward. I have pulled every detached home that has sold since January 1, 2005 in the city of Charlottesville. I then calculated the Price / S.F. for each home and then pulled the average $/SF and average DOM for every month since January, 2005. The results were then graphed.

City_Monthly.jpg When you look at the green line ($/SF) it looks fairly flat, but in reality, that is just the scale. In fact, I looked at the rise and fall over every three month period during the 05-09 years, and found 5 periods that the price showed over 10% drops during 3 months. There were also nine corresponding positive periods in which the prices rose more than 10% over a three month period. Again, erratic behavior.

But as you look at the line over time, you see the trend downward. From the peak in April, 2006 to current month, we find a price adjustment of roughly 10.5%.

I would have guessed a larger devaluation of the market overall, but if you look back three months to March, 2009 the price was showing values 38% below today’s prices. Obviously, the city has not gone up nearly 40% in three months. Instead, what you are seeing is a light month of transactions where a single deal can dramatically change the average.

So where should this line trend in the next few months? I would be surprised if we see what looks like a positive trend continue much more. I think the city has found a good number of sales in lower priced properties for the entry level buyer. At the time of this writing, there are 85 properties under contract in the City. While this is not similar to 2005, it is a fair number of transactions occurring.

I have addressed this numerous times in other posts, but I continue to shout it, because it matters so much: The big “What If” for the city is the unemployment rate. We are still at the top of the state for our numbers, but the rates are no longer as good as they once were. We are way up. The most recent Bureau of Labor Statistics shows Charlottesville as the healthiest MSA in the state with civilian unemployment rates of 5.5%, but that is a far cry from one year ago when we were at 2.5%. This is going to play a major role at how many homebuyers are in the market. No one buys a home when they are afraid of losing all their income. So, we need to keep an eye on it. The BLS numbers project April to be lower than March, but most analysts are projecting the US rate to rise through the end of 2009.

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