Nevada County Real Estate Market Snapshot - CA Property Taxes

Paul Sieving - www.PaulSieving.com

December 24, 2009 – Today California residential real property taxation is primarily regulated by Proposition 13 and Proposition 8.

After an assessors scandal in 1966, AB80, a reform bill enacted by the legislature, kept assessments at a uniform percentage of market value. During the real estate boom of the 1970s, home assessments escalated rapidly. By 1978, the threat to homeownership brought on by this escalation engendered new legislation in the form of Prop 13 in June, and Prop 8 in November.

Both measures were on the ballot in June and Prop 13 won due to its controlling effect on rising assessments. Once Prop 13 was in place, the effectiveness of Prop 8 as an additional control was increased and it also passed in November.

The constitutionality of Prop 13 was immediately challenged by the taxing authorities, and after a long trip through the courts, the issue of acquisition-value assessments reached the U.S. Supreme Court in Nordlinger v. Hahn. In a stunning 8-1 decision, the court in 1992 upheld California”’’s acquisition-value system.

Proposition 13 – Limits the property tax rate to 1 percent plus voter-approved bonded indebtedness, and defines taxable value as the lower of the property”’’s Factored Base Year Value (FBYV) or market value on lien date, January 1. Factored Base Year Value is the market value of the property when it was acquired by the current owner, plus the value of any new construction, plus an inflation factor of no more than 2% per year. Taxable value can increase more than 2% in one year if the property experiences a change in ownership, new construction or received any temporary reduction in taxable value in a prior tax year.

Proposition 8 – Amended Proposition 13 to provide for declines in value. Prop 8 requires the Assessor to enroll the lower of either: (1) the Factored Base Year Value, or (2) the market value as of the annual lien date Jan. 1. Prop. 8 reductions in value are temporary reductions that recognize the fact that the market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value.

Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of the January 1st lien date, to determine whether its market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.

Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.

The combined effect of Props 13 and 8 is to limit the escalation of residential property tax assessments to a manageable level and to provide temporary relief for the taxpayer when the market value of a property falls below the Prop 13 factored value.

The Assessor of each CA County is charged with implementing these laws for the benefit of the taxpayer, including an assessment appeal process for the taxpayer who feels that the market value of a property my have fallen below the Prop 13 factored value.

Nevada County Real Estate Market Snapshot – Federal Homebuyers’ Tax Credit

Paul Sieving - www.PaulSieving.com 

November 16, 2009 - The Worker, Homeownership and Business Assistance Act of 2009 (HR3548) was signed into law in November by President Obama.

The bill deals with housing and unemployment aspects of the current economic crisis, including the Homebuyer Tax Credit. In addition to extending the first-time homebuyer tax credit, a whole new category of homebuyer is now eligible for a similar tax credit.

The $8,000 first-time homebuyer tax credit was due to expire on Nov. 30. There is a pretty good argument to be made that this tax credit has played a significant part in the apparent halt to the years-long decline in median home prices nationwide and to the increasing sales volume in many markets, including our own. In our last column, we showed that there has been a halt to price declines and substantially increased sales volume in the Nevada County market.

A consensus developed among real estate industry and government officials that expiration of this economic stimulus at a crucial time heading into the winter season might be extremely hazardous to a housing recovery in its infancy.

And so the legislation was redrafted to extend it to June 30 2010, and added a new category of tax credit for repeat home buyers.

The categories are as follows:

First-time homebuyer: A person who has not owned a home for three years or more. This credit is 10 percent of the home price, up to a maximum of $8,000.

Repeat homebuyer: A person who has lived in their current home for five consecutive years of the previous eight years. This credit is 10 percent of the home price, up to a maximum of $6,500. This program is intended for both move-up and downsizing buyers and there is no requirement that the current home be sold.

Rules that apply to both categories of buyer

- The buyer must remain in the newly purchased home as the primary residence for at least three years in order to avoid having to repay the entire credit. There are exceptions for death and certain military service.
- The buyer must be in contract to purchase by April 30, 2010, and close escrow by June 30.
- New and existing homes qualify.
- For purchases completed after Nov. 6, 2009, the maximum purchase price is $800,000. Previously there was no limit.
- The income limits are higher for purchases completed after Nov. 6, 2009.
- Under the original law, the credit was phased out for single taxpayers with Modified Adjusted Gross Income (MAGI) between $75,000 and $95,000 and for married couples with MAGI between $150,000 and $170,000.
- After November 6, the tax credit phases out at incomes between $125,000 and $145,000 for single and $225,000 and $245,000 for joint filers.

Finally, our government has come up with a way to put a few of the nearly $1 trillion of TARP funds back in our pockets at last. It’s about time!

Nevada County Real Estate Market Metrics - Q1-Q3 2009

 Paul Sieving - Paul@PaulSieving.com

October 30, 2009 – As the peak selling season for the year winds down and we head into the holidays, there are some interesting numbers in the rearview mirror. Three important trends stand out as encouraging indicators that our local market is stabilizing, or at least experiencing a significant pause in the dramatic correction of the last 4 years.

Nevada County Real Estate Market Snapshot-Morgan Ranch

Paul Sieving - www.PaulSieving.com

October 5, 2009 – This week we look at the year-to-date activity figures for Morgan Ranch. The idea is to see how Morgan Ranch has fared relative to the overall Nevada County market.

Morgan Ranch was established as a premier subdivision in 1989, and has matured as one of the more desirable neighborhoods in Nevada County, attracting residents from right here at home and also those relocating from other areas. Since breaking ground 20 years ago, approximately 400 homes have been built, with only a handful of lots left. Prices in Morgan Ranch are generally from entry-level to mid-market, with a few high-end custom homes. Lying between the communities of Grass Valley and Nevada City and with superior convenience to all community resources, Morgan Ranch has broad appeal to a wide range of homeowners.

It’s becoming evident that we have reached a pause, if not the turnaround, in this long market slump and unit volume is up and holding steady over the first half of the year. Along the way, there has been some distress in the market, with many Short Sales and Foreclosures, and this is likely to continue for a time as the market works through the problems.

So far this year, MR has seen 9 homes sold, which is one per month. Not one of these sales was a distressed sale, and this is in contrast to the overall Nevada County market. This is a ray of light for one neighborhood of many, as the absence of distressed sales in a particular neighborhood tends to help keep prices firm.

In the middle of September, MR saw the first distressed listing, a short sale, come on the market. Even the most unique neighborhoods will feel the effects of the current market.

The statistics for Morgan Ranch for year to date 10/05/09 are:

- Homes Sold = 9

- Average Days on Market = 101

- Median Sold Price = $370,000

- Average Sold Price = $354,990

- Average Sold Price in $/square foot = $209

- Homes in Escrow = 2

- Homes Active = 3

- Homes Active Short Sale = 1

A few of the corresponding figures for homes sold in Nevada County overall are:

- Homes Sold = 569

- Average Days on Market = 146

- Median Sold Price = $300,000

- Average Sold Price = $337,000

- Average Sold Price in $/square foot = $192

It’s clear that MR is holding up better than the Nevada County market as a whole. Fewer days on the market, higher selling prices, and greater value per square foot are signs that Morgan Ranch was a well-executed development plan that is holding value over time.

Nevada County Real Estate Market Snapshot – Summer Trends

Paul Sieving - www.PaulSieving.com

September 14, 2009 – Early in the month, there were 858 active single family listings in our western Nevada County real estate market.  This number has been fairly steady for the last 6 months. 

This number includes all 3 of the segments we have been discussing: Orderly non-distressed properties, bank-owned REO properties and Short Sale properties.  I’ve broken down the active and pending listings by segment in the table below. 

Single Family Pending Sales Index for September 

       Active Listings                                 Pending Listings

We’ll be tracking these figures going forward to gain an understanding of the closing rate for each of these segments.  In other words, in a given month how many properties are in escrow, how many actually close, and how do these trends vary by segment.  Closing rates have a strong effect on absorption rates, and can be an indicator of secondary factors, such as availability of financing.  

In an earlier column, we looked at absorption rates for the 3 segments and for the market as a whole.  The overall absorption rate for the month of June was about 10%.  Orderly sales were the same, while REO sales were clipping along at 30%, and Short Sales were lagging at about 4%.  In the table below are the comparable figures for June, July and August, as well as the median price. 

   Single Family Sales – Monthly Unit Volume by Segment

          June 2009                                     July 2009                          August 2009

There are some striking trends in this table.  While the overall absorption rate is holding steady at around 10% with a minor downward trend, the mix is changing dramatically.  The absorption rate for orderly sales has fallen from about 11% to less than 5% over the 3 month period, while the rate for REO has increased from an already snappy 30% to a positively torrid 67%!

Likewise Short Sales have increased from under 4% to over 9%.  This change in the sales mix, while the overall sales rate holds relatively steady, is a positive sign for the health of the market. 

What appears to be happening is that the focus of buyer activity has shifted somewhat from orderly sales, which made up nearly 80% of units sold in June, to distressed properties, which in August accounted for 60% of units sold.  This is healthy for the market in the sense that we are seeing the distressed properties being snapped up at a rate that is keeping the overall inventory of REO and Short Sale listings steady and avoiding a buildup of these properties in the market.

This is a very interesting trend and will be worth following as a reliable indicator of market health. 

Throughout this period of change in the mix of properties sold, median price had been fairly steady, with less than a 1% decline in the 3-month period. 

We are looking for data that we can make sense of, both leading indicators and trailing indicators, in keeping an eye on the health of our local market as we seek visible signs of a recovery.

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