08 May 2009

Foreclosures Grow Locally, Impact Minor

Real estate agents tracking whether home seizures will decrease property values.

In the numbers game of foreclosures, Louisiana has been bucking the trends in some areas and leading the nation in others.

As the statewide number rose 40 percent from 485 in January to 678 in February, foreclosures nationwide rose only 6 percent from 273,193 to 290,631, according to Irvine, Calif. - based RealtyTrac.

But while Louisiana far outpaced the nation during that time, local experts agree foreclosures are making limited waves in the comparatively healthy New Orleans real estate market.

"In the marketplace we're in, foreclosures are an issue," said Ross Miller, president of Metairie-based Miller Home Mortgage. "We are doing more purchases in which the house being bought is a foreclosure. That is up probably 10 percent. Where we would maybe do one every six months, now we're doing one a month."

Any increase in the number of foreclosed properties can spark a chain of events leading to lower property values, Miller said.

Owners trying to unload a home to avoid foreclosure are left with rapidly diminishing options if prospective buyers lower their offers before foreclosure proceedings begin, which Miller said can reduce the final sale price. Since appraisers and assessors use a comparison of the sales price of similar properties to determine the value of homes in a given area, those artificially reduced sales prices can have an extended effect.

"When you are trying to appraise a current piece of property, the appraiser pulls up the comparables," he said. "If you've got a house that's 2,000 square feet and you're comparing it to a house that's 2,250 square feet that should have sold for $280,000 but it sells for $240,000, it brings the whole neighborhood down."

Ben Maygarden, chief deputy for the New Orleans 6th District Assessor Nancy Marshall, said the effects of foreclosures are limited by safeguards within the assessment process.

"We don't normally reassess everything every year," Maygarden said. "Theoretically, and there is a difference between theory and practice, you're supposed to use that quadrennial assessment appraisal for the next four years."

If a house appraised at $200,000 for the 2008 assessment is sold within four years at a lower rate for whatever reason, the original 2008 assessment should be used until the next assessment, Maygarden said.

"In practice it does change, but that wouldn't necessarily produce a change for anybody else," he said. "The way the system is set up, it limits the effect on property assessments in a normally appreciating environment. They didn't really envision a situation where you had dropping property values, so the theory doesn't work very well when prices are dropping."

Even though the 6th District sports some of the highest concentrations of foreclosures in Orleans Parish with 80 near the convergence of St. Charles and Napoleon Avenues, Maygarden said the number of homes in the district diffuses the overall effect.

"We have about 17,500 properties in our district, residential and commercial," he said. "That's about one half of 1 percent in foreclosure...If they were evenly spread out across the district, we wouldn't see that as a sufficient reason to do a reassessment."

Marshall said the ultimate effects of foreclosures are not reflected in current home values, showing the gap between the number of foreclosures and home assessments.

"The value of homes is going up in New Orleans, which is somewhat inconsistent with foreclosures," Marshall said. "It's really more of a real estate transaction than an assessment."

Maygarden said there is plenty of anecdotal evidence of sales prices dropping due to foreclosures but the rising home values don't bear out Miller's concerns.

"We can't use unsold property prices as data," Maygarden said. "We have to use what thing sell for, as we have not seen a significant decrease in sales prices. And if we have, it's only been very recently."

by Stephen Maloney

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