September 2, 2012 [Mark Gillispie, The Plain Dealer]
More than six years after home prices began an unprecedented decline, Cuyahoga County’s housing market may have finally hit bottom.
An improving economy and employment picture have helped boost sales and prices for the last 12 months, a Plain Dealer analysis of home-price data has found. But it’s unlikely that home values in the county will return to their high-water marks in 2005 anytime soon.
Real estate, like politics, is exceedingly local. While home prices in the county’s more stable suburbs have been inching upward, the market in Cleveland and some inner-ring suburbs continues to dip.
Poor performance in those communities has dragged down countywide home prices further through the first six months of this year. The median price, or middle point, for residential sales through June 2012 was $76,000. That compares with $78,000 for the same period in 2011. The last time the median sale price was that low was 1991. After inflation, that $76,000 in 1991 should be worth $128,000 today.
The Plain Dealer examined this year’s home price data from the county as a follow-up to its chronicling of the foreclosure crisis of 2004 to 2008. For its analysis, the newspaper looked only at one- and two-family homes that sold for at least $5,000. Calculations did not include properties sold at sheriff’s sales.
The numbers raise troubling questions for the region’s leaders. Can Cleveland and some of its inner-ring suburbs bounce back? What can be done to help them?
“Will [prices] recover? Of course they will,” said Carl DeMusz, chief executive officer of Northern Ohio Regional Multiple Listing Service. “It’s always a matter of when and how strong that recovery will be.”
The city of Cleveland became known as the epicenter of the subprime mortgage crisis. Prices on older homes freshened with cheap cosmetic changes soared thanks to reckless lending policies and a crime wave of mortgage fraud.
The median home price in Cleveland jumped to $84,000 in 2005. It was just $25,000 through the first six months of this year.
Yet the West Side has fared much better than the East Side. The median price on the West Side is $33,000 in 2012 but only $17,000 on the East Side. (For comparison’s sake, the average price of a new car or light truck today is just over $30,000.)
What deeply concerns politicians and public-policy experts alike is how the housing malaise has spread so quickly to inner-ring suburbs such as Maple Heights, Garfield Heights and Euclid. Through the first six months of this year, the median price in Maple Heights was $24,130 — less than in Cleveland. It was only $33,200 in Garfield Heights and $34,950 in Euclid. The median price in all three communities exceeded $100,000 in 2005.
Tom Bier is officially retired as a professor of urban planning at Cleveland State University but remains involved in research and teaching. He predicted years ago much of what has happened to Cleveland, the county and region, earning him the nickname “Dr. Gloom.”
Bier’s point of view is far less sanguine than those who make their living in real estate. He envisions few scenarios in which much of Cleveland and some of its most distressed inner-rings would recover from the free fall they have experienced.
“If we don’t get a booming economy and modest growth, the more people will move out and the more the core will be abandoned,” Bier said. “Otherwise, nothing’s going to reverse it.”
Location, location, location
Mapping provides a stark illustration of how price drops have been softened by geography. Three communities have seen increases in housing prices from 2005 through this year — the tonier suburbs of Chagrin Falls, Moreland Hills and Orange.
Most of the outer suburbs have seen modest drops of between 10 percent and 20 percent in home prices between 2005 and 2012 because they remain attractive cities for the those who can afford to live there. Homes are well maintained, schools are good, crime is low.
The price drops in Cuyahoga County represent relative blips compared with real estate hot spots like Las Vegas, Southern California and parts of Florida. Prices in those sand communities became hyper-inflated during the housing boom that ended in 2006, then plummeted astronomically during the subsequent bust.
Cuyahoga County’s higher-value suburbs saw modest gains in housing prices during the boom years and thus have seen less-striking drops in prices since.
And there are markets within markets. Houses touched by foreclosure and sold at sheriff’s sales or in pre-foreclosure “short” sales are considered “distressed,” while properties bought and sold in the normal fashion are “nondistressed.”
But the data show that nondistressed properties also were slimed by the foreclosure-laden market in Cuyahoga County. The median price countywide for nondistressed properties was $122,900 in 2007. Through the first six months of this year, the nondistressed median price was $99,500.
The subprime mortgage mess that enveloped Cleveland and its inner-ring suburbs between 2002 and 2006 is largely responsible for the rapid decline in housing prices here. (Globally, it helped create the worst economic decline since the Great Depression.)
But CSU’s Bier says the subprime mess merely accelerated what was going to occur in Cleveland and the inner-ring suburbs eventually. Properties lose value when no one wants to live there, he said.
“We don’t care about old places,” Bier said. “We abandon them.”
And the abandonment continues to send residents fleeing for the exurban communities of surrounding counties. Those refugees are taking $200 million a year in income with them, Bier said, money that used to stay in places like Lakewood and Cleveland Heights.
It will take a new initiative led by governments at all levels to stop the decline of Cuyahoga County’s older communities, Bier said. He doesn’t see it happening.
“Over the next 25 years, there’s nothing to stop this,” he said. “There’s no policy to stop it. Another 75,000 homes will be abandoned in Cuyahoga County and that will wipe out $1.5 billion in property values. We will lose $5 billion in income and the city’s population will be well below 300,000.”
The damage to Cleveland and its inner-ring suburbs can be expressed in even more frightening numbers.
Michael Schramm, a researcher at the Mandel School of Applied Social Sciences at Case Western Reserve University, has compiled data that show there are 27,000 vacant or abandoned properties in the county. That’s just under 7 percent of the total number of residential properties on the county’s tax roll.
According to Schramm, 16,000 of those vacant and abandoned properties are in Cleveland. And again, to dramatize the city’s east-west differences, 20.4 percent of the houses on the East Side (12,149 out of a possible 60,000 units) are vacant or abandoned. The percentage is much smaller on the West Side at 7.8 percent.
But since 2007, one in seven residential properties in the city of Cleveland has been sold at sheriff’s sale after falling into foreclosure.
In the inner city, foreclosure and sheriff’s sales can almost be considered a death sentence for homes. Homes typically go empty soon after a notice of foreclosure is made or the suit is filed. The unbreakable pattern in Cleveland has been that once the home is empty, thieves swoop in to remove whatever value the property has left. The property, at that point, typically becomes designated for demolition.
Frank Ford, a vice president at the development-driven nonprofit Neighborhood Progress Inc., likes to borrow the apple-barrel analogy to explain what is happening in Cleveland, where the demand for demolition has become overwhelming.
“Imagine a barrel of apples that has 100 apples in it. That’s Cleveland,” Ford said. “Ten are rotten. The longer they sit there, those rotten apples are sitting up against good apples. In a matter of a week or so, those rotten apples will cause the good ones to rot.”
A hopeful sign that the county might begin to see prices stabilize is the continued decline in the number of foreclosure filings since 2008. Although some officials, including Cleveland City Councilman Tony Brancatelli, suspect that some of that drop is a result of banks and mortgage servicers walking away from properties and the liabilities they pose, such as maintenance and property taxes, instead of filing foreclosure suits.
Brancatelli and others say the Federal National Mortgage Association — Fannie Mae — has helped depress prices by increasing the number of homes it has sold instead of abiding by an agreement to give its worst properties to the Cuyahoga County land bank.
Fannie Mae, a government-sponsored company that guarantees home loans, is on pace to sell twice as many properties this year as in 2010, but at an average price that is $11,000 lower than two years ago. And Fannie Mae was the seller in nearly 10 percent of all sales of $5,000 or more through June in the county.
“The dumping of low-value properties by Fannie Mae is having a negative impact on our housing values and real estate market,” Brancatelli said. “They should take more responsibility for how they dispose of their distressed inventory.”