In this special report Housing in East Toledo: A Downward Spiral or Opportunity?, Press reporters look at the precipitous decline in housing values, what contributed to that decline, the emergence of absentee landlords and what is being done to rekindle the American Dream of owning a home.
All homeowners lost value in The Great Recession, but perhaps no one lost more than a homeowner in East Toledo.
Consider in 2007 the average realtor-listed home in East Toledo sold for $33,944, according to the Toledo Multiple Listing Service. Today, the average home sells for $15,159, a 55 percent drop.
The picture looks bleaker going back 10 years. In 2004, the average sale price was $46,284.
The decline threatens one of Toledo’s most stable neighborhoods. Foreclosed homes sit vacant and thieves scavenge them looking for copper and aluminum. Investors purchase homes through sheriff’s sales and turn them into rentals. Abandoned homes too far gone to rehab bring down property values while awaiting the wrecking ball. Some 100 such homes are identified for demolition by the Lucas County Land Bank.
So, what happened?
At one time, East Toledo experienced a housing rebirth attracting a different kind of investor—the homeowner. The renaissance started slowly when The East Toledo Club purchased a duplex in 1991 for $1, rehabbed it and sold it for $35,000. The club used a portion of the funds to spin off Housing East, a non-profit headed by Paul Hecklinger, the man who led the duplex renovation.
The organization’s goal: renovate the worst house on a block and sell it for 20 percent more than the other houses. The strategy worked. Property values increased and neighbors saw value in investing in their homes knowing they would recoup that investment.
Housing East renovated 18 homes over 10 years and, in 1996, built the first new homes in East Toledo in 25 years. Three of these homes sold for $84,000 each.
Meanwhile, Neighborhood Housing Services built government-subsidized homes that sold from $75,000 to $90,000 and the Starboard Side riverfront condos were developed with units selling from $250,000 to $330,000. In addition, Habitat for Humanity purchased 11 lots south of Woodville Road and built homes for $48,000.
All this activity drove property values up. In 2004, realtors sold 309 homes for an average price of $46,284, according to the MLS. The highest sale was $110,000. Compare that to 2012 when realtors sold 128 properties for an average $15,159. The highest sale was $69,000.
Housing bubble not the only cause
The obvious cause of the decline was the bursting of the housing bubble in 2007, but there were two other causes. In 2003, Toledo Mayor Jack Ford, facing a budget crunch, recommended against funding Housing East with Community Development Block Grant Funds. He offered $47,000 to any group that would absorb Housing East. The organization merged with Neighborhood Housing Services and later found a home with River East Economic Revitalization Corporation (REERC). However, that organization, which had brought hundreds of jobs to East Toledo, also received a cut in funding. When the recession hit, REERC was property rich and cash poor. East Toledo’s cornerstone for economic development didn’t survive.
Non conforming loans backfired
While the efforts of these groups raised property values, something else was going on. Dan Steingraber of Steingraber & Associates, a real estate appraisal firm located on Main Street, said mortgage companies were issuing non-conforming loans. They required little money down and little due diligence for income verification. And, they typically loaned more than the home’s appraised value which allowed the new owner to improve the home.
Everybody banked on the conventional wisdom that a home’s value would increase with time and the homeowner would recoup his investment. When the Great Recession hit, however, home values plummeted, leaving many owing more then they could ever get back through appreciation. Many walked away. Others lost jobs, had hours reduced or wages cut. They could no longer make payments and the banks foreclosed.
A personal example of lost value
Chris Hall will become the president of the Ohio Association of Realtors in January. The trade organization represents 26,000 realtors. Hall is also a vice-president at Danberry Realtors where he manages the Oregon and Perrysburg offices. He provides a personal example of how values in East Toledo have fallen. In 1995, he bought a home on Delence for $25,000. He fixed it up and sold it in 1998 for $48,900. That owner sold the home in 2001 for $63,300. Today, he says, the same home would list at $26,000.
The decline in value leaves little incentive for homeowners to invest in their homes for fear they will not recoup their investment. That affects their neighbors. One declining home can bring down the value of their homes. More restrictive rules on appraisals also affect home values. Hall says, as of October 15, there were 104 properties for sale in East Toledo at an average list price of $29,000. However, when neighboring homes are selling for $10,000 to $15,000, appraisers find they have a harder time justifying a higher list price.
Foreclosures decimate comparables
Steingraber said Fannie Mae and Freddie Mac, the two biggest purchasers of residential mortgages on the secondary market, have tightened requirements. Appraisers can only look at comparable homes sold six months from the appraisal date. Those comparables have been decimated due to foreclosures and short sales.
“From 2007 to 2011 it was an absolute nightmare because we were in a declining market and property values were going down at a rapid rate,” Steingraber said. Mortgage underwriters are leery of taking risks in today’s market and they scrutinize any appraisal above these depressed comparables. Hence, the climb back to higher property values will be slow and long, he said.
This loss of value has another detrimental effect. Homeowners will find it more difficult to secure a home-equity loan to fund improvements.
Suburbs affected too
East Toledo’s problems are not confined to the 05 zip code, Hall says. The average sale price in Oregon in 2007 was $133,000; this year it’s $106,000. Oregon needs buyers and many traditionally move up from East Toledo.
“We don’t have that feeder system coming into Oregon, Genoa, Northwood and Rossford,” Hall says. “That’s what’s affecting sales and prices in those areas. People have to sell their home in East Toledo to move to the suburbs and they don’t have enough equity to do that.”
Hall sees another trend. “Some first-time home buyers are stretching themselves because they see the bargains in Oregon, Genoa and Northwood. A lot of families are helping kids buy houses in the suburbs because they know there’s value there.”
So, is this the end of a stable homeowner community? Is East Toledo on the tipping point?
Hall is not ready to say that, neither are Hecklinger nor Bob Krompak at NeighborWorks, a non-profit with programs to encourage home ownership.
All three agree, however, it will take time. Hall says more than 50 percent of his company’s current sales in East Toledo are to investors. They come from all over the United States. One firm in California recently purchased 40 properties in Toledo to use as rentals.
For the investor, the advantage is a higher return. A home in East Toledo cost less and rents for a comparable price as homes located in another part of the city. He estimates his company handles 5.5 cash sales a month in East Toledo. Nearly all are to investors.
The lower prices also bring hope. “People my age have lost their equity, the kids who buy today, hopefully, if the natural thing happens, will gain that equity,” he said.
Hecklinger said the strategy of renovating the worst house on the block could work again, however, it would take a funding source and that seems unlikely at this time.
Krompak says NeighborWorks is working to stabilize the community by helping prospective homeowners with home buyer education, financing and foreclosure prevention programs.
The housing rebirth in East Toledo, like the last one, will take time. But, as the economy improves, there’s hope prospective homeowners will outbid investors for their piece of the American dream of owning their own home.