Some lenders believe the East Toledo housing market was particularly hard hit by the reaction of investors to changes in credit standards, down payment requirements, the availability of money and other factors.
Marty Bihn, a loan officer with Northern Ohio Investment Co., said he knows of investors who owned 10-30 properties and lost or walked away from them as the market turned down.
“The real change was not in owner-occupant behavior or financing availability, but the behavior and changes in the investor market,” he said. “I know three or four investors who have lost more than 15 properties each in the last three years. That’s contributed to an over supply and that’s caused a sharp price drop. I think the investor market collapsed and led the owner market down. Not the other way around.
“Investors have had a bigger change in the (income) documentation level requirements than owner occupants. I think the lack of investor financing has meant the price has fallen until new investors can get the properties for cash. They’re not going out and getting loans for them today. I’d guess in the last year, three of four home sales in East Toledo have been for cash.
As of Oct. 10, The Federal National Mortgage Association had 12 homes listed for sale on its website in the 43605 zip code. The most expensive – a three-bed, two-bath residence - was listed for $35,900. There was also one for $7,500. Two of the 12 listings that Bihn was familiar with had been owned by one investor and he estimates more than half were owned by other investors.)
“One of the 12 listings, a Seaman Road residence priced at $17,900, has property taxes of $500 per half year and insurance costs of about $80 per month. With a monthly cost of about $160 for taxes and insurance, if it were to rent for $400 a month, a landlord would be making $240 a month. If it needed $10,000 or $12,000 in improvements, would a landlord want to buy it if it would take 10 years to recoup his purchasing costs?” Bihn asks. “If the value was $35,000 or $40,000 and you put $10,000 in improvements into it and also have some equity in it, it might be worth it.”
Until home values come back, Bihn doesn’t foresee investors thinking it worth their while to go back very much in the East Toledo market.
“When you have that many for sale at the same time it creates real problems. That (Seaman Road) property had been owned by one person for nine or 10 years. Prior to that, it was owned by another landlord for five or six years. So it’s been rented for at least 15 years. But today it’s vacant and has been a blight. It wasn’t that someone wasn’t qualified to buy it. That landlord wouldn’t have sold it while it was being rented and making money.
“East Toledo has been a heavy rental market for many years. It’s been dominated by landlords. The investor market had been brisk for quite some time. It’s just not there now,” he said.
When prices were rising, Federal Home Administration loans were a popular tool for borrowers and they have routinely required borrowers to provide documentation of their income.
Bihn thinks that additional scrutiny on appraisals and comparable home prices has impacted the refinance market more than the re-sale market.