Yesterday, the federal government posted the sharpest quarterly decline in US home prices since it started tracking them 17 years ago - 1.7%. Part of the problem is a huge and growing inventory of foreclosed and bank-owned houses that lenders are hustling to get rid of. Cuyahoga County has more than 11 thousand of these houses. And there's disagreement over what's the best way to clean up the mess. ideastream's Mhari Saito reports.
The foreclosed house on South Euclid's Wilmington Road had been an eyesore for well over a year when Joel Lancry bought it. The lawn was filled with trash and weeds. Inside, all the copper had been stolen. For rehabbers like Lancry, houses like this are opportunity.
Joel Lancry: The windows are replaced, new shutters. We painted the house. New roof. You know, make it look right. The idea is to give someone a house where they don't have to worry.
Lancry is hoping to rehab a dozen foreclosed properties this year. The near fire sale prices lenders are selling property for meant Lancry could afford to update the plumbing and wiring, put in perks like granite countertops and stainless steel dishwashers, and still make a living.
Joel Lancry: You have to give them everything from top to bottom or else you're going to just sit on the market like other people.
Lancry's houses are selling. He's closing on a $100,000 dollar South Euclid rehab in a few weeks and a second later next month. He's the kind of contractor city building officials like Warrensville Heights' Ariane Kirkpatrick seek out. In her city, ten percent of the houses are vacant and she fields calls from want-to-be investors every day.
Ariane Kirkpatrick: There's a lot of people that because this is a buyers market and you can find houses for $5000, $10,000 they will buy it and think they are an investor but they can't handle it. So, you have to weed 'em out and find the good ones.
But even if you can get the house in shape, in some neighborhoods it's hard to find customers who can qualify for home loans. Mortgages to lower income, subprime borrowers have almost completely dried up. Austin-based Econohomes' Jeff Ball says that's where companies like his can help. Econohomes buys fixer-uppers at low prices then resells them, as-is, on a kind of rent-to-own plan with fixed, low monthly payments.
Jeff Ball: Unless someone finds a creative solution to create a new class of buyers for these properties, these properties will continue to sit vacant until they are all demolished.
But not everyone is convinced that these out-of-state investors are good for neighborhoods. Cuyahoga County Treasurer Jim Rokakis would rather see local groups and municipalities retain control of property banks want to write off, even if that means delaying development until the market improves. He is working on legislation to create a county land bank that would hold and assemble land for future investment.
Jim Rokakis: We may take properties into the land bank that can be saved. And that's a property we may want to try to rehab. And then most of these I think, unfortunately, especially in Cleveland, most of these are going to go on to the demo list.
The city of Cleveland is coordinating state, foundation and local nonprofit money to target millions of dollars of investment into six neighborhoods. The hope is that it will kick start private investment in stalled markets. A section of Slavic Village on Cleveland's east side is one of those areas. Jeff Raig at the for-profit Lynnhaven Development Group says he was initially wary when asked to build in Slavic Village's so-called "model block." Nearly all the houses on the targeted streets are boarded up. But the depth of the plans changed his mind.
Jeff Raig: When you can present the idea of an entire neighborhood coming up: these are the homes that Cleveland Housing Network is involved with, these are that homes Habitat [for Humanity] has committed to, and these are the homes that are available for us to completely rebuild. And then we're able to paint a picture to a potential homeowner of what's going to be regardless of what they're seeing right now visually.
Cleveland City Councilman Tony Brancatelli hopes the development will be a kind of blueprint for how to clean up the foreclosure mess. His ward has one of the highest rates of foreclosure in the nation.
Tony Brancatelli: The devastation that Wall Street investment has happened in our neighborhood is also an opportunity for us. And so now we are able to figure out how do we refit our neighborhood and how do we plan for the future.
Mhari Saito, 90.3.