Why So Cheap?

Sam’s version:

(mine’s near the bottom)

How can a house be so cheap? That was one of the first thoughts I had when Mark told me about his recent purchase. Not surprisingly, much of that price is a reflection of the general real estate situation in Cincinnati, which in some ways may represent a concentrated dose of what is happening at the national level. Cincinnati, alongside Cleveland and Columbus, was listed as one of the bottom ten markets nationally for commercial real estate in 2012 by the Emerging Trends in Real Estate 2012 report released by PwC and the Urban Land Institute.

And like many other “rust belt” cities in the Midwestern states, Cincinnati has suffered from decades of population loss and depletion of local tax revenues, due in large part to the loss of manufacturing jobs and a trend of higher income households moving outside the urban centers.

I’ve seen evidence of both of these trends just in my first few days exploring the city. There are entire blocks of abandoned buildings dotting the West side, including everything from industrial warehouses to beautiful brick and stone schools to turn-of-the-century single family mansions. As we drive or bike by these sections of town, Mark will often rattle of the sale price of buildings recently sold or auctioned off. Some of them are literally given away by the city to buyers who can prove their commitment to improve the property.

I thought about trying to describe how seeing these properties make me feel. On the one hand, it’s exciting to be in place with so much potential. I find that my dreams or creative ideas often express themselves in the language or context of physical spaces or buildings. To see two enormous school buildings for auction in the historic part of town gets me drooling. On the other hand, as beautiful as these buildings are, my excitement is tempered with an anxiety about excess. I want to believe that these places are revivable, but the reality is most likely that making a new building is more economically feasible than renovating an existing one. It’s like walking into a kitchen full of fantastic left-over entrees that are about spoil. Say you’re having guests. It may feel out of place to fill the table with a mish-mash of your culinary triumphs from earlier in the week, so it’s back to the drawing board to cook something new, though it may be a rushed and less delicious dish. I’m just saying it’s hard to look at the old school buildings knowing that they’re at risk of being torn down; knowing new schools are being built in nearby areas.

Ok, so let me back up. A summary of the housing market at large. To find a nice big sweeping claim about where we stand on a national level, I turned to Harvard’s Joint Center for Housing Studies. This is what those smarty-pants distilled from the volumes of yearly data mash:

“With employment growth strengthening, consumer spending up, and rental markets tightening, some of the ingredients for a housing recovery were taking shape in early 2011. Yet in the first quarter of the year, new home sales plumbed record lows, existing sales remained in a slump, and home prices slid. Tight underwriting requirements, on top of uncertainty about the direction of home prices, continue to dampen home buying activity. The weakness of demand is slowing the absorption of vacant properties for sale, hindering the recovery.”

Beyond their executive summary, I found some facts that shed light on the ‘weakness of demand’ they mention there at the end.

“Annual household growth over 2005-2010 was more than 400,000 lower than the rate in the first half of the decade according to the Current Population Survey.  This slowdown meant that 2 million fewer households formed in the last five years than if the pace in the first half of the 2000s had continued.”

Some of that can be attributed to reduced immigration, and the fact that total immigrant non-citizen households haven’t increased since 2007 as  a result of the recession. Additionally, the kids of my generation (20-somethings) are tending to remain renters for longer, or live with their parents until they’re older.  The reluctance of potential low-end home buyers to invest in homes is evident in cities like Atlanta, where Harvard’s study found that, “prices of high-end homes were down 23 percent from the peak to December 2010, but those for low-end homes plunged a staggering 50 percent.”

To focus specifically on Cincinnati, and in the spirit of skimming the surface of the complex question of ‘why so cheap?’, I thought it would be fun to poke around online and see what kinds of juicy statistical tidbits I could round up. We all love stories through numbers, right? I found the following info through the “State of the Cities Data System” branch of the HUD.gov website. These numbers are dated, because most of them summarize only through 2003 or earlier, so the effects of the recession are not really there yet. But interesting to get a sense of Cincy’s disadvantaged position even before the market started to suffer:

  • Percentage of employed workers in the Manufacturing Industry 1970: 28% 2000: 13.2% (whoa.)
  • Poverty Rate 1993: 26.7% 2003: 21.2%
  • Percentage of Cincinnati home values in the bottom fifth of the nation’s average home price 1970: 10.8% 2000: 24.4%
  • Median Home Value 1970: $90,852 2000: $115,865 (adjusted to 2009 dollars)
  • Decrease in Labor Force 1970-2000: 11.6%
  • Unemployment 2000: 7.3% 1970: 4.8%

According to neighborhoodscout.com, “Cincinnati’s appreciation rate notably has been below the national average for the last ten years. The average annual home appreciation rate in Cincinnati during the period has been just 2.42%, which is lower than 80% of US communities.”

Lastly, zooming in even further in our analysis, we can look at Mark’s neighborhood: Camp Washington a little chunk of Cincinnati 5 blocks wide and about 20 long, nestled between the university area and I-75 on the East and the train yards to the West. The manufacturing and slaughterhouse industries established the neighborhood while working class homes were gradually added, becoming nestling between industrial spaces. Again looking to neighborhoodscout.com, “Vacant apartments or homes are a major fact of life in Camp Washington. The current real estate vacancy rate is 23.7%… [The] median real estate prices are $62,720, which is less expensive than 93.1% of Ohio neighborhoods.” Sobering numbers.

In sum, this is how you get a $5ooo chili (Cincinnati is the chili capitol of the world). Start a broth by simmering a helping of ‘national housing market recession’, add in some ‘regional economic restructuring’ and ‘urban flight’ as your base, season with ‘struggling local neighborhood’ and garnish with ‘holy shit, that house is going to need a lot of work’.

And against this opposition is Mark’s (at times) insano drive to create a beautiful home, his belief in this town and the richness of its architectural history, and his own special batch of optimism. And at the risk of sounding like a MasterCard commerical, those are the hidden ingredients that make the aforementioned $5000 chili obtainable. Without them, it just wouldn’t work (priceless). Pretty inspiring, right?

Mark’s version:

First I need to give Sam kudos…  He definitely deserves an A+

Now my turn…

The house in da hoooooooood!!!!!

Camp Washington is economically depressed BUT is an endearing neighborhood with some hidden gems… such as the street that I live on.  Being surrounded by industry, it is separated from other residential streets giving it a secluded and insular feel. Many of the residents own their homes and have lived here for a long time. There is little crime to speak of. Its access to the highway, cool neighborhoods, and downtown is unbeatable. In short… I love this place!

You can see from the home-made sign the asking price was $15,000. How did I get it for only a third of that? My first viewing of the house was with James and he told me of the arrangement with Walt. They agreed that Walt would pay him $3,000 and make repairs to the house to prepare it for resale. Since his means were limited, Walt wasn’t able to do any work and wanted to unload the place, hoping to make a quick profit. My offer of $5,000 was reasonable, considering how much work the house needed, and given its location in this area of town. If it wasn’t my street, I probably wouldn’t have pursued it– I tend to do smaller projects. But in the end it was a good deal for everyone; James was able to get the money he wanted, Walt made a few grand from my purchase and from scrapping the metal radiators (another grand). I got a rocking cool place with a commute to envy (four houses down from my place)!

5 Responses to Why So Cheap?

  1. John Wilmes says:

    This is an exciting interesting inspiring blog that will attract more Marks to the urban core of Cincy. A city desperately looking for such talent to save it. You go Mark! One house at a time!

  2. livingasmichael says:

    I have always been either surprised or at least inspired by mark’s experienced vision of that which holds hidden potential.

  3. Les Young says:

    Be sure to let me know when the opening party is. I’ll try to get down next time I’m in Ohio.

  4. Carole Dahlquist says:

    Fascinating, Mark. Thanks for posting this blog. In the process, it looks like you not only rehabbed a house, but also a person — Wait. Good work!

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