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Cleveland Disassembles Itself in Face of Property-Value Plunge

Demolition contractor Craig Crawford has a foundation-level view of Cleveland’s housing market, and he sees a lot of unbuilding ahead.

Contractors who cashed in on the boom are now tearing down buildings, Crawford said in an interview amid the loose bricks and splintered wood that once composed the Eddy Chateau apartments. He hopes his business will thrive with a reappraisal of all Cuyahoga County properties next year and a push to tear down vacant homes to improve neighborhoods and stabilize values, he said.

“Anybody with an excavator is now a demolition contractor,” Crawford, 46, a co-owner of C&J Contractors, said in front of his backhoe as he razed the complex on the city’s east side. “Excavators that were digging basements two years ago are now knocking down houses.”

As much as U.S. cities such as Cleveland suffered during the recession, the full impact won’t be felt until periodic reappraisals reflect the decline in market values since the housing bubble burst in 2007, said Jacqueline Byers, research director for National Association of Counties. Thirty-six percent of counties in a survey released Oct. 20 blamed declining property-tax revenue for budget shortfalls, forcing them to reduce services or raise taxes, Byers said.

“Some counties all through this downturn have been living with assessments that were prerecession, simply because of the cycle,” Byers said in a telephone interview from Washington. “When they suddenly see an appraisal that is actually bringing their house in line with fair-market value of that house in that community currently, people are not happy.”

Fed’s Warning

U.S. counties reappraise property values at different times, depending on the state, to determine how much in property taxes are assessed on each parcel to help pay for education and other government services.

Cuyahoga County, Ohio’s most populous at 1.3 million, is revaluing its 550,000 parcels in Cleveland and countywide in 2012. The last full reappraisal was six years ago, and with the current estimated value of homes falling below the county’s 2010 forecasts, values may be 45 percent lower, according to a Dec. 6 report by Federal Reserve Bank of Cleveland.

Wade Steen, Cuyahoga County’s fiscal officer, said he doesn’t think values will drop as much as the report suggests. The study projected a fall of 11 percent to 18 percent after next year’s reappraisal. The decline may be 38 percent to 45 percent in Cleveland and 26 percent to 30 percent in inner-ring suburbs, the report said.

‘There’s No Way’

Steen questioned the conclusions because the county lowered its residential values 7.7 percent to $20.4 billion in 2009 and researchers used data from sheriff’s sales and transactions between relatives that are below market value.

“I don’t see any way we’re going to be close to what they’re saying the decline in value is, especially within the city of Cleveland,” Steen said in a telephone interview. “There’s no way that values declined that much.”

Still, many homes are abandoned with no value, Thomas J. Fitzpatrick IV, a Fed economist who co-wrote the report, said in a telephone interview. Also, even after the reappraisal, residents can challenge their valuations, he said.

With at least seven vacant houses on his street in University Heights, a Cleveland suburb, Robert Hatcher said he suspects he’s paying more in taxes than his home is worth. He worries that the reappraisal won’t change that.

Disappearing Residents

“Market values have plummeted,” Hatcher, 65, a retired social worker, said in a telephone interview. “Every time we look up, there’s another empty house on the street.”

The Cuyahoga County Land Bank is trying to help, buying a vacant property on Hatcher’s street in July 2010 for $28,432, spending $73,530 to renovate it and listing it for sale four months ago at $105,000, Bernard Moore, a housing specialist for the group, said at the house last week. There have been no buyers so far, he said.

Homes sales in the region are on “a little bit more of an upward trend,” at least in parts of the county, Joanne Zettl, chairwoman-elect of the Cleveland Area Board of Realtors, said in a telephone interview.

Seventy economists surveyed by Bloomberg gave a median estimate of 5.06 million U.S. existing home sales in November, up from 4.97 million the previous month.

U.S. home prices through September are down 31 percent from a July 2006 peak, based on the S&P/Case-Shiller index of 20 U.S. cities, including the greater Cleveland area. Declining property values have wiped out more than $4 trillion in real estate wealth over four years, according to the Fed.

Surviving the Plunge

Only about 7 percent of Cleveland’s budget comes from property taxes, and with income-tax collections exceeding projections by 4 percent this year, a property-value decline shouldn’t be a major blow for the city, said Finance Director Sharon Dumas. School districts that are more dependent on property taxes could feel a sharper pinch, she said.

The impact of foreclosures on Ohio and neighboring Michigan is analogous to what Hurricane Katrina did to the Gulf Coast, said Jim Rokakis, a former Cuyahoga treasurer who directs the nonprofit Thriving Communities Institute in Cleveland.

Zombie Houses

Rokakis estimated there are 70,000 residential properties in Ohio, including about 10,000 in Cleveland, that are “rotting corpses” that should be demolished to protect occupied homes around them.

“If you don’t find a way to clean and green these properties, you’re dooming what’s left of these cities,” Rokakis said. He wants more federal money allocated for demolition because cities don’t have adequate funding for it, he said.

Crawford, the part owner of the excavating company that his father started, said he began working full time after graduating from high school. About half his work used to be site preparation for commercial construction, he said.

These days, demolition is virtually everything, and it will “probably be the bulk of the work for a while,” he said.

On Catherine Williams’ street in East Cleveland, the city where oil baron John D. Rockefeller once lived, there is a vacant lot on one side of her two-story home, an empty house on the other and two vacant apartment buildings across the street slated for demolition.

Watching contractors tear down a house up the street, Williams, 75, said she would move if she could get a fair price. The neighborhood was different when she moved in 42 years ago, she said.

“Everyone would be out on Saturday morning, cleaning up their property,” Williams said. “You don’t see that now, do you?”

To contact the reporter on this story: Mark Niquette in Cleveland at mniquette@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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