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In Detroit, Houses Cheaper Than Cars

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Job losses, a moribund real estate market and rising home-financing costs have made the Motor City the national leader in foreclosures.

By Reuters

With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader economy.

The rising cost of mortgage financing for Detroit borrowers with weak credit has added to the downdraft from a slumping local economy to send home values plunging faster than many investors anticipated a few months ago

At a weekend sale of about 300 Detroit-area houses by Texas auction firm Hudson & Marshall, the mood was marked more by fear than greed.

"These people are investors, and they know the difficulty of finding financing. They know the difficulty of finding good tenants. They're cautious," said real estate agent Stanley Wegrzynowicz, who attended the auction.

The city, which has lost more than half its population in the past 30 years and struggled with rising crime, failing schools and other social problems, largely missed out on the housing boom that swept much of the country in recent years.

Prices have gained less than 2% per year in the five years since 2001, when the auto industry entered a renewed slump.

'You have to wonder how low it's going to get'

Steve Izairi, 32, who refinanced his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

A boarded-up bungalow on the city's west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.

"You can't buy a used car for that," said Izairi. "It's a gamble, and you have to wonder how low it's going to get."

Detroit, where unemployment runs near 14% and a third of the population lives in poverty, leads the nation in new foreclosure filings, according to tracking service RealtyTrac.

With large swaths of the city now abandoned, banks are reclaiming and reselling Detroit homes through foreclosures at seven times the national rate.

Michigan was the only state to see home prices fall in 2006. The national average price rose almost 6% but prices slipped 0.4% here, according to a federal study.

The state's jobless rate of 7.1% in January was also the second highest in the nation, behind only Mississippi.

Handed over deposits with a wince

Mayor Kwame Kilpatrick was greeted with applause when he announced last week that two condominiums in the city's revitalizing downtown sold for over $1 million each.

But investors, including some from out of state, proved far more cautious at Sunday's auction.

In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit's boom days with an ornate stone entrance fetched just $135,000.

Dave Webb, principal at Hudson & Marshall, said Michigan had become a "heavy volume" market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.

"These people that are buying have got to look at holding on for five to seven years," he said. "The key is holding power."

Even with the steep discounts on Detroit-area properties, some buyers handed over their deposits with a wince.

"I'm not sure it's congratulations," said Kirk Neal, a 55-year-old auto body shop worker who bought a ranch in the suburb of Oak Park for $34,000. "My wife is going to kill me."

Real estate agent Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.

"Once we've seen the last person leave Michigan, then I think we'll be able to say we've seen the bottom," he said.

This article was reported and written by Kevin Krolicki for Reuters.

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I am starting to think that the Great Crash will take house prices BELOW the previous bottom before anything moves up again. We could see some hair-raising drops well beyond even the most bearish views to date.

A new era where homes are seen as places to live at about 2.5 times average income. Let's see, that would make the average house price in the UK somewhere around 90k or so? A drop of 110K. No, that's too optimistic....

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I am starting to think that the Great Crash will take house prices BELOW the previous bottom before anything moves up again. We could see some hair-raising drops well beyond even the most bearish views to date.

A new era where homes are seen as places to live at about 2.5 times average income. Let's see, that would make the average house price in the UK somewhere around 90k or so? A drop of 110K. No, that's too optimistic....

It's possible RB. The crash could be more devastating than any seen before as the bubble was bigger than that seen previously PLUS the credit crunch will make any recovery more problematic.

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  • 292 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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