In metro Detroit, home prices lowest since '94; owners feel sting

BY GRETA GUEST
DETROIT FREE PRESS BUSINESS WRITER


The last time home prices in metro Detroit were this low, it was the summer of 1994, and Wayne Fontes was the Detroit Lions coach.

Southeast Michigan is far from alone in having depressed home prices, but its descent has been more dramatic. Home prices in metro Detroit have dropped an average of 48% from their December 2005 peak. They're down 34% from 2000.

Those in the market to sell their homes know that all too well. Anand Gandhi, 36, a Ford engineer, said he realizes he will have to take a loss on his West Bloomfield home. He purchased the home in 2004 for $438,925 and listed it for $350,000. The 3,200-square-foot home boasts four bedrooms, three full baths and two half bathrooms and lots of extras, such as cherrywood kitchen cabinets.


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I bought my Sterling Heights condo in 1999 for $105k which was a full price offer. The seller accepted my offer even though he had a higher offer because I was able to close without contingency.

I put it on the market in early 2007 at $135k and soon lowered it to $130k. I got an offer for about $120k and was aghast, but my realtor saw the signs on the wall and urged me to take it. I did.

Now they're going for $70-80k, so I believe every word of this article.

That's what happens when personal income stays flat for thirty years plus.

What makes housing prices rise is scarcity, and there is no scarcity of housing in metro Detroit. What makes housing prices fall is a surplus of housing, and that does indeed exist. There is really nothing surprising going on here.

I think my house in SW Detroit would sell for about $15,000. Okay, because I bought if for $19,000 in 1983 and have lived in it very inexpensively for nearly 30 years. But it has a beautiful big Martha Stewart-like kitchen with built-in appliances, a classic bathroom that could be in a magazine, two full baths and a half-bath.

It was never more than a working man's Queen Anne and the neighborhood is getting meaner and meaner [[and more abandoned every day) but its sad, nevertheless that in 30 years this house only a few miles from downtown never gained a penny in value.

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Originally Posted by SWMAP

I think my house in SW Detroit would sell for about $15,000. Okay, because I bought if for $19,000 in 1983 and have lived in it very inexpensively for nearly 30 years. But it has a beautiful big Martha Stewart-like kitchen with built-in appliances, a classic bathroom that could be in a magazine, two full baths and a half-bath.

It was never more than a working man's Queen Anne and the neighborhood is getting meaner and meaner [[and more abandoned every day) but its sad, nevertheless that in 30 years this house only a few miles from downtown never gained a penny in value.

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Actually, if what you say is correct, your house's value decreased pretty substantially. According to the inflation calculator, $19,000 in 1983 would be worth over $40,000 today. So if your house is still only selling for $19,000 in 2011 then it effectively depreciated in value [[by more than 50%).

Yeah, it can be depressing. My parents bought in 1964 for $18 k. It rose in value to $146K then dropped to next to nothing. But be Pollyanna, she has lived here for free barring taxes for 36 yrs.

In 2004, I bought a home in Rochester Hills for $328,000. Lost my job, sold the house in 2008 for $220,000. I see the house listed on Zillow.com at an estimate worth of $210,000 now. Wow.

I'm not sure that the housing market here or nationally will ever recover without some major coercive policies or an influx of immigration. There simply aren't enough of my Generation X or the Millennials who are going to be able to afford to buy these houses, let alone want the albatross for ourselves. We're marrying later and having smaller families. If people want to sell their houses now or within the next 10-20 years at a profit, you had better hope for a general amnesty or some rather creative lending.

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Originally Posted by English

I'm not sure that the housing market here or nationally will ever recover without some major coercive policies or an influx of immigration. There simply aren't enough of my Generation X or the Millennials who are going to be able to afford to buy these houses, let alone want the albatross for ourselves. We're marrying later and having smaller families. If people want to sell their houses now or within the next 10-20 years at a profit, you had better hope for a general amnesty or some rather creative lending.

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Wait..huh? Housing prices have fallen to incredibly low levels. I would agree with you if this were 2005...and if we're talking California..... but affordability here and now is not the problem. The problem around here is a lack of job security to make the investment worthwhile. I mean heck 100k gets you a great place virtually anywhere in SeM. The one thing this area does not lack is cheap housing options.

English, you are still often posting that you are moving back here. I think you are way to idealistic and naive. I f you lived here you would know that police work is very poor and getting poorer. In our neighborhood we have the distnct impression that we are on our own as crime, vandalism and arson soars. I was at a meeting last week with representatives of our police district and they insisted that arson was the result of suburnites burning homes and buildings for insurance. Talk about deflecting! The arson we are seeing is the result on anarchy and vandalism because the houses/buildings going up are not insured, no taxes have been paid for years and the properties are in the Wayne county inventory. But the police have no manpower to police for this pure vandalism so they deny it and infer a suburban connection!

There is no EMS service if you get suddenly ill or have an accident.

There is no reliable recreation for kids.

I think that most of the kids that are left are pretty much raising themselves.

and its not getting better at all. its on a clear downward trajectory.

The city is still denying. The city is afraid of farms because they might make Detroit citizens look like sharecroppers. Chares Pugh might get elected as mayor.

Really, I "love" Detroit as much as the next guy. In fact my ancestors came here with Cadillac and are documented in the history of Detroit's Ribbon Farm families - but its over for Detroit. young professional people should face facts now rather than later when they might have foolishly put money into a clearly dying enterprise.

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Originally Posted by Mr. Houdini

In 2004, I bought a home in Rochester Hills for $328,000. Lost my job, sold the house in 2008 for $220,000. I see the house listed on Zillow.com at an estimate worth of $210,000 now. Wow.

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Friends bought a home in Livonia in 1994 for $126,000. Sold it in 2005 for $186,000. They sold when it was a seller's market!!! Actually had a bidding war then! Now, however, the house across the street from it [[exact layout, updates, etc) just listed for $97,000.

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Originally Posted by mwilbert

What makes housing prices rise is scarcity, and there is no scarcity of housing in metro Detroit. What makes housing prices fall is a surplus of housing, and that does indeed exist. There is really nothing surprising going on here.

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Maybe in a normally functioning market, but "scarcity" was not driving the housing boom, nor is over supply totally responsible for the bust.

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Originally Posted by bailey

Wait..huh? Housing prices have fallen to incredibly low levels. I would agree with you if this were 2005...and if we're talking California..... but affordability here and now is not the problem. The problem around here is a lack of job security to make the investment worthwhile. I mean heck 100k gets you a great place virtually anywhere in SeM. The one thing this area does not lack is cheap housing options.

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Bailey, even before the crash, there were fewer of us, and our savings and job prospects were worse than that for the Boomers. After the crash, how many young singles, couples, and families have the income, the savings, and the credit for a home purchase? Who aren't already underwater on a mortgage? Who can still turn to Mommy and Daddy for help despite the historic reduction in Boomer assets and wealth post-2008?

This is not a blip. This is the new reality.

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Originally Posted by SWMAP

English, you are still often posting that you are moving back here. I think you are way to idealistic and naive. I f you lived here you would know that police work is very poor and getting poorer. In our neighborhood we have the distnct impression that we are on our own as crime, vandalism and arson soars. I was at a meeting last week with representatives of our police district and they insisted that arson was the result of suburnites burning homes and buildings for insurance. Talk about deflecting! The arson we are seeing is the result on anarchy and vandalism because the houses/buildings going up are not insured, no taxes have been paid for years and the properties are in the Wayne county inventory. But the police have no manpower to police for this pure vandalism so they deny it and infer a suburban connection!

There is no EMS service if you get suddenly ill or have an accident.

There is no reliable recreation for kids.

I think that most of the kids that are left are pretty much raising themselves.

and its not getting better at all. its on a clear downward trajectory.

The city is still denying. The city is afraid of farms because they might make Detroit citizens look like sharecroppers. Chares Pugh might get elected as mayor.

Really, I "love" Detroit as much as the next guy. In fact my ancestors came here with Cadillac and are documented in the history of Detroit's Ribbon Farm families - but its over for Detroit. young professional people should face facts now rather than later when they might have foolishly put money into a clearly dying enterprise.

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I realize all that, so I'm not going back to my 'hood. You couldn't pay me to go back there right now. I am going into a gated and patrolled community in the CBD, my place will be alarmed, and [[not that it is anyone here's business) I will be renting. I don't have kids. EMS is my only concern, but it's a risk I will take. If it's non life threatening, I will call a friend or a cab.

Detroit not only needs me, but tens of thousands of people like me if it's to have a fighting chance. If no one is the first to move back, SWMAP, you might as well turn out the lights now.

You'd be surprised at how many WSU faculty and administrators live in the city. Our new dean just bought a house in one of the premier neighborhoods. My colleague just purchased in Corktown. The provost lives in my new neighborhood. Honestly, this city had better hope many others make our choices.

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Originally Posted by English

Bailey, even before the crash, there were fewer of us, and our savings and job prospects were worse than that for the Boomers. After the crash, how many young singles, couples, and families have the income, the savings, and the credit for a home purchase? Who aren't already underwater on a mortgage? Who can still turn to Mommy and Daddy for help despite the historic reduction in Boomer assets and wealth post-2008?

This is not a blip. This is the new reality.

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Well, the new reality is going to resemble the pre-bubble reality in that 22 yr olds are not going to be buying 3500 sqrr foot houses with 110% financing and no documentation on earnings. As well as actually checking for things like the ability to pay the mortgage, there is no longer going to be the ability to use one's home as an ATM. The house buying population is going to revert back to the safe bet....the 20% down,30 yr fixed set with good credit that is fine with a few percent a year in appreciation.

Working in everyone's favor is that in the new reality houses are selling for 66% [[or more) less than they once were. And yes supply has outpaced demand here...as evidenced by our much smaller housing bubble here, but It's all pretty relative. If you don't have a house to sell and you are looking to buy in this market, I can not imagine a better time.

I see what you are saying, Bailey. But the job market nationally [[and especially here) will take a while to recover, and now you have many young professionals who are unable or unwilling to purchase. I doubt that those who who purchased homes in the last few years before the crash will ever recoup their investment.

I cannot stress enough how much the 21st century job market is affecting my generation's financial stability and our ability to accumulate wealth.

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Maybe in a normally functioning market, but "scarcity" was not driving the housing boom, nor is over supply totally responsible for the bust.

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Of course there are booms and busts, but the reason a house isn't worth anymore in 2011 than it was in 1983 isn't because of the housing bust. It is because there have been no supply constraints and limited demand.

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I cannot stress enough how much the 21st century job market is affecting my generation's financial stability and our ability to accumulate wealth.

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This is true, but at least younger people will be less likely to believe that overspending on housing is the way to retirement security. Not that it never worked, but it is a pretty risky approach.

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Originally Posted by English

I see what you are saying, Bailey. But the job market nationally [[and especially here) will take a while to recover, and now you have many young professionals who are unable or unwilling to purchase. I doubt that those who who purchased homes in the last few years before the crash will ever recoup their investment.

I cannot stress enough how much the 21st century job market is affecting my generation's financial stability and our ability to accumulate wealth.

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Hey I'm solidly Gen X and I get where you're coming from. However, I think you're being over dramatic. My generation and the y's and millennials are, as a collective group...financially retarded. I am a pathological saver...it's just how I was raised. Living within one's means is not a lesson learned by the majority of our cohorts so permit me some schadenfreude in that regard. Frankly I don't think it's anymore difficult to earn and build wealth now than it was for our parents [[if you are employed...we are talking young professionals here), we're just unaccustomed to it taking more than one year out of grad school to be able to swing a 350k house/loft/condo and leased high end car. There was once such a thing as a starter home. The market is adjusting. It will eventually normalize [[probably a longer process around here with so much oversupply), but it's going to normalize to something that most of today's young professionals have not seen before as they were brought up to expect 15% year to year appreciation and a media room in every basement.

I understand where you're coming from. I am also pretty thrifty, and... well, I'll just leave it at that. I'm already too self-disclosing on DYes.

We will see what comes of these long-term trends. For the sake of my friends who are invested in metro Detroit communities through home ownership, I hope that things turn around soon.

I think we will see markets all over the country [[and even within states) diverge widely. Where I currently live in Massachusetts, the market has been stable for the last 3 years, and is only now just starting to barely tick up. In some further out suburbs, the market took such a hit that it will take quite a while for a meaningful recovery to happen.

The problem in the Detroit real estate market is definitely a supply and demand problem. There is an oversupply of housing and low demand. The oversupply comes from the fact that the city lost 25% of its population in the past 10 years, and almost another million people in the decades before that. There is low demand because people are not moving to the city, because people do not want to buy a house that may decrease in value, and because risk-averse people are unlikely to buy houses in "transition" areas. All these things push down property values, and it is a major problem. For that reason, spurring demand in the long term is crucial, because that will naturally cause property values to rise. [[The oversupply will be taken care of by scrappers and firebirds, sadly.)

On the other hand, in other markets, like Ann Arbor, a recovery may be right around the corner in the next few years, if not already. According to zillow.com, property values have risen about 15% there in the past year.

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Originally Posted by English

I'm not sure that the housing market here or nationally will ever recover without some major coercive policies or an influx of immigration. There simply aren't enough of my Generation X or the Millennials who are going to be able to afford to buy these houses, let alone want the albatross for ourselves. We're marrying later and having smaller families. If people want to sell their houses now or within the next 10-20 years at a profit, you had better hope for a general amnesty or some rather creative lending.

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Hello English:

I suggest a closer exam of the article and the Case – Shiller Index is warranted.

If you really exam the CS Index you will see how different Detroit [[actually the 6 counties comprising the MSA) is from the rest of the nation. We are VERY unique

The Case-Shiller Index is a very important tool and needs to be understood by everyone. The 20 City [[average) index number is 140.86. In other words, the average home in the 20 largest cities is worth 40.86% MORE than it was in 2000.

But Detroit is VERY different from the average – we are the WORST in the nation with an index score of 66.02. That is our homes are worth 33.98% LESS than they were in 2000.

The next closest cities to Detroit are Cleveland [[99.36), Las Vegas [[99.23) and Atlanta [[99.59). All are down by less than 1.0% off their 2000 values. Detroit is not even CLOSE to the next lowest cities. We are 33% LESS than they are!

Meanwhile, Washington, D.C. leads the nation at an index of 183.75 or home appreciation of 83.75% since 2000.

In December 2005 Detroit had its highest CS index ever at 127.05 and it has been downhill ever since. Currently, there are 7 cities on the list that went through the same market meltdown as we did but still an index score of greater than 127.05 – our best year.

Let’s see a few examples. Assume the home you bought in 2000 cost $150,000. Below is a list of what the home is worth today:

Detroit: $99,030 – a LOSS of $50,970
Cleveland, Atlanta and Las Vegas: $149,100 – a LOSS of just $900
Twenty City Average: $211,290 – a GAIN of $61,290
Washington, D.C.: $275,625 – a GAIN of $125,625

You ask, “…who can afford to buy these homes?” Well, just about anybody. We have some of the cheapest housing prices in the nation. That is what you get when supply vastly exceeds demand. And remember the demand is created by people having jobs.

So, if you want to see your home go up in value, then work to create more jobs.

Using the CS Index as a proxy, it appears that we have worked very hard to discourage job growth here.