WSJ 24/7 Article: 10 Worst Housing Markets - detroit is #4

[Packman41]

Shown below is an article from WSJ 24/7. It ranks the 10 worst housing markets in America and Detroit ranks #4. It predicts that housing values in the 6 county area around Detroit will fall 13.4% from 2Q 2011 to 2Q 2012. Another prediction is that we will hit bottom in 2Q 2012 – if there is any good news here it is that four other areas will not hit bottom until after that.

Since this is based on the Case Shiller Housing Index we will be able to track this to see if their predictions are correct. At the end of 2Q 2011 Detroit’s CSI was 65.52, this means our housing values are 65.52% of what they were in January 2000. Predicting a 13.4% drop means we could have a CSI of 56.74 by 2Q 2012.

To put things in perspective the next two closest cities to us [[at 2Q 2011) were Las Vegas and Cleveland at a CSI of about 97. The area with the highest CSI is Washington, DC at 177.84 and the 20 Largest City average CSI is 137.66. Look at the CSI chart here to see just how uniquely Detroit is positioned: http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecure Document&blobheadervalue2=inline%3B+filename%3Ddow nload.xls&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fexcel&b lobkey=id&blobheadername1=content-type&blobwhere=1245214507048&blobheadervalue3=abin ary%3B+charset%3DUTF-8&blobnocache=true

So, if we hit bottom in 2Q 2012 with a CSI of 56.74, then how long will it take to get back to a CSI of 100 or the same housing values we had in 2000?

Well, it depends on the rate of appreciation you assume. Detroit had its best CSI in December 2005 at 127.05. So from the January 2000 CSI of 100 there was an average annual appreciation of 4.05%. Let’s assume that the appreciation switch is turned on at the end of 2Q 2013 at the same rate of 4.05%. Then it will take 169 months or 14.08 years to get back to 2000 home values.

The edited WSJ 24/7 article is below:

http://xfinity.comcast.net/slideshow/finance-10marketstocollapse/?cid=hero_media

The 10 Housing Markets That Could Collapse This Year

The real estate market is already in the deepest depression in modern U.S. history. If you think it can’t get any worse, think again. In several cities, the real estate market is about to drop even more. Home values in many of those cities, such as Las Vegas, have already collapsed as unemployment has shot higher. And with no hope of quick recovery, housing prices are expected to continue to fall. 24/7 Wall St. identified ten housing markets that are expected to drop by at least another 10 percent by 2012.

10. Ft. Lauderdale, FLExpected price drop: -11.1 percent Lowest level: Q2 2013

9. Bethesda, MDExpected price drop: -11.5 percent Lowest level: Q3 2012

8. Salinas, CAExpected price drop: -11.8 percent Lowest level: Q2 2012

7. El Centro, CAExpected price drop: -12.1 percent Lowest level: Q1 2012

6. Miami, FLExpected price drop: -13.0 percent Lowest level: Q2 2013

5. Merced, CAExpected price drop: -13.2 percent Lowest level: Q2 2012

4. Detroit, MIExpected price drop: -13.4 percent Lowest level: Q2 2012

Since the recession began, Detroit has been the horror story for plummeting home values, foreclosures, vacancies, and unemployment. To date, Detroit’s median home price of $42,000 is the lowest among all 385 major metropolitan areas. While the motor city has been languishing for some time before the recession, the drop in home value has been more steady, as opposed to the rapid drop-offs seen in cities in Florida, Nevada, and California. Detroit’s already record-low values are expected to drop an additional 13.4 percent by the first quarter of 2012.

3. Las Vegas, NVExpected price drop: -13.9 percent Lowest level: Q4 2012

2. Riverside, CAExpected price drop: -15.6 percent Lowest level: Q1 2012

1. Naples, FLExpected price drop: -16.6 percent Lowest level: Q4 2012

Methodology: We used data from the Fiserv Case-Shiller Indexes, which track real estate activity in 380 cities. We selected those that are forecast to have the largest percent price drop between the first quarter of this year and the first quarter of next. We added several other pieces of information to our city-by-city information, including June unemployment levels, median household income, and when home prices are expected to reach their troughs in each market.

Median household income in these cities tended to be near the U.S. median, and in some cases well below. We expected to find high unemployment in these cities. This turned out to be the case. In all but one of the cities we examined, unemployment was well above the national average. The rate was over 18 percent in two of the cities. This link between unemployment and expected future drop in home prices shows again how insidious the housing price problem is.

[iheartthed]

Wallst247.com is not affiliated with the Wall Street Journal.

[BrushStart]

Wanna know what all these cities have in common?

SPRAWL, SPRAWL, SPRAWL, and more SPRAWL.

[Goose]

Wanna know what all these cities have in common?

SPRAWL, SPRAWL, SPRAWL, and more SPRAWL.

naples, FL....??? sprawl?

[bartock]

naples, FL....??? sprawl?

I was thinking the same thing about most of those cities. Miami and Las Vegas were both considered to be "Manhattanizing" before the real estate bust. These areas - with the exception of Detroit - were GROWING UP. Detroit, with a declining population was still GROWING OUT.

[BrushStart]

I was thinking the same thing about most of those cities. Miami and Las Vegas were both considered to be "Manhattanizing" before the real estate bust. These areas - with the exception of Detroit - were GROWING UP. Detroit, with a declining population was still GROWING OUT.

Las Vegas and Miami building up? Go off the strip or away from the water and these cities are poster-childs for sprawl. They built some auto-centric condo highrises that are mostly vacant, 98% of those two cities are examples of extreme sprawl.

I think the pattern of development that sprawl inevitably leads to has caused all 10 of those cities above to have overbuilt in the extreme. Home prices will not stabilize until some of the empty inventory is taken out of the market through condemnation and demolition. At the same time, homebuilders want to add more inventory as we speak.

[iheartthed]

Las Vegas has not hardly "Manhattanized". You could make the argument that Miami was at least building residential towers, but even those were almost completely car dependent islands. Again, not hardly Manhattan.

[bartock]

South Florida Metro has doubled in population over the past 25 years and is made up of several clusters of cities, such as West Palm, Lauderdale, etc. Those cities have high population densities.

Smaller, coastal cities like Naples are hardly sprawling. I am not sure what constitutes "sprawl" in a region such as El Centro, CA, with all of it's 30,000 people [[and 30% unemployment, which probably has a little more to do with it) and Merced with all of 75,000 people. Riverside...is that Riverside's sprawl or LA's sprawl? Admittedly, of the bunch Las Vegas are probably the closest examples of "sprawl," but Detroit's sprawl is hardly the same, and the struggles of these places have much more to do with economics than sprawl.

I didn't say Vegas or Miami were Manhattan. Manhattanization is a term. Look it up.

[Gannon]

Las Vegas and Miami had a good collection of second- and third-homes, too.

I worked at a few of the high rises in Miami...they were quite ridiculously priced...but everyone figured the exclusivity would price out the riff-raff. Heh. Each of them were bought as vacation homes, that would eventually be for retirement.

None of the home-owners I knew in Las Vegas proper lived there year-'round. I think Ray1936 is one of the few people I have contact with that retired there.

I'm REALLY surprised to not find Phoenix on this list...

[Jowlska]

Seems like a good time to buy in Detroit if you find the right deal. I would rather have this housing market for my broke ass than a highly rated one, because I would not be able to afford anything in a "good" market.

[iheartthed]

I'm REALLY surprised to not find Phoenix on this list...

I was surprised by that too. I'm guessing that it just missed the cut since a lot of space was taken up by "markets" that were really just sub-markets of places already on the list [[e.g. Ft. Lauderdale/Miami).

[BrushStart]

South Florida Metro has doubled in population over the past 25 years and is made up of several clusters of cities, such as West Palm, Lauderdale, etc. Those cities have high population densities.

Smaller, coastal cities like Naples are hardly sprawling. I am not sure what constitutes "sprawl" in a region such as El Centro, CA, with all of it's 30,000 people [[and 30% unemployment, which probably has a little more to do with it) and Merced with all of 75,000 people. Riverside...is that Riverside's sprawl or LA's sprawl? Admittedly, of the bunch Las Vegas are probably the closest examples of "sprawl," but Detroit's sprawl is hardly the same, and the struggles of these places have much more to do with economics than sprawl.

I didn't say Vegas or Miami were Manhattan. Manhattanization is a term. Look it up.

Economics is definitely part of it, but it does not entirely explain the housing issue.

"Sprawl" type planning encourages extreme overbuilding. Even if a few of these cities were so-called "Manhattanizing," it was too little too late. Those cities all had developers building low density, new housing at a rapid pace on cheap rural land.

I don't care about any of the very real consequences, sprawl development will always lead to [[1) an eventual overabundance of housing, [[2) lower home values, and [[3) older neighborhoods becoming blighted. There is no way around it.

IMPORTANTLY, not one urban city is on that list, except Detroit, which is a unique situation based on severe urban flight. Sunbelt cities cannot sprawl any further without continuous and constant population growth. If they do continue to sprawl, blight in older neighborhoods will absolutely occur as the housing stock grows and home values drop. Vegas is already in deep decline.

You simply cannot continue to build new housing when the population is stagnant. If you do, you will definitely have blight. It is also the biggest waste of resources. The government continues to subsidize new infrastructure for new sprawl developments while still being on the hook for older developments.

Sprawl is a complete failure. The people who live in sprawl regions are paying through the nose with declining home values.

[Packman41]

No, “sprawl” is not the reason. Several cities on the list do not suffer from sprawl, such as Naples, FL. And there are plenty of cities not on the list that may have sprawl. Overbuilding, maybe, but not sprawl. It is a supply/demand imbalance problem.

The author’s saw the poor housing markets in these 10 cities was due to:
· High unemployment
· Lower median income

The answer is jobs, and better paying jobs. So what will it take to bring better paying jobs to the area?

People are fleeing this city and state chasing jobs and we need to turn that around.

Then, maybe we’ll see people rent $5,000 a month apartments in The Broderick Bldg.