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

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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.