Will home prices go up much in the next 2-3 years in the Metro Detroit area?

[Packman41]

At Wolverine:

Yes, you are correct that the year 2000 was the baseline year where the CS Index was reset to 100.

Now about your comments about Detroit vs. Cleveland. IF [[big IF) Cleveland’s home prices today are the same as Detroit’s prices, then yes, your conclusion of Detroit’s home prices in 2000 were greater than that in Cleveland. However, I am not certain that your assumption of Detroit and Cleveland home prices being equal today is correct. My guess [[I don’t have hard data) would be that Detroit and Cleveland started out with equal pricing [[per square foot) back in 2000 and today homes in Cleveland would cost a little more than here.

Regarding housing price bubble – again back to the CS Index. Detroit’s highest CS Index was 127.05 – about the same as Dallas, Cleveland and Charlotte. This is the lowest, high index of the 20 metro areas. Now, compare that to Washington at 251.07 or Miami at 278.91 or Las Vegas at 238.80 and Tampa at 238.09 – now that is a BUBBLE.

Between 2000 and 2006 inflation was a little over 17%, so at 25.7% appreciation Detroit [[relatively speaking) did not have a bubble.

And yes, there were nice starter homes in your price range back then – but quite obviously with Detroit’s prolonged economic downturn you get more bang for your buck today.

[Wolverine607]

Unless there is some sort of wholesale change in the regional economy about to happen that floods metro Detroit with new jobs, I don't see it being an issue.

I have been thinking that as well, but one thing that does concern me is it seems as if the unemployment rate is dropping in Michigan much much faster than the national average. Does that mean jobs are rapidly flooding in the region, or is it just a slowly improving job market, but nothing so rapid that would cause scary fast price increases in good starter homes in my $100K to $130K price range?

http://www.detroitnews.com/article/2...ce-August-2008

What is your opinion on this article and how fast the unemployment rate has dropped in Michigan relative to the national average and do you think I need to be concerned about home prices in my price range rapidly increasing in the next 2 years because of how fast it seems Michigan unemployment rate is dropping?

[mwilbert]

Even if unemployment continues to drop rapidly, and I wouldn't assume that, although I hope it is so, there is no likelihood of the kind of shortage of housing in the area that would produce a significant price increase. With the excess supply around, what you would actually need to see is some kind of significant population influx and I do not expect that.

There are three reasons why I would not wait to buy, none of which may apply to you.

1) Need a place to live right away. Moving costs money and is a pain, so if I needed a place I would buy.

2) Plan to borrow money to buy. I can't predict future interest rates [[I'd be very rich) but the odds are mortgage rates will be higher in a few years. If you don't plan to borrow, that might be a reason to wait, as higher rates should tend to dampen price increases.

3) Very specific tastes. If you are set on a particular very limited set of areas or housing styles, you never know what will happen--a particular area might get hot, or a particular house you like might come on the market. If you want to buy Stone Hedge, presumably this is the time to buy it, or if you are particularly interested in Lafayette Park, it looks to me as if supply is tightening there. If you are less picky, I can't imagine there is any hurry.

[Wolverine607]

Even if unemployment continues to drop rapidly, and I wouldn't assume that, although I hope it is so, there is no likelihood of the kind of shortage of housing in the area that would produce a significant price increase. With the excess supply around, what you would actually need to see is some kind of significant population influx and I do not expect that.

Well, I hope unemployment rate drops rapidly too as long as home prices do not go up. Flat home prices at today's level with 5% or lower unemployment in this area = EXCELLENCE and the way it ought to be!!!

However what worries me about unemployment rate dropping rapidly in Michigan is home prices were so much higher in the Detroit area when the unemployment rate was low around 4-6% like in 2004-2005 and even in 2000-2003.

A couple of of members posted in this thread that they do not think we had a bubble in housing prices and just had a severe collapse. Well, in 2004-2005 I do not think any good starter home in any decent or better area could be found for any less than $165K [[someone correct me if I am wrong), which IMHO meant we had a bubble because such a price was outrageously expensive IMHO.

So, if you think that the unemployment dropping fast will not make home prices go up much if at all in the next 2 years, that means we must have had a bubble because home prices were so much higher in 2004-2005 and even 2000 when we had near full employment.

Or is it different this time and a new normal and reality for the housing market that home prices will stay where they are at for a while with very little increases at most, even when/if the economy does fully recover?

Or were there many other significant contributing factors besides unmployment rate and jobs as to why home prices were so much higher [[like 35 or 40% higher) in 2004-2005 than they are now?

[Bham1982]

However what worries me about unemployment rate dropping rapidly in Michigan is home prices were so much higher in the Detroit area when the unemployment rate was low around 4-6% like in 2004-2005 and even in 2000-2003.

There were also a good 100,000+ additional residents in the region back then, as well as many thousands of fewer housing units. You currently have far more supply, and far less demand.

And the home prices of the past were the result of an unsustainable bubble inflated in part by extremely lax borrowing standards that are no longer present [[and won't be for at least a generation).

[Parkguy]

According to everything I've read, the biggest problem was that incredible amounts of money were poured into the mortgage market by foreign investors, especially German banks. The rate of return on packaged mortgage bundles was incredible, and the result was that there was a ton of money put into the system that basically HAD to go into writing mortgages. More money available, more people getting mortgages, and selling prices skyrocketed. All of this was aided by shady shenanigans in the approval and the appraisal process, and now here we are. Back in the day, a bank that gave you a mortgage expected to keep it for 30 years, so they were conservative in their approvals, and you had to have a substantial amount as a down payment, usually 20% minimum. Once they could bundle mortgages and sell them as investments, all of that went out the window. Money will not be invested in mortgage investments at anything near the rate we saw 6-7 years ago.

[Wolverine607]

And the home prices of the past were the result of an unsustainable bubble inflated in part by extremely lax borrowing standards that are no longer present [[and won't be for at least a generation).

Exactly. We did have a housing bubble here in the Metro Detroit area IMHO And you know what, so did the whole United States for the most part. The fact that starter homes in so many areas could not be had for $100K or not much more and you had them going for well north of $140K and almost $200K in many cases was outrageous and proved that the housing bubble was national in scope and was not just local to certain markets.

[Wolverine607]

How honest are all realtors regarding home prices. Especially on Trulia. I asked a question about this and 2 responses say that my worst fears may becoming true.

http://www.trulia.com/voices/Market_...2#left_content

And if you research Metro Detroit home prices on Zillow, and click on median sale price, OMG, it was so scary. 30% increase from May 2011 to May 2012.

Although right now [[at least for me anyways), I cannot get the Zillow median list price or median sales price to load. I just keeps spinning in circles when you click on them for any area. But a little over 1 week ago, I clicked on it and saw that and it freaked me out a bit.

I know that it is possible and likely that the bulk of the homes in the transaction is nicer homes in better areas. But if you click on median price per square feet which is a more reliable indicator, it said a 16% increase which is still very scary. Now not all aquare footage is equal as some areas are better than others, but still.

What is your opinion on this? Do I now need to be very worried? Or am I still ok with my price range and 1-2 year timeframe?

[mwilbert]

Median prices. whether by square foot or not, are not a good indicator, especially over a short period, because you can have big changes in the mix of houses sold from period to period, which causes large fluctuations in the median price. The 30% number you saw is essentially meaningless as a measurement of the actual value of any actual house.

I think you have nothing to worry about, but if you want estimates of housing price changes, look at the Case-Shiller or OFHEO numbers which use the sales of the same houses over time to measure price changes. They aren't perfect, but they are much better for the purpose you are interested in.

[Wolverine607]

Median prices. whether by square foot or not, are not a good indicator, especially over a short period, because you can have big changes in the mix of houses sold from period to period, which causes large fluctuations in the median price. The 30% number you saw is essentially meaningless as a measurement of the actual value of any actual house.

I think you have nothing to worry about, but if you want estimates of housing price changes, look at the Case-Shiller or OFHEO numbers which use the sales of the same houses over time to measure price changes. They aren't perfect, but they are much better for the purpose you are interested in.

Thank you so much for that info. I certainly did look at Case Shiller and take comfort in that Detroit is actually down month over month in the most recent data. It was only up barely like 1.2% or something year over year as of I think April or May 2012. And it is still below 70 at like 66.XX or something. I rememeber it being in the low 70s in the middle to late last Summer. So I think it would seem I am safe unless I see the reading get above like 77 or so?

And also, is it common for realtors [[especially ones from certain realtor organizations) to be biased on stats to try and get you to rush and buy.

I listen to 97.1 the ticket and remember hearing a commercial about I think it was Elias realty advertising about how they can sell your home for much more than asking price and talk about all the offers they can get your home to have regardless of the situation.

And the response to my questions on Trulia from Haig and he is from that company. And his responses made me the most uneasy if his opinions were indeed true. And someone from such a company advertising selling homes for higher prices, wouldn't they be much more likely to have a biased opinion?

[Packman41]

Wolverine:

There are damn few residential real estate sales people I would trust - they are only in it for the brokerage fee. Have you ever heard one of them say it in NOT the time to buy?? When times are flush they tell everyone to buy because you would miss out. When times are bad they tell everyone to buy because home prices are at record lows and interest rates will never be lower.

The REALTORS organization has a very poor record for their economic forecasts. They are widely regarded as the “Baghdad Bob” of real estate.

Do as MWILBERT said and follow the Case Shiller Index. Any serious student of real estate has it bookmarked - it is the best index and followed widely.

So let’s look at you. When you started this thread in February the metro Detroit CS index was 69.94, today it is 65.26 a loss of 6.7%. If you bought a home in February for $125,000 it would have dropped in value by $8,375. Look at the money we saved you by telling you not to buy or continuing to rent.

From April 2011 to April 2012 [[latest data) the Detroit CS index has gone from 64.47 to 65.26 – a gain of 1.2%. So on that same home of $125,000 it gained $1,500 in value. Meanwhile the inflation rate was about 2.0%, or $2,500. So, based on inflation adjusted dollars you would have lost $1,000.

BTW, the Detroit CS index last hit the lower 70’s for only 4 months around June 2010.

Nothing is going to take off very soon.

[wfwalsh]

Having grown up in Madison Heights in the '60s and '70s, I am intrigued that it's on your list. I know it in its current state only as a tourist, but you could get a little house there for well under $100,000.


I can say this for sure: "No debt" sounds romantic, but you'd be a fool to hand over the entire wad when interest rates are below 4 percent. Put enough down to avoid mortgage insurance and start devoting the rest to maxing out your retirement savings. Much better long-term plan.

[Wolverine607]

Having grown up in Madison Heights in the '60s and '70s, I am intrigued that it's on your list. I know it in its current state only as a tourist, but you could get a little house there for well under $100,000.

My list is just areas I am interested in. My price range is just a general guideline. If I can find something nice for far under $100K, great. I suppose just a maximum price would be better and I do not want to exceed that. And that max price is absolutely no more than $130K and preferably actually $120K I do not want to exceed for a move in condition home.

Based on research, it seems as if Madison Heights Ferndale, and Warren are very cheap and there are lots of decent/ maybe even very nice homes for modestly under $100K and in some cases maybe even significantly under it. Sterling Heights is far cheaper than Troy and Rochester Hills, Birmingham, or any of the Bloomfields, but more expensive than Warren, Mad. Hts, and Ferndale. Are there any areas that are bad or dangerous in Madison Heights, Ferndale, or Warren. I have heard that South Warren is possibly bad and dangerous, that Madison Heights off of 10 Mile is not good but the rest of it is fine. I do not know much about Ferndale though?

[Bham1982]

Having grown up in Madison Heights in the '60s and '70s, I am intrigued that it's on your list. I know it in its current state only as a tourist, but you could get a little house there for well under $100,000.

One could buy something decent in Madison Heights for under 50k nowadays.

That city is very, very affordable, but keep in mind the schools are quite low achieving, and Madison Heights is one of the least desirable cities in the county.

[Bham1982]

Are there any areas that are bad or dangerous in Madison Heights, Ferndale, or Warren. I have heard that South Warren is possibly bad and dangerous, that Madison Heights off of 10 Mile is not good but the rest of it is fine. I do not know much about Ferndale though?

I don't think any of these communities would qualify as "dangerous", but I would bet all have above-average crime compared to the typical metro area suburb.

Warren south of the freeway is significantly less desirable than north of the freeway. If I were to buy in Warren, I would only buy north of 696.

Ferndale has less dramatic differences between north and south, but there's no question that north of 9 Mile is more desirable than south of 9 Mile.

And Madison Heights follows the same script. Northern Madison Heights [[Lamphere schools) is more desirable than Southern Madison Heights [[Madison schools).

Are you planning on having kids in the near-term? That would be a major issue for me in any of these communities. Even if you aren't, keep in mind that school district quality is possibly the biggest factor in relative real estate values.

[Wolverine607]

I am not planning on getting married or ever having kids. I am not really concerned about the school district at all as long as the area is reasonably safe and meets the requirements I listed.

Basically, I currently have a job that is an open ended contract.I am hoping and feel confident it will turn into a permanent opportunity.

Assuming my job stays put, here are the areas that would be the most desirable to me. My job is in Rochester Hills off of Auburn Road between Crooks and Adams just to give you an idea.

Sterling Heights, Auburn Hills, Waterford, northern end of Madison heights, Clawson, Rochester Hills*, Troy*, Rochester*, Lake Orion.

Warren, Clinton Township, and Fraser seem to be a bit too much of a commute from my current job location. Royal Oak depends on the location

I put a * next to the areas that seem much more expensive and less likely to get as much bang for your buck as the other areas. The highlighted areas are most ideal for a commute based on access to the freeway and them being mostly freeway driving and within 13 miles. In one case, Auburn Hills is just really close.

Another thing that does concern me is I have been told by many in this thread that there is far less demand and far more inventory than there were back in the day where prices were extremely high.

Yet if you look at this here: http://www.deptofnumbers.com/asking-...higan/detroit/

It seems as if this month, there is slightly under 20,000 units for sale in inventory and it has been constantly declining the last few years. I have heard recently that there have been bidding wars on homes in certain areas due to the lack of inventory.

Is that something to be concerned about. How accurate is this site. Is the low inventory and the continuous decline someth9ing that could push prices up a lot? Or is there nothing to worry about.

Also, is there hard evidence that there is a big backlog of foreclosures that will be released onto the market in the next 1.5 years that will add to the inventory or at least keep it from shrinking anymore?

[Wolverine607]

I don't think any of these communities would qualify as "dangerous", but I would bet all have above-average crime compared to the typical metro area suburb.

What communities would you in your opinion qualify as dangerous Are most neighborhoods in inner city of Detroit dangerous? I have heard that there are some ok neighborhood sin the city of Detroit, but lots of bad run down ones as well. What about Pontiac? And are almost all neighborhoods in Pontiac dangerous?

[Cincinnati_Kid]

At this point, if you can pay cash for a home, go for it. The banks and mortgage companies with their stricter guidelines and monetary requirements, are making it very hard for first time buyers or anyone else to finance a home. I read somewhere the median score to be considered subprime has jumped to 670. They won't even talk to you, unless your score is 700 or better. Just a couple of years ago, 600 or lower was subprime. The rules of the game have changed even though the greedy banks and mortgage companies were primarily the blame. For a lot of people, especially those that just lost a home due to situations they couldn't control, homeownership is a distant dream now.

[Wolverine607]

Thank god I was not borne and raised on the Phoenix Metro area because the worst nightmare is already happening over there. Just look at the thread in the Phoenix section of the City Data forum site about home prices skyrocketing over there. Thank god no other Metro area in the United States has had even close to the increase Phoenix has had in the last year and prices across the board appear to be pretty flat except for Phoenix. So for now, it is just one pocket if the United States that has skyrocketed in prices Y0Y.

I have no intention of ever buying in Phoenix as I plan to stay where I am from.

However, here is what makes me worried and I just use this as a reference point to similar situations I have noticed.

Both the Metro Detroit and Metro Phoenix area had a housing bubble and then a severe drop in home prices that finally made home prices reasonable and affordable by being able to get a nice starter brick home in good condition in the $95K to $120K range. Metro Phoenix, even at its bottom was probably still a bit more expensive than Metro Detroit though. Although I think Metro Phoenix may have been more much more affordable in the years 1999-2001 than Metro Detroit. It seemed like they were the same bubble wise and unaffordable wise from 2002-2004, but from 2005-2007, Metro Phoenix housing bubble skyrocketed so high to become much worse and more unaffordable than Metro Detroit's housing bubble.

Now both markets had a bad collapse and lots of distressed properties and were buyers markets with lots to choose from. Then in the past year, the inventory in both started going down and a lack of inventory started to become more prevalent. Homes started to receive multiple offers in many cases in both areas. It seemed as if prices started to go up slightly, but not too much to be concern.

Now a year later, I see Phoenix area home prices skyrocketing across the board according to every real estate source you read including Case Shiller, Core Logic, FHA, NAR, etc... And homes there are selling so fast and receiving multiple offers way way above [[way more than 10%) asking price in the Phoenix area.

In metro Detroit, homes have been selling fast and it seems inventory has been tight [[especially of really nice move in ready houses) and many homes are receiving multiple offers, but so far there hasn't been much stories about homes selling way above asking price with the maximum being 10% above asking and the homes still selling for prices very low even lower than 3 years ago which was 2009. So it seems prices have been flat or slight gone up, but only a little tiny bit in almost all Metro Detroit areas from last year to now which is to too much to worry about yet anyways.

However, what does worry me, is could we be the next Phoenix form now until the end of 2013? The scripts are similar in terms of inventory having gone way down, homes receiving bidding wars, both had a high share of distressed properties that have come down a lot in the past year. Phoenix area had a huge increase in prices it seems across the board, where as FORTUNATELY, Metro Detroit has not!! [[Sigh of relief)

Can someone explain to me why we are different and why prices won't skyrocket here between now and the end of 2013 like they did in Phoenix between mid 2011 and mid 2012? Because my plan to buy is around mid to late 2013 a starter brick home for no more than $120K that is in good condition.A fixer upper for much less and hiring someone to fix it up as long as the total cost for the house and fixing it up does not exceed $120K, will be fine as well. Do I need to be worried and does what happened in Phoenix have any bearing on what could happen in the Detroit area being that both were Metro areas that were affordable after the crash and were not affordable before the crash?

[mwilbert]

No offense, but I think you worry too much. Year-over-year appreciation in Phoenix according to the June Case-Shiller numbers [[which are actually for April, I think, because of delays in reporting) was a little over 6%. That isn't nothing, but it isn't skyrocketing either, especially considering prices had previous fallen around 50%. And that's an average--no doubt lots of houses have gone up less. As long as you aren't severely picky you won't have any problem finding something in your price range next year.

[canuck]

I was watching a program on HGTV last night [[House Hunters) about a lady shopping around for a house on a 130000$ budget in Farmington Hills. Unfortunately I cant access the video but there is some info on the episode on the HGTV site;
http://www.hgtv.com/video/fresh-star...deo/index.html

[Wolverine607]

I was watching a program on HGTV last night [[House Hunters) about a lady shopping around for a house on a 130000$ budget in Farmington Hills. Unfortunately I cant access the video but there is some info on the episode on the HGTV site;
http://www.hgtv.com/video/fresh-star...deo/index.html

I just watched the video online. It seems she was only looking in Farmington Hill? What time frame did this take place. Was it recent and this year in 2012?

[canuck]

I dunno when the episode was done but I think it is fairly recent. I guess I couldnt access the video from Canada because ours is HGTV Canada and they are keeping some stuff for US viewers only. I may be getting it on the canadian site.

Good luck in your search, I have started looking for a house near downtown Montreal myself.

[Brich]

House sales and prices are up from a year ago, according to this article. Tight inventory in Oakland County:

http://www.freep.com/article/2012071...text|FRONTPAGE

[Bham1982]

It's true that inventory is tight in Oakland County, but do not mistake this for a "hot" market.

Inventory is tight because prices are very low, so no one is putting their home on the market unless they have to.

If you look at overall price trends, home prices continue to drop in Metro Detroit, even as inventory declines.

Case Schiller is probably the most reliable index, but any serial RE lurker like myself will see no upward trends [[though the drops have moderated greatly).