Detroit home Prices outperform the suburbs again

[SammyS]

And not just by a bit, Detroit crushed

https://www.crainsdetroit.com/real-e...ble-digit-blow

City of Detroit
Sales, March 2018: 349
Sales, March 2019: 393
Percent increase/decrease: 12.6 percent
Median sale price, March 2018: $28,000
Median sale price, March 2019: $40,000
Percent increase/decrease: 42.9 percent
Average days on market, March 2018: 53
Average days on market, March 2019: 43
Percent increase/decrease: 0 percent
On-market listings, March 2018: 2,137
On-market listings, March 2019: 1,941
Percent increase/decrease: -9.2 percent

Oakland County
Sales, March 2018:1,491
Sales, March 2019:1,422
Percent increase/decrease: -4.6 percent
Median sale price, March 2018: $237,000
Median sale price, March 2019: $245,900
Percent increase/decrease: 3.8 percent
Average days on market, March 2018: 40
Average days on market, March 2019: 42
Percent increase/decrease: 5 percent
On-market listings, March 2018: 4,038
On-market listings, March 2019: 3,649
Percent increase/decrease: -9.6 percent

[313WX]

Well of course when you're starting from such a low number, the increases will seem relatively impressive.

[SammyS]

Well of course when you're starting from such a low number, the increases will seem relatively impressive.

Yep, but an increase is an increase and 43% is YUUUUUGE.
I’ll appeal again to the young folks, first home buyers and those wanting to take a chance on Detroit. This is an opportunity not often seen in a lifetime and certainly not offered in other major cities. Don’t miss out guys. Get in soon and as close as possible to Downtown.

Just advise from a guy with strong confidence in Detroit’s long term and sustainable rebound. Additionally, and as mentioned many times before, I feel the urban-suburban reversal is in full swing and counter to that of the 1950’s. It’s going to be a fantastic ride.

[O3H]

A room with a view ?
Because some are urban like that, perhaps a conurbation

""Still in a room without a view
Ya got to know, ya got to know
That when I say go, go, go
Amp up and amplify, defy""

Compared to Macomb....similar percentages ?

[ABetterDetroit]

You nailed it SammyS. I ovoid repeating hearsay on this board but there is most definitely action heating up not only in the neighborhoods close to downtown but in many areas in the City of Detroit. It is not only obvious in the listings of properties but in what is being talked about more often among young people starting their careers in this metro area.

Detroit offers a unique opportunity in primary home ownership across many price points some of which are not available anywhere else. The trend in property values in the city is strong and though nothing in this world is free of risk on the financial front the opportunity to own vs. dealing with rent, leases and landlords and begin building equity is being taken advantage of by more younger people than has happened in a long time in the city.

[313WX]

Yep, but an increase is an increase and 43% is YUUUUUGE.
I’ll appeal again to the young folks, first home buyers and those wanting to take a chance on Detroit. This is an opportunity not often seen in a lifetime and certainly not offered in other major cities. Don’t miss out guys. Get in soon and as close as possible to Downtown.

Just advise from a guy with strong confidence in Detroit’s long term and sustainable rebound. Additionally, and as mentioned many times before, I feel the urban-suburban reversal is in full swing and counter to that of the 1950’s. It’s going to be a fantastic ride.

I'm actually set to eventually inherit property in Detroit [[granted nowhere near downtown).

So we'll see for where the wind blows.

[Gistok]

OP... you got all that from one single statistic.... hmmmm....

Pol·ly·an·na

/ˌpälēˈanə/

noun

• an excessively cheerful or optimistic person.

[SammyS]

OP... you got all that from one single statistic.... hmmmm....

Pol·ly·an·na

/ˌpälēˈanə/

noun

• an excessively cheerful or optimistic person.

Haha, no. I’ve been optimistic on Detroit for a while now. Check my posts. So much so that I don’t think I can buy anymore. I’ve also lived through another city’s renascence and have seen how first home buyers can easily get locked out if they don’t hop on that escalator early.
The most discouraging feeling is consuming yourself with regret and wallowing over “I could have bought that for so much less a year ago”. This has been Detroit for > 7 years already and it will likely continue for a few more so if you’re gonna pull the trigger, there’s no better time than the present.

PS. You know that Brownstone in Brush Park listing for $700k? Yeh, I walked through when it was listed for $150k in 2013. Oh well.

[poobert]

Median sale price, March 2018: $28,000
Median sale price, March 2019: $40,000

Median sale price, March 2018: $237,000
Median sale price, March 2019: $245,900

My takeaway: damn, your shit is cheap, what's wrong with it? Oh, yeah, EVERYTHING...

[O3H]

And yet Detroit suffers a very high eviction rate among renters.
Those same people will default on a mortgage.

https://www.detroityes.com/mb/showth...ered-evictions

https://wdet.org/posts/2018/08/13/87...urity-on-kids/

It always takes money, to make money.
There might be some deals to be had, but a mortgage is no joke.

[Wesley Mouch]

And yet Detroit suffers a very high eviction rate among renters.
Those same people will default on a mortgage.
...
It always takes money, to make money.
There might be some deals to be had, but a mortgage is no joke.

True. But there are plenty of potential home-buyers who already live in the City who should be paying attention. Yes, be careful. Buy something you can afford -- and can really live in for years. That's the real reason to buy a home.

But if the suburbs median 1/4 million is too much. Then perhaps a decent $50,000 home -- with tremendous upside potential. Maybe it has to be a family purchase.

The current real estate values in much of Detroit are truly great opportunities that don't come along often. And they are a chance for Detroiters to accumulate wealth.

There was a time not so long ago when San Francisco was under-priced. I have acquaintances who are renters in San Francisco. Started renting in the 80s. They are still renting. If they'd bought, they'd be having a very comfortable retirement. Detroit is probably that same opportunity now [[in some areas at least).

Might not be your path to wealth -- but it could make a big difference for your children.

N.B. All investment has risks.

[DetroiterOnTheWestCoast]

Average days on market, March 2018: 53
Average days on market, March 2019: 43
Percent increase/decrease: 0 percent

One mistake they made there; if the average days on market decreased from 53 to 43, it was an 18.9% decrease, not "0".

The naysayers can of course point to the still low median value in the city. However, I'd say its hard to objectively argue that these figures don't show a [[finally) rebounding market in the city. The average days on market is now the same in the city as in the suburbs and only in Detroit did the figure drop, and by quite a bit.

A median of $40,000 is certainly quite low, but its remarkably better than $28,000 in just one year.

Well of course when you're starting from such a low number, the increases will seem relatively impressive.

It doesn't just seem relatively impressive, it is. Detroit's $12,000 increase compared with Oakland County's $8,900 increase is impressive not just on a percentage basis but in absolute dollars are well.

And yet Detroit suffers a very high eviction rate among renters.
Those same people will default on a mortgage.

Except that the renters being evicted are unlikely to default on a mortgage, because they are unlikely to ever get one.

[Cincinnati_Kid]

True. But there are plenty of potential home-buyers who already live in the City who should be paying attention. Yes, be careful. Buy something you can afford -- and can really live in for years. That's the real reason to buy a home.

But if the suburbs median 1/4 million is too much. Then perhaps a decent $50,000 home -- with tremendous upside potential. Maybe it has to be a family purchase.

The current real estate values in much of Detroit are truly great opportunities that don't come along often. And they are a chance for Detroiters to accumulate wealth.

There was a time not so long ago when San Francisco was under-priced. I have acquaintances who are renters in San Francisco. Started renting in the 80s. They are still renting. If they'd bought, they'd be having a very comfortable retirement. Detroit is probably that same opportunity now [[in some areas at least).

Might not be your path to wealth -- but it could make a big difference for your children.

N.B. All investment has risks.

No way you can compare Detroit, to San Francisco, especially SF. They're still renting in SF, because they never were able to buy, even in the 80"s. The rent they charge is ridiculous, $2,400.00 per month or more, for a 1 or 2 bedroom apartment ? Everything in California is overpriced. That's why hoards of people are moving to surrounding states like, Arizona and Nevada. My nephew and his family lived in LA for 10 years, got tired of the higher overall cost to live there, and moved to Phoenix.

[313WX]

No way you can compare Detroit, to San Francisco, especially SF. They're still renting in SF, because they never were able to buy, even in the 80"s. The rent they charge is ridiculous, $2,400.00 per month or more, for a 1 or 2 bedroom apartment ? Everything in California is overpriced. That's why hoards of people are moving to surrounding states like, Arizona and Nevada. My nephew and his family lived in LA for 10 years, got tired of the higher overall cost to live there, and moved to Phoenix.

On top of what you said:

1. California's housing market is artifically propped up in part by extremely restrictive zoning laws and building codes that limits the extent to which new supply can be added at an affordable price. Michigan does not have such restrictions and builders could easily add new supply IF the demand was there [[it's not right now).

[[it's funny how normally pro-small government Wesley Mouch left out this important fact from his SF comparison)

2. California's topography, surrounded by an ocean on one side and mountains on the other side, also makes it difficult for new supply to be added because of how little buildable land is available. Michigan, conversely, is relatively flat and to the west/north/south of Detroit, there's no huge body of water anywhere within a 50 mile radius.

3. Detroit is the quintessential working class city, while SF is a finance hub as well as a tech hub [[two of the most stable and capital-flush industries in America). The finance and tech industries also pay much higher wages than the auto industry because, in general, their workers perform higher skilled tasks and thus attract a more highly educated labor force. This, in effect, translates to much higher purchasing power for those workers in SF compared to Detroit who can more easily afford the exorbent price gouging taking place there.

So to hope for or predict an even remotely similar return on real estate in Detroit as is happening in SF is just plain foolish. Detroit would do better to take a peek at a city like Philadelphia to see what its future may look like.

[313WX]

It doesn't just seem relatively impressive, it is. Detroit's $12,000 increase compared with Oakland County's $8,900 increase is impressive not just on a percentage basis but in absolute dollars are well.

You're missing my point.

First, an increase from $28K to $40K is like some city/county bragging about the fastest growing when they grow from 20K people to 40K people. In reality, you're still a fairly small, low density municipality.

Second, if an area with relatively good schools, is much safer, has a much more functional municipal government, etc. [[all things that drive real estate appreciation more than lifestyle changes) is appreciating at a relatively slower rate at $240K, then how much more room is there really for Detroit's real estate to appreciate?

And is it worth all of the red tape, low quality tenants and lawlessness you will have to contend with before you make a halfway decent return?

I'd rather buy land in a rapidly developing suburb or near a new interstate interchange before gambling on Detroit

[SammyS]

313WX,
I doubt WM was directly comparing SF to Detroit but using it as an example of how a runaway RE market can lock potential first home buyers out forever. I would venture to say that most young residents in the bay area, including the Finance and Tech crowd, are relegated to renter status regardless of their earnings. The housing market there is extremely skewed and disproportionately off balance to earnings. Detroit on the other hand is the exact opposite. Again, apart from a few other major cities like East St Louis, Detroit offers enormous opportunity for first home buyers.

Regarding your last post, I would say it's you that is missing the point if you don't consider the numbers from an investment perspective. Not only did Detroit smash the suburbs on a % appreciation basis but also nominally. You could have easily purchased 10x "average" homes in Detroit or maybe just a few amounting to the average suburban home price and still have seen returns that eclipsed those in the burbs. IOW's, you're only limited by the amount you have saved, willing to spend or the amount a bank is willing to loan you. The scale is set.

These figures are real and would be celebrated by residents of any city globally, so why not Detroit? I doubt there's a financial advisor or investor who would disagree. The rest is opinion and bias but I will agree, Detroit has a long way to go to match the living standards of other major cities however, by the time the average suburban resident concedes and admits Detroit is worth investing/living in, they will likely be priced out by then. This is simple market psychology that dictates most have to be on the wrong side of the bet for opportunity to exist. I know that sounds strange but it makes total sense. Investors are rewarded for taking risk, especially contrarians. The opposite also applies. When the majority is overzealous, then you know the top is near. I believe Detroit is still viewed by the majority as risky and the prices reflect this.

[Worldsgreatest]

Sorry haters but there's no negative way to spin this. The city is huge and that is an absolutely massive amount of wealth generation in a single year. There is tons of new construction and values are still rising. demand for city property is through the roof.

[313WX]

I believe Detroit is still viewed by the majority as risky and the prices reflect this.

That's exactly my point. Detroit is a high risk, low reward market. That may work for some folks like yourself, but for those who want a quick, large return on their investment, not so much.

Meanwhile, compare Detroit with Forsyth County, GA. It's one of the wealthiest and fastest growing counties in the US, has the best schools in GA and crime is a non-issue. In 2012, if you brought a home for $208K [[median price), it would be worth nearly $150K more in value today [[$351K median price).

Even in Oakland County, if you had purchased a home when the median price in 2012 was $130K, you'd be looking at $120K worth of appreciation.

When looking at it from that perspective, the opportunity costs [[dysfunctional government, less amenities, poor schools, etc.) in exchange the relatively low appreciation in Detroit [[a mere $12K) don't seem worth it, even despite the lower cost to buy-in.

To summarize what I said before, Detroit simply isn't there yet. But if in the mean time you want to play pioneer in hopes that Detroit becomes next hot "IT" city at some point in the distant future, more power to you.

[Wesley Mouch]

313WX,
I doubt WM was directly comparing SF to Detroit but using it as an example of how a runaway RE market can lock potential first home buyers out forever.

More looking from the other side. I was looking more at the Detroit opportunity than the runaway market. Detroit probably won't become SF, as many differences, but the chances of Detroit RE creating a lot of homeowner wealth is much higher than almost anywhere else. If you buy in SF, your upside has lots of limits. In Detroit, you have few limits on upside. Risky, yes. But the chance of high returns is very high. The prices are based on risks that mostly are still fear of the past.

Look at it this way... You can buy a house in Detroit for, say, $80,000. Assuming you can get a mortgage, you might put 25% down.. so $20,000 investment out-of-pocket. Let's say that market in Detroit continues to outpace the 'burbs and goes up 10% a year for 5 years. Your 80k house is now $120,000 [[+compounding, which we'll omit to cover transaction costs). You sell your home for $120k... deduct the $20k you invested. And you've MADE $100,000 on a $20,000 investment. [[And you lived in it -- at about the same payments are rental.)

That's a 400% return in 5 years. [[$20k to $100k). Not bad. [[And yes, the math has lots of holes in it -- but good enough for example.)

You are not going to get that return in the stock market [[at an equivalent risk). That kind of return could move your family from modest to comfortable. Yes, there is risk.

I believe Detroit is still viewed by the majority as risky and the prices reflect this.

Yes. True. There's a high risk that future city leaders will again head to unsustainable payroll and operational expenses rather than realize how well we could do if they are responsible. But there remain a lot of people who think we just need to 'invest' in their pet idea of how to create the future. Like assuming paying staff above their value 'creates' increased taxes to support their wages. But this kind of 'my spending' will be 'your success' thinking is quite in vogue. See AOC, Sanders for starters.

BTW, my friends in SF could have purchased in the 80s. They just chose not to. Too expensive. Happy in their rental. Employed and in their 30s then -- they would now be quite rich if they'd bought.

One final thought. The increases quoted were 'median sales prices'. This tells you nothing about home prices. [[And neither would an average sales price.) That stat could be true if home prices were not rising at all -- but homes in the better neighbouhoods at higher prices have started selling. Medians tell you NOTHING about individual home prices. NOTHING. [[Although there's likely a high correlation between median increases and home value increases -- and in this case the sales price of the same home probably is seeing significant increases. Just that this stat doesn't really mean anyone's home purchased last year will sell for 35% more this year.)

[mwilbert]

You can't compare median prices to get typical appreciation. It's easy, but wrong. That's why Case-Schiller goes to all the effort of tracking repeat sales on individual homes. I guarantee you that a typical home in Forsyth County did not appreciate 75% over the past 7 years.

[313WX]

I guarantee you that a typical home in Forsyth County did not appreciate 75% over the past 7 years.

I can also guarantee you that a property owner saw more appreciation on their Forsyth County home in raw numbers than a typical property owner on their Detroit home.

[mwilbert]

I'm sure you are correct. I just think people have to take these numbers with a bit of skepticism. In Detroit in particular, the dispersion is tremendous; it's probably not even sensible to talk about a typical house, and the median price is probably close to meaningless. Which is not to say that prices haven't been going up; they definitely have.

[313WX]

Look at it this way... You can buy a house in Detroit for, say, $80,000. Assuming you can get a mortgage, you might put 25% down.. so $20,000 investment out-of-pocket. Let's say that market in Detroit continues to outpace the 'burbs and goes up 10% a year for 5 years. Your 80k house is now $120,000 [[+compounding, which we'll omit to cover transaction costs). You sell your home for $120k... deduct the $20k you invested. And you've MADE $100,000 on a $20,000 investment. [[And you lived in it -- at about the same payments are rental.)

Not entirely correct.

If you take out a 30-year mortgage on this property and sell it after only 5 years, a portion of that $100K profit will have to go towards paying off the mortgage. So let's say roughly $50K of that will go back to the mortgage company, leaving you with the other $50K as "profit."

And that's not accounting for the sunken costs that will be necessary to maintain the home [[plumbing, roof replacement, painting, security, etc.), nor the costs you will incur from having to deal with Detroit's dysfunction [[paying for private school if you have kids, auto insurance, etc.).

Is a $50K return anything to sneeze at? Not necessarily. That being said, when you look across the border and realize you could get, say, a $170K return on a property with far less legwork and sacrifice as an owner, that $50K return seems rather uninspiring.

[iheartthed]

There is clearly something different going on in the Detroit real estate market today, as evidenced by the thread we have on duplexes being converted into single family homes: https://www.detroityes.com/mb/showth...ily-Residences

There are not many places in the world where a $17K property turns into a $230K property in two years.

[mwilbert]

Not entirely correct.

If you take out a 30-year mortgage on this property and sell it after only 5 years, a portion of that $100K profit will have to go towards paying off the mortgage. So let's say roughly $50K of that will go back to the mortgage company, leaving you with the other $50K as "profit."

And that's not accounting for the sunken costs that will be necessary to maintain the home [[plumbing, roof replacement, painting, security, etc.), nor the costs you will incur from having to deal with Detroit's dysfunction [[paying for private school if you have kids, auto insurance, etc.).

Is a $50K return anything to sneeze at? Not necessarily. That being said, when you look across the border and realize you could get, say, a $170K return on a property with far less legwork and sacrifice as an owner, that $50K return seems rather uninspiring.

I'm not shilling for Detroit real estate, but all these numbers are wrong. Wesley omits the fact that you still owe close to 60K on your mortgage when you sell, so you are only up 40K on the deal. Your numbers are not even vaguely reasonable either. How could an 80K 30 year mortgage at current interest rates require that 50K be paid back in 5 years? Probably less than 25K. And you aren't giving the owner credit for avoided rent. On the other hand, you are completely right that there are potentially a lot of other costs that you could incur living in Detroit that you might be able to avoid living someplace else. If you have the taste for it, I suspect being a landlord in Detroit is more profitable than being a live-in owner. Of course, that is definitely not for everyone.