July 7, 2006 at 1:57 PM #6821powaysellerParticipant
Detroit is suffering from overbuilding and slower demand for new homes. Reduced demand is attributed to potential buyers unable to find a buyer for their homes. (Remember the chain effect?).
Building permits increased each year over the last 5 years, hitting a 30% increase over 2000 levels just a couple years ago. The permits have since declined.
All that new construction added to the inventory glut. My guess is there was lots of construction employment and real estate employment and mortgage equity related spending employment. I would again like to make a case for a nationwide housing bust.
Unlike San Diego, where high prices and rising interest rates are squeezing out first time buyers, Detroit is impacted by job losses in the auto industry. Desperate house sellers in Detroit are feeling the fall-out from a slowing US auto sector. Like San Diego, people are leaving the area.
Detroit inventory soared 43%, while the median price dropped and sales are flat.
“Most of the blame for the big increase in home supply and big decrease in demand falls on the domestic auto industry’s well-publicized woes.
With General Motors Corp. and Ford Motor Co. planning to cut 60,000 jobs total and auto parts maker Delphi slashing 20,000 jobs, Michiganians are understandably skittish about their futures and the economy. Some are leaving the state; others are holding tight on finances, waiting for things to get better.
Announcement of the cuts last year froze the real estate market, Elsea said.
“All quarter of a million employees stopped doing anything until they knew if they were going to be one of the (people laid off),” he said.
But the exodus of people from the area hasn’t stopped.
The number who moved into Livingston, Macomb, Oakland and Wayne counties from other parts of the country was 47,000 in 2004, according to a Detroit News analysis of Internal Revenue Service records. About 67,000 moved out.
Potential buyers have filed in and out of Lamb’s 3,000-square-foot ranch in Troy for a year, leaving plenty of compliments, but no good offers. Even dropping the price $80,000 to $386,000 hasn’t helped. “We’ve gone through every phase you can think of to make this house appealing. The irony is that reducing the price has made no difference because if the buyers aren’t there, they aren’t there,” she said.
The Lambs’ house is one of hundreds that is sitting vacant, waiting for new owners.
Jan Calcaterra, a Clinton Township Realtor, said 60 percent to 70 percent of the houses she shows are empty. “There is an unbelievable amount of vacant houses when you show them.”
The Button family is stuck with 3 mortgages, and gave up on selling their home. They’re subsidizing their renter at $380/month, hoping that in a year the market will shift and they’ll have enough equity to sell.
James Black and his wife turned down too-low offers on their $335K home. The offers were 10-20% below their asking price. When will these sellers ever learn to not chase down the market? I swear, home sellers are the most ignorant of business dealers out there; they turn down the best offer they’ll ever get (the first offer), and end up chasing down the market. The Blacks lowered their price to $310K. I think they will soon regret not accepting the $310K offer.July 7, 2006 at 4:20 PM #27871North County JimParticipant
Detroit is the economic basket case of America. Besides being overly dependent on an ailing industry, they have a shrinking population (the city has lost half its residents over the past 60 years). The city’s former auditor-general put it this way: “Insolvency is certain. The only question is the timing of the inevitable.”
Here’s a link to an op-ed in the WSJ from a Detroit News columnist that’s worth a read.
Is there a silver lining for Detroit? Yes, it’s the housing stock. As it gets cheaper, it will attract more and more poor people.
Here’s a NY Times Magazine article on housing economics and cities. It contains some discussion of Detroit housing and other rust belt cities that have steadily lost population.
This snippet is priceless:
When cities decline, however, the trends get flipped around. Population diminishes slowly, but housing prices tend to drop markedly.
Glaeser and Gyourko determined that the durable nature of housing itself explains this phenomenon. People can flee, but houses can take a century or more to finally fall to pieces. “These places still exist,” Glaeser says of Detroit and St. Louis, “because the housing is permanent. And if you want to understand why they’re poor, it’s actually also in part because the housing is permanent.” For Glaeser, this is the story not only of these two places but also of Buffalo, Baltimore, Cleveland, Philadelphia and Pittsburgh — the powerhouse cities of America in 1950 that consistently and inexorably lost population over the next 50 years. It is not just that there were poor people and the jobs left and the poor people were stuck there. “Thousands of poor come to Detroit each year and live in places that are cheaper than any other place to live in part because they’ve got durable housing still around,” Glaeser says. The net population of Detroit usually decreases each year, in other words, but the city still attracts plenty of people drawn by its extreme affordability. As Gyourko points out, in the year 2000 the median house price in Philadelphia was $59,700; in Detroit, it was $63,600. Those prices are well below the actual construction costs of the homes. “To build them new, it would cost at least $80,000,” Gyourko says, “so there’s no builder who would build those today. And as long as those houses remain, the people remain.”July 7, 2006 at 4:40 PM #27874BugsParticipant
Michigan also has a more-generous-than-average welfare net. It’s almost like they’ve adopted the servicing of poverty as their primary industry.July 7, 2006 at 10:32 PM #27885North County JimParticipant
Michigan also has a more-generous-than-average welfare net. It’s almost like they’ve adopted the servicing of poverty as their primary industry.
I’m sure I’m not alone in wondering how they’re going to fund the welfare state with a shrinking tax base. Throw in an abysmal credit rating and a bloated, unionized work force with generous pension and medical benefits and you’ve got the perfect storm.
Like the man said, it’s a matter of when, not if.July 8, 2006 at 7:59 AM #27893LookoutBelowParticipant
These people interviewed act like somebody was holding a gun to their head to force them to buy !!! Profitable investments are a privelege, not a right…..
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