Detroit has a hot market in the central core, but the city’s overall real estate market is still facing a lot of headwind.
The gap is large. $429,000 units – like the new Selden development – are pre-selling available units out in mere days, and big-name folks like Tony Hawk are moving in while the city as a whole still is tied for the most unsold homes owned by banks and lowest median home price appreciation in the country, according to a new report out today by Wallethub.com.
Detroit is also almost dead-last in population growth, as while we’re still trying to stabilize, the rest of the country continues to grow.
The Wallethub report was created “in light of good news” for the housing sector across the U.S. economy, but Detroit as a whole is looking left behind. In an email we were shared the following metrics about the city of Detroit, with 1 being the best and 150 being average:
- 298th – % of Homes with Negative Equity
- 205th – Average Number of Days Until a House Is Sold
- 276th – Median Home-Price Appreciation
- 265th – Job Growth Rate
- 176th – % of Mortgage Holders in Delinquency
- 284th – Number of Unsold Homes Owned by Banks (REOs)
- 299th – Unemployment Rate
- 299th – Population Growth Rate
The city itself isn’t the only area facing challenges. The report says out of 300 major areas (Sterling Heights, Livonia, and Ann Arbor are also in the report) the neighboring suburb of Warren in Macomb County now is tied for the highest foreclosure rate in the country.
The city of Detroit is a big place, so it’s not enough to look at the top line numbers to get an accurate snapshot.
The Second Quarter 2016 Housing Tracker by the Urban Institute released in July of this year shows the gap between downtown Detroit and the graph below illustrates the stark difference in residential prices when you’re in the greater downtown versus the rest of the city. We’ve included a map of the districts the UI report used and then the comparative sale prices.
The dark blue line at the top illustrates downtown zip codes of 48226 and 48201 and residential prices are in a completely different zone than the rest of the city.
It is interesting to note that this divide has been the case back to 2005 with a short period in 2010-11 where things got somewhat closer to parity. The data shows that a significant divide in real estate prices over the last decade between greater downtown and the neighborhoods is the norm – but neighborhood housing prices, while in some cases are up, still on average across the city (the black line in graph) haven’t recovered to 2005 levels while downtown is back on track.
Cash sales also dominate in Detroit according to the Urban Institute study, with about 95% of all deals as of last available data (2014). Nationally, that number is closer to 40%. That makes many purchase options in Detroit unaffordable as even though you may make a decent income, a much smaller percentage of the population has enough cash on hand to drop $5,000-$100,000 on a house. Again, from the Urban Institute:
It also has other social effects, as the resources of people who can afford a $100,000 house in cash are a lot higher than someone who can afford one with a traditional loan; as well as the effects of sales of homes that were in foreclosure.
The makeup of what the cash sales are is of note. Nearly half – 47.8 percent of cash sales – were resales that weren’t bank- or government-owned or foreclosures.
Below is a graph of the cash sales and what kinds of sales they were. Dark blue is new construction; grey is resale; light blue is REO (banks, foreclosure auction, etc); black is short sale and yellow other. The numbers on the left are the number of sales made.
Cash Sales In Detroit, 2003-2016 Q1
Anyone who’s been reading the news knows foreclosures have had a big impact on Detroit. However, foreclosure rates are overall back to 2005 levels, with some neighborhoods doing better than others – but in greater downtown, foreclosures are now almost non-existent.
The question of what happens to those living in those formerly foreclosed homes remains an open one. Did they move to the suburbs? Are they in fact going homeless, and to what scale and what services need to be provided? Those would be important questions with policy implications to get actual data to answer.
There are also still a large number of properties locked in speculation, like in the North Corktown neighborhood that looks like it has space to grow with vacant lots if you walk through there but 32 parcels, many blighted, are held by a Hong Kong investor, among others. Same story on the far east side, with parcel upon parcel owned by the same person.
Changing Tastes Are Changing The Market
Overall, real estate folks seem positive – and places are definitely selling well in some areas – but there are specific things people are looking for.
“Location is key as some buyers are looking to settle in already well established areas while others are looking for the ‘next great place,'” said Tim Quinn, a realtor specializing in the city since 1980.
Type of housing matters. Buyers want a dense, city experience – not cul-de-sac or tract housing you can readily find in the suburbs or in some neighborhoods of the city.
“Most of the city buyers I am seeing are looking for upscale conversations in old buildings. Lofts like those at 200 River Place (originally a 1906 Parke Davis lab) and Willys Overland lofts (originally the Willys automobile company built in 1912) are good examples. Some buyers are split between midtown and the riverfront with both areas having a lot to offer. Free standing homes are also getting a lot of attention in areas like Indian Village, West Village, Boston Edison, Corktown and North End.”
What about other neighborhoods?
“The growth is spreading and more and more areas are experiencing a lift. That said, this is a big city with a lot of land and it will take time, but it has begun to happen,” said Quinn.