Monday, September 12, 2005

Motor City Housing is Stalled

Detroit is a city that knows about tough housing markets. Nothing new in that, especially considering that parts of Detroit were bulldozed and left vacant a few years back, helping to spawn the term "urban prarie" among city planners. But just a year ago, things were going so well that even serious fixers in the city were flying off the market. Now that's a surprise. But nowadays, the Motor City is stalled worse than an old Ford with a bad battery in late December. Reuters reports that the city's housing market has even become a test case for what might soon ail other cities. An increasing amount of interest is being shown in Detroit by economists studying the potential and dangers of housing bubbles. Here's an excerpt:
Detroit real estate broker Jerry Hebron remembered the boom times for housing in the Motor City, when new listings were snapped up quickly and housing values doubled.
Now houses were lingering on the market for an average six months to a year, she said.

"We're in a buyers' market. Last year at this time we were having a sellers' market." said Hebron, president of the Detroit Association of Realtors and a broker at Hebron Prime Time Properties.

The city's souring economy, high property taxes and big homeowner insurance bills have put the brakes on the housing market, according to Hebron.

The receding boom in Detroit's single-family housing has caught the attention of economists studying the potential and dangers of housing bubbles in the U.S.

A recent report on home prices by the Federal Reserve Bank of Chicago cited evidence that Detroit was less affordable than other local markets, but that affordability gap has closed significantly in recent years.

"This is driven at least in part by the weak economic conditions in the area rather than by the bursting of a housing price bubble," the report said.

"(Detroit) isn't the world's strongest economy and it was a little surprising to see it come up above the U.S. average, but that gap has narrowed since 2001," said Richard Rosen, a senior economist, who authored the report.

Detroit housing turned up as being overvalued in a nation-wide study, but not for the same reasons as in other parts of the country, such as California, according to Richard DeKaser, chief economist at National City Bank in Cleveland.

"Michigan as a whole and Detroit in particular shows housing prices overvalued not because of an explosion in home prices, rather they are overvalued because the economic underpinnings have deteriorated so badly," he said.

DeKaser, who recently released a study of 299 U.S. housing markets, pointed to key things that influence home prices, such as income levels and population density.

Read the remainder of the story at this link.

— The Boy in the Big Housing Bubble