A two-story brick house in Detroit sold for $47,214 last month, two years after U.S. Bank seized it in a foreclosure. For the home, with blue-striped awnings and white shutters, it was the fourth owner since December, when investor Buy Right Properties LLC purchased it for $3,383.
Real estate values in some Detroit neighborhoods are surging as the state’s automobile industry recuperates and investors flip bank-seized properties. Home prices gained 7.2 percent in July from a year earlier, the city’s biggest jump in more than a dozen years, according to mortgage-data firm FNC Inc. In comparison, an index of prices in the nation’s largest 100 cities increased 0.6 percent in the same period.
“The combination of the auto industry comeback and the home market hitting bottom is pretty powerful,” said Robert Dorsey, FNC’s chief data officer, from his office in Oxford, Mississippi. “They’ve been going to round-the-clock shifts in some of the auto plants, and that translates into housing demand for a city that was as low as you can go.”
Private-equity firms and other investors are snapping up foreclosed homes, helping to buoy prices in areas where values plunged during the recession, such as Southern California, Arizona and Florida. The hardest-hit regions are leading a nationwide housing recovery being fueled by a tight supply of homes and Federal Reserve efforts to keep mortgage rates low.
In Detroit, there’s the added element of the resurrected auto market. Ford Motor Co. (F) plants in Dearborn and Wayne, Michigan, near Detroit are operating overnight with rotating crews of workers, along with plants such as Chrysler Group LLC’s Warren, Michigan, metal-stamping factory, which run 24 hours a day. A Jeep plant in Detroit will add a third shift in November, with the U.S. auto industry heading for its strongest year since 2007.
As recently as 2009, the automakers had ceased round-the-clock assembly after the worst recession since the Great Depression helped contribute to the bankruptcies of Chrysler and the predecessor to General Motors Co. (GM)
Home sales in the metropolitan Detroit area jumped 11 percent in August compared to a year earlier, according to Realcomp II Ltd., a Farmington Hills, Michigan, multiple-listing service operator. The inventory of properties on the market in August fell 16.1 percent to 26,404. Foreclosures comprised 11.8 percent of the market and short sales made up 21.3 percent.
The housing recovery isn’t uniform, said Mike Shannon, a real estate broker in Dearborn, Michigan, who specializes in selling bank-owned properties in Detroit. Three out of 10 homes in the city are vacant, according to the Census Bureau. Almost half of properties are valued at $50,000 or less.
“Detroit has a shortage of homes in good areas, and when one of those properties comes on the market, it usually goes in a day or two,” Shannon said. “Prices are going up neighborhood to neighborhood -- it’s not an across-the-board thing.”
Hedge funds and private equity companies, which have been buying foreclosed homes in other parts of the U.S., have largely bypassed Detroit, said Randolph Barker, a director on the Detroit Association of Realtors. In Motor City, as Detroit is known for its concentration of automakers and parts suppliers, smaller investors have dominated the market, he said.
“Detroit has a reputation that scared away a lot of big institutional investors because the market fell so far,” said Barker.
The city is still reeling from a decades-long decline that since 2000 has shrunk its population by 25 percent. In April, it narrowly averted state takeover because of its budget deficit and $12 billion in long-term debt. The city is now under watch of an advisory board as part of an agreement with the state to prevent it from seeking bankruptcy.
The average home price in the city was $20,322 in July, according to the Michigan Association of Realtors, making it the cheapest urban market in the country. For all of Wayne County, including the higher-end neighborhoods of Grosse Pointe and Grosse Point Park, the average price was $108,616, according to the group.
For the home with the blue striped awnings in city’s Conant Gardens neighborhood, the ownership trail starts with Buy Right Properties, which purchased it in December. MJ Income Property LLC paid $21,500 in March, followed by F Market Straights LLC, which bought it for $27,000 a few days later, according to the deeds. A private buyer purchased it on Aug. 17, the county records show.
Home values in the state have stabilized as Michigan added 29,300 jobs at auto-assembly plants and factories that supply parts after GM emerged from a government-backed bankruptcy in July 2009, according to the Center for Automotive Research in Ann Arbor, Michigan.
GM, the largest U.S. automaker, has its multitower world headquarters on Detroit’s resurgent riverfront. Ford Motor Co. is based in Dearborn, Michigan, 9 miles (14 kilometers) away. Chrysler Group LLC is headquartered in Auburn Hills, another Detroit suburb to the north.
U.S. auto sales rose 19.9 percent in August, exceeding analysts’ estimates, and are on pace to exceed 14 million vehicles for the best year since 2007. Chrysler’s sales last month increased 14 percent, GM sales were up 10 and Ford rose 13 percent, according to Autodata Corp., which tracks auto sales.
Michigan has had the fastest-improving economy in the U.S., after energy-rich North Dakota, from the third quarter of 2009 through the first quarter of this year, according to the Bloomberg Economic Evaluation of States, which tabulates economic recovery from employment and home values to performance of public companies. Michigan’s unemployment rate of 9 percent is down from 14.2 percent in August 2009.
Neighborhoods in the region where prices are gaining include Indian Village, the Boston-Edison area and Palmer Woods, where Republican Presidential Candidate Mitt Romney grew up. A home his father owned on Balmoral Drive was torn down two years ago after it fell into foreclosure.
For some Detroit neighborhoods, the improvement in the market has come too late. Areas like Brightmoor and Delray have acres of dilapidated houses, their doors standing open after vandals stripped the structures of furnaces, water heaters, kitchen cabinets and copper pipes, said Shannon.
“We have wide open plains where there used to be tight-knit neighborhoods, and we have other places where you drive two or three blocks and all you see are foreclosures with their doors hanging open and the houses trashed,” Shannon said.
Where green fields cover the scars of entire blocks of homes that have been bulldozed, people have proposed plans to use the space as parks and even urban farms, said Barker.
“We’ve got a blank slate in some parts of the city, because of bulldozers,” said Barker, the director on the city’s Realtor association. “A much better solution, though, is to have the market firm up and get more of these homes performing on the tax rolls.”
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