In Detroit, you can literally buy a mansion for less than $500,000.
Realtor.com currently has a 7-bedroom, 9,000-square-foot house with “lavish greenery and gardens” listed for just $499,000. Almost anywhere else in the country, that house would sell for $2 million or more.
Why am I telling you this? Because it illustrates just how far the Detroit housing market has fallen over the last few years, in terms of home prices. It also sets the stage for the good news I’m about to offer.
In the first quarter of 2013, Detroit had the lowest average home value of any large metro area in the U.S. — $84,700.
At long last, things are starting to change for the better. Detroit homeowners who took a beating during the bust are getting some of their equity back. There is a new level of demand for housing in this market, and it’s driving home prices north.
Once Considered ‘Ground Zero’ for the Housing Crisis
Detroit was one of the cities hit hardest by the housing crash. Many of the foreclosure-related headlines from 2008 and 2009 spoke of the Sand States plus Detroit. The Motor City was often lumped together with Arizona, California, Florida and Nevada, as being “ground zero” for the housing crisis.
The downfall of Detroit’s real estate market actually predated the rest of the country. Home prices in this metro area began to plummet in early 2006, and they didn’t hit a firm bottom until spring of 2011. In between was a long and significant decline.
Detroit Real Estate Prices Up, Year Over Year
But that was then, and this is now. According to Zillow’s proprietary Home Value Index (ZHVI), house prices in the Detroit metro area have risen by 13.6% over the last year or so. The median sales price rose by 15% during the same period.
Positive numbers can be found in the latest release of the Case-Shiller Home Price Index, as well. According to this closely watched index, the average home price in Detroit rose by 15.2% between February 2012 and February 2013. Due to a two-month reporting lag, those were the most recent numbers available at the time of publication. The next Case-Shiller report will be published on May 29 and will contain data through the end of March 2013.
Granted, the Detroit real estate market is nowhere near its 2006 peak, in terms of home prices. It may not reach that level for many more years. But it’s nice to report some good news for a change.
Small Improvements in Job Sector
Another glimmer of light can be seen in the local job market. While the current unemployment rate in the Detroit metro area is still well above the national average, it has come down considerably from its recession peak. According to the Bureaus of Labor Statistics, the Detroit-Livonia-Dearborn metro unemployment rate was 10.9% in March. Double digits are nothing to brag about. But it’s a vast improvement over the 17.7% unemployment rate measured in June 2009. Baby steps are better than no steps.
Detroit’s housing market is also benefiting from significant inventory reduction. This area was long plagued by a tremendous surplus of homes for sale, most of them in some stage of the foreclosure process. This suppressed home prices across the metro area. But this too is changing for the better. According to Realtor.com, the total number of homes listed for sale in the metro area has declined by nearly 29% over the last year or so. The median asking price shot up by nearly 28% during the same 12-month period.
According to Zillow, 40% of homeowners in this metro area are still underwater in their homes, meaning they owe more on their mortgages than their homes are worth. This will continue to be a drag on Detroit home prices for some time. Zillow expects the underwater rate to fall only slightly over the next year.
The housing recovery has been slow to reach the Detroit real estate market. Many obstacles remain, negative equity and unemployment being chief among them. Still, there are small but measurable improvements in every aspect of this market.