Houses Cheaper than Cars in Detroit
You can buy a house in Detroit for $4000! It’ll be a fixer-upper, though.
As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property. It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy. The rising cost of mortgage financing for Detroit borrowers with weak credit has added to the downdraft from a slumping local economy to send home values plunging faster than many investors anticipated a few months ago.
At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less. A boarded-up bungalow on the city’s west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000. “You can’t buy a used car for that,” said Izairi. “It’s a gamble, and you have to wonder how low it’s going to get.”
My guess is most of these are demolition projects rather than livable housing. And, as Michael Wilbon would say, a $4000 home doesn’t do you much good if you have to live in Detroit.
Carolyn O’Hara observes that, “Detroit is something of a special case, given that it has famously fallen on hard times, hemorrhaging jobs for more than a decade and struggling to cope with a poverty rate ringing in at over 30 percent. Nobody’s saying that as Detroit goes, so goes the rest of the country.” That’s for sure.
Still, she’s right to worry that “People are going to be defaulting on home loans left and right—a recent report estimated more than 2 million Americans could lose their homes because of the lending crisis—and that’s not going to spell growth for the U.S. economy.”
Now, CRL has an agenda and is likely vastly overestimating the number of foreclosure’s. There’s not much doubt, though, that there will be a ton of them. A lot of people bought more house than they could afford betting that they prices would keep going up and they would have enough equity to refinance. Some were smart or lucky enough to get out in time for that to happen; others weren’t. Short of passing a law to prevent people with moderate incomes from taking that kind of risk, I’m not sure how we avoid these outcomes.