Kevin Krolicki, Reuters, March 19, 2007
With bidding stalled on some of the least desirable residences in Detroit’s collapsing housing market, even the fast-talking auctioneer was feeling the stress.
“Folks, the ground underneath the house goes with it. You do know that, right?” he offered.
After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: “The lumber in the house is worth more than that!”
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 city, which has lost more than half its population in the past 30 years and struggled with rising crime, failing schools and other social problems, largely missed out on the housing boom that swept much of the country in recent years.
Prices have gained less than 2 percent per year in the five years since 2001, when the auto industry entered a renewed slump.
Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.
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.”
Detroit, where unemployment runs near 14 percent and a third of the population lives in poverty, leads the nation in new foreclosure filings, according to tracking service RealtyTrac.
With large swaths of the city now abandoned, banks are reclaiming and reselling Detroit homes from buyers who can no longer afford payments at seven times the national rate.
Michigan was the only state to see home prices fall in 2006. The national average price rose almost 6 percent but prices slipped 0.4 percent here, according to a federal study.
The state’s jobless rate of 7.1 percent in January was also the second highest in the nation, behind only Mississippi.
HOW MUCH CAN YOU BUY FOR $1 MILLION?
Mayor Kwame Kilpatrick was greeted with applause when he announced last week that two condominiums in the city’s revitalizing downtown sold for over $1 million each.
But investors, including some from out of state, proved far more cautious at Sunday’s auction.
In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit’s boom days with an ornate stone entrance fetched just $135,000.
Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.
“Once we’ve seen the last person leave Michigan, then I think we’ll be able to say we’ve seen the bottom,” he said.