Wednesday, October 23, 2019

The state of Detroit's real estate market in 2019

The internet is losing its mind - Photo by Mandyme27/Pixabay
I posted an article to this blog yesterday pointing out that a home on Greenview Street was up for sale. This was part of my Featured Place to Live series where I highlight some of real estate opportunities in Warrendale neighborhood in Detroit. The asking price for this home I reported, was $79,900.

And the internet promptly lost its mind.

Within minutes of that article going online, my social media notifications started to blow up as one person or another wanted to comment on how delusional it was for a home in this part of Detroit to command such a price. Even asking for such a price, some individuals argued, was preposterous.

There were a few people who took this news in stride. They may have expressed a healthy amount of skepticism or been cautious in their optimism. What they did not do, though, was argue that homes in Detroit aren’t worth anything, that no one wants to live here, or any other such thing.

At this point, I should say that I had a completely different article planned for today. I was going to talk about some of the best places to go trick-or-treating since we are so close to Halloween at the moment. However, with so many people reacting so strongly to the idea of a home in the Warrendale neighborhood of going on the market with an asking price of $79,900, I felt it best to put original article aside for a moment and focus on this.

In the space below, I will provide some of the various reasons why one person or another was indignant at the such real estate pricing. While my comments are about the Warrendale neighborhood in particular, I feel that most of this applies to much of Detroit as a whole.

The comments in bold below are summary of a point that someone tried to make yesterday. Those comments are followed by my rebuttal.

The neighborhood is nothing like it was at some point in the past.
While it’s true that Warrendale and the other neighborhoods in Detroit have declined since their heyday, it’s also true that there have been substantial improvements in the quality of life here in recent years and that all signs point towards this trend continuing.

To put this in perspective, 20 years ago, a three-bedroom home in Warrendale would go for what in today’s dollars is roughly $140,000. Detroit still had a multitude of problems in the late-1990s and homes in the area were still able to command a six-digit price.

While the area was hit hard during the mortgage crisis of 2007-2008 and hasn’t fully recovered, I have to ask: is it really unreasonable that a house today should command a price of half of what it was prior to the mortgage crisis?

Personally, I don’t think so.

Detroit isn’t as good as [fill in the blank with some other city]
Again, Detroit has its problems. A piece of real estate in much of the city isn’t as valuable as a similar property in other parts of the country or even other parts of Michigan. However, I feel I should point out one key detail: the median selling price of a single-family home in the United States is $240,000, according to the January 2019 edition of Kiplinger.

If the outlying neighborhoods of Detroit were as good of a purchase right now as some of your other communities then that house on Greenview would have an asking price around $240,000; not $79,900.

[Fill in the blank crime] happened recently at a location nearby
First, crime happens everywhere.


The only communities that don’t have a certain level of crime present are the ones who don’t have a certain number of people present.

Second, while crime is still a very serious issue in Detroit and the city is still one of the most dangerous in the United States, the crime statistics do show a slight slowdown. I would also say that this community’s current levels of crime and poverty are a large part of why that home on Greenview is asking $79,900 and not a figure much closer to national averages.

Warrendale is still a part of Detroit
Yes, it is. And you know what?

This home nine miles away in the Midtown neighborhood that’s selling for $319,900 and this one 11 miles away in downtown that’s selling for $430,000 are both also in Detroit. Oh, and this one eight miles away in the Corktown neighborhood that’s selling for $364,900? Yeah, that one is in the city of Detroit as well.

Does this mean that homes in Warrendale will soon be selling for $300 - $400,000 anytime soon?

Probably not.

It does, however, establish that the mere fact that a home is within the Detroit city limits does not mean that it’s worthless.

Oh, and then there’s my favorite criticism of all. The one that I deliberately saved for last.

It’s just not worth it
There are a thousand or so homes in the Warrendale neighborhood that are currently occupied on a rental basis. The landlords, generally speaking, have relatively little trouble finding people to rent those houses. They have, in fact, been getting around $850 per month for those homes and they’ve been getting that price for several years now.

And here’s why that is important.

If someone bought a home in Detroit for $102,250 and financed it entirely with no money down then, between his or her mortgage payment, property taxes, and homeowners insurance, he or she would pay approximately $850 per month, according to the mortgage calculator at Quicken Loans. It stands to reason, therefore, that home is this area should be selling for somewhere in the vicinity of $102,250.

detroit mortgage
Screengrab from Quicken Loans by Frank Nemecek
But the purchase of a home in the area for $79,900 is preposterous? I don’t think so.

Time will tell whether or not the home on Greenview really does sell for $79,900. I believe that it’s more than worth it and there are programs out there to help with the financing of such a purchase.

For now, I simply wish that folks were better able at accepting a little bit of good news every once in awhile.

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