Canada's Condominium Magazine
It is said that opportunity often comes disguised as misfortune. If that is true, then Detroit must be a land of opportunity unlike most. And in fact, some savvy Detroiters are proving it is so. A woman from the beleaguered city next door to Windsor said, in a Bloomberg Businessweek article recently (before the bankruptcy, mind you) that Detroit was “the hottest thing happening.” The woman had bought and sold 332 homes in the past two years! The average price? Just $2,500. “No place else can I buy a house for $1,000 and put in $3,000 to fix it up and get a 40 per cent return on my investment monthly.”
Stories about Detroit these days are necessarily full of statistics, both good and bad, but mostly bad. More than a third of the (shrinking) population lived below the poverty line in 2011; unemployment is at 16 per cent, more than double the national (US) average; the per capita income in the city is $15,261, compared to suburban Birmingham where it is $67,580; a quarter of the city’s housing units were vacant as of last January—that’s around 100,000 properties abandoned and vacant; foreclosure properties, of which there are thousands, are selling for as little as $500. You can buy a house in Detroit for the cost of a cheap iPod, or a pair of shoes.
So what does this mean for the city? It means opportunity, at least for investors like that Detroit woman and one New Yorker who paid $90,000 for—wait for it—29 Detroit homes at auction! And, according to the Bloomberg story, there are plenty more like him lining up to buy.
But are investors like this smart or crazy?
Maybe smart, it turns out. For housing prices are rising once again. Despite the bankruptcy, which is already being called “old news” by some Detroit developers, house prices are rising again, after losing more than half of their value in the market collapse of 2006. An investment group called the Metro Property Group says that now is the time to invest in that market, which, the group claims, is the number 1 performer in the nation, with median list prices for houses rising 28 per cent over last year’s.
Chinese investors have shown a lot of interest in Detroit. Anecdotal evidence has it that Chinese investors are calling local Detroit realtors and placing orders for 100 or 200 properties, though the Chinese government has warned them that this could be very risky.
The question that demands an answer is, can this new growth continue? Are the fundamentals there to support it? With all those tens of thousands of homes lying vacant, and unemployment so high, how can the housing market continue to recover? Aren’t there limits to the number of properties an investor can snap up and turn around quickly, if the working population isn’t there to buy or rent them? Even before the bankruptcy, Detroit was not getting its “fair share” of outside capital investment, according to the Detroit chamber of commerce president.
Without a growing economy, there isn’t much hope for housing, yet investors are still being assured that Detroit is the place to be. Business Insider lists 25 reasons to believe in Detroit, and they include the rebounding auto industry, the presence of a dozen Fortune 500 company headquarters, and a number of financial indicators. And of course local business leaders tout the city’s potential—what else can they do? Some say the fall of Detroit is a blessing in disguise because now the city has no choice but to “rightsize” its services.
But an investment advisor in the area, Jonathan Citrin, told Crain’s Detroit Business that the bankruptcy is a “contagion” for business in the city, one that could spread, with contracts canceled, worsening city services, possibly higher taxes. “Unless magic occurs, the city will be a less desirable place to live or work, and Detroiters can expect a slow but profound exodus of businesses unwilling to risk their sustainability.” And that would certainly not be good for the housing market.