I came across this article while stumbling around this weekend. It’s worthwhile and certainly hits home in todays US housing market woes that we’re seeing. Granted it is in one of the more traditionally poor performing areas of America, but nonetheless still interesting.
So we’re probably all very aware at how poor the real estate market is in Detroit. With the recent cutbacks in the auto-industry, the Mother City of the Auto Industry is definitely feeling the pain. Ford’s light truck sales fell 2.6 percent, Chrysler sales fell 12.4 percent, while GM sales fell 0.4 percent. Toyota sales rose 0.5 percent. Over all, industry sales declined 2.7 percent last month.
Wiki says that the Detroit area is accustomed to the economic cycles of the auto industry. A rise in automated manufacturing using robot technology, inexpensive labor in other parts of the world, and increased competition have led to a steady transformation of certain types of manufacturing jobs in the region.
Local complications for the city include higher taxes than the nearby suburbs, with many unable to afford the levies on property. In June 2008, metropolitan Detroit’s unemployment rate was 9.7%. In the city, the unemployment rate was 14.2% at the end of 2005, leaving Detroit with more than one-third of residents below the poverty line.
What Happened To The House?
The $1 home article goes on to say, “The sale price of the home may be an anomaly, but illustrates both the depths of the foreclosure crisis in Detroit and the rapid scuttling of vacant homes in some of the city’s impoverished neighborhoods.
The home, at 8111 Traverse Street, a few blocks from Detroit City Airport, was the nicest house on the block when it sold for $65,000 in November 2006, said neighbor Carl Upshaw. But the home was foreclosed last summer, and it wasn’t long until “the vultures closed in,” Upshaw said. “The siding was the first to go. Then they took the fence. Then they broke in and took everything else.”
The company hired to manage the home and sell it, the Bearing Group, boarded up the home only to find the boards stolen and used to board up another abandoned home nearby.
Scrappers tore out the copper plumbing, the furnace and the light fixtures, taking everything of value, including the kitchen sink.
“It about doesn’t make sense to put the family out,” Upshaw said. “Once people are gone, you’re gonna lose the house in this neighborhood.”
Tuesday, the home was wide open. Doors leading into the kitchen and the basement were missing, and the front windows had been smashed. Weeds grew chest-high, and charred remains marked a spot where the garage recently burned.
Was It Always That Cheap?
Put on the market in January for $1,100, the house had no lookers other than the squatters who sometimes stayed there at night. Facing $4,000 in back taxes and a large unpaid water bill, the bank that owned the property lowered the price to $1.
$1 sale to cost bank $10,000
While it’s not unusual for $1 to be exchanged when property is transferred for legal reasons, listing a home in the Multiple Listing Service for $1 was surprising and unsettling to Kent Colpaert, the listing real estate agent for the property.
“I’ve never seen a home listed for $1,” Colpaert said.
“But it’s been hit hard: It’s just a shell.”
On Tuesday, Realtor.com listed one other single-family home, one duplex and one empty lot at $1 in Detroit.
Dollar property sales are the financial hangover from the foreclosure crisis, said Anthony Viola of Realty Corp. of America in Cleveland.
Lenders that made loans to unqualified buyers during the height of the subprime market now find themselves the owners of whole neighborhoods of vacant, deteriorating homes.
“No one has much sympathy for these banks that made subprime loans,” Viola said. “And in some cities like Cleveland, judges aren’t letting them sit on the properties — they’re ordering them to tear them down or sell them.”
How Tough Does It Need To Get?
So desperate was the bank owner of 8111 Traverse Street to unload the property that it agreed to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer’s closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000.
“It doesn’t make sense in some neighborhoods to keep paying costs and costs,” Colpaert said. “It can make more financial sense to give it away.”
Buyer calls it an investment
Colpaert declined to provide the name of the prospective purchaser, because the deal had not been through closing. The agent did say that the buyer agreed to pay the full list price of $1, and planned to pay cash.
The buyer, a local woman, considers the home to be an investment property and will not live there, Colpaert said, though exactly how soon the buyer can expect to recoup her four-quarter investment is questionable. Replacing the guts of the house will costs tens of thousands of dollars, and the owner will have trouble keeping scrappers from stealing the improvements as quickly as they’re installed. Home demolition costs about $5,000, Colpaert said.
Meanwhile, the new owner will owe $3,900 in property taxes in 2009 on her dollar purchase unless she challenges the tax assessment.
While selling a home for the amount of change most people could find between their couch cushions is unusual, some abandoned homes in Detroit sell for $100; vacant lots can be purchased for $300.
I clearly think that it is a good idea to snatch up good property now that the market is in a sag, but I just can’t convince myself that it’s a good investment to buy in Detroit right now. Unemployment is up, automakers are cutting jobs, people are stealing pieces of houses, and I hear the weather isn’t that spectacular either. There’s actually an interesting poor vs rich debate going on over at ZillowBlog on just this issue.