Pete Flint’s Blog

I stumbled across this article this morning about the detroit real estate market and how International investors are moving in to snap up detroit foreclosures and short sales.

From the article:
"Welcome to Landlord Nation, where foreclosure notices are plentiful and for-sale signs offer at least 1,800 homes for under $10,000 that once were worth at least 10 times more. In extreme cases, homes are on sale for $1 or less, which has enticed investors to Detroit from as far away as the United Kingdom and Australia."

“Despite a stagnant retail housing market, real estate sales of foreclosed homes are booming. Shannon regularly fields calls from eager prospects, and recently sold 30 homes in one day to one buyer. A trio of U.K. investors has bought a half-dozen and plans many more.”

“Outside buyers are the latest in a long line of landlords taking over the deteriorating housing stock of a city that because of its once mighty auto industry boasted one of the highest owner-occupied housing rates in the U.S. And unlike many large cities, Detroit's single-family homes dominate its landscape, not high-rise apartment buildings.”

From AP

So, I wondered if there was truth in the story?

Absolutely! Just check out these recent questions from Trulia Voices:

Adrian in Ireland asks:

Hello, I'm from Ireland&I'm looking to purchase 5 or 6 properties to refurbish & rent out in Detroit.

I will be looking for 3/4/5 beds that will provide a good rental yield when refurbed. Where should I be looking and what areas should I avoid? Are the taxes based on the property value or set by the county / state?

Ian from the UK asks:

Hi all im from uk an looking at property investment in detroit. Spent alot of time working for investers

fixing there houses up!

Could anyone provide a list of current houses in detroit for sale please?

Mikem asks:

Investing in Detroit Property

i am looking to buy an invesment property of two in detroit. can anyone give me an idea of some the nicesuburbs to buy into and worth looking at?

John Gitre responds with:

Mick, we have a lot of homes priced from as low as $1,000 or less up to $50,000 and above. Detroit is not the only place with very well priced homes for investors. How familiar are you with the Detroit area? When do you plan on coming here? With so many properties in such a large area you would be best served by looking at them yourself. If you could send me your criteria for the type of property you are interested in, I would be glad to provide you with some assistance. You may contact me through my Trulia profile. Thank you and good luck.

 

So while there are tough times in the Detroit economy overall, it looks like prices are so low that investors are coming in, do you think this signals the bottom for Detroit house prices?

The last two weeks have been a whirlwind of activity in our Industry, here’s a rundown of what you need to know:

Obama Housing Plan

On February the 18th President Obama announced his plan to help resurrect the housing market. The plan consists of three main elements:

-          Home refinance program for responsible homeowners suffering from falling home prices:

• If your property value is greater than 80% of your mortgage (but less than 105%) you can now refinance and take advantage of historically low rates
• Estimated to provide new options for 4-5m “responsible” home owners with loans owned or guaranteed by Freddie Mac or Fannie Mae.

Loan modification plan to help “at risk” home owners avoid foreclosure

• The idea is that the only way to stabilize house prices is to slow foreclosure rates. Loan delinquency is very high due to the combined impact of falling house prices and rising unemployment. Government estimates are that neighboring foreclosures reduce home values by $6,000
• This will be a shared effort by home owners, lenders and government institutions with incentives for lenders to help loan modification and home owners to keep up with payments. The government is funding this with a $75 Billion program and estimated to impact 3-4m homeowners
• The borrower reduces the loan to 38% of the owner’s income level and then government will further reduce it to 31% of the owner’s income.

-          Provide stability to Freddie Mac and Fannie Mae to help ensure lower mortgage rates

• Increased funds committed to ensure strength and security of mortgage market.

The reaction was mixed. While some saw it as a bold step, many home owners were angry that irresponsible home owners who were living beyond their means were getting a “bailout”.

Personally, from an economic perspective it seems that these measures are unlikely to have a significant impact on the housing economy, the economic onslaught is so big. There might be isolated areas of recovery, but I suspect the impact to be limited and there are a lot of bad loans and leverage to be worked through the system. Also, from reading many of the comments from consumers on Trulia Voices, a few hundred or thousand dollars a month is immaterial compared to the prospect of unemployment or a mortgage that is tens or hundreds of thousands of dollars less than the value of the home owner’s property.

January Sales Data from the NAR

The January sales data released by the NAR showed some dismal numbers with new lows.

Existing-home sales fell 5.3% to a seasonally adjusted annual rate of 4.49m units in January from a level of 4.74m units in December. This is down 8.6% compared to the 4.91m unit pace in Jan 2008.

The median existing home price for all housing types was $170,300 in January down a staggering 14.8% from a year earlier where it was just under $200,000.

The belief by some was that consumer were delaying purchases due to potential stimulus packages due in February. I believe this a little and expect that we’ll see a slight rise in the coming months, although it won’t quite signal a recovery, just delayed purchases. Clearly there will come a point where asset prices reach a point where buyers and investors will move back into the market, but the velocity of the declines suggests that we are not close to bottom.

Other news observations are that the West is really a unique market with significant growth in transactions +29% year on year and down 25.5% in sales price from Jan 2008, this is driven by a huge number of distressed sales in that region. Also month’s supply is running at 9.6 month, still significantly higher than the 4-5 months we’d see in a normal market. It looks like the only way that we’re going to see any return to normality is to have the short sales and foreclosures taken off the market faster than they are being added, which is slowly starting to happen in some parts of the US.

New home sales for January 2009

The US Census Bureau also released their data for January New Home Sales, which was grim reading.

There data showed there is a 13 month supply of new homes on the market and sales are down

48.2% compared with a year earlier. Builders have cut their median sales prices by a record 9.9% in January compared with December in a bid to move unsold homes with median sales prices are down 13.5% in the past year, the largest year-over-year decline in 38 years. The average sales price has fallen a record 17.6% in the past year and inventories of unsold homes fell by 3.1% to 342,000, the 13th consecutive decline.

With so much inventory on the market and the sector so out of favor it is difficult to see how significant growth in the mid term.

 

Pending home sales for January 2009

Pending home sales for January 2009 fell to a record low with the number of signed contracts falling 7.7% to an index score of 80.4, the lowest level since tracking began in 2001. All regions fell other than the West, which actually rose 2%. Again, the West is a unique market driven by the large number of distressed sales.

 

Lastly, but not least the Dow hit a 12 year low, falling below 7000 for the first time since 1997. I started my professional career that year at an Internet company funded by a newspaper. Wow, how things have changed.

I was talking to some brokers last week from Miami, who were telling me that prices were down sharply, but transactions were up significantly up over last year.
I thought I'd check out the data for myself.
See here for Miami housing market trends

:

For a 12 month view on number of sales:


And a 12 month view of median sales price.


It looks like while prices are still falling, the 1 bedroom properties are being bought up in much higher numbers. The number of sales has doubled in the last 6 months.
I'm curious who is buying these properties, are they mostly investors or normal consumers feel that prices are now affordable?
Look forward to any thoughts and predictions for 2009 in the Miami market.