Even the Red Wings can't close in Detroit.
The professional hockey team’s triple-overtime home loss last night to the Pittsburgh Penguins extended the NHL’s Stanley Cup final to a sixth game, and added to this market’s futility that finds its greatest frustration in its weakened housing sector.
The nine counties that comprise Greater Detroit are among the country’s hardest hit by foreclosures. In April, foreclosures in the area rose by 20 percent over the same period last year, according to Default Research, a real estate market tracker. In Macomb County alone, foreclosures jumped 67 percent that month. Through the first quarter of 2008, only 528 detached for-sale permits were issued for a market with 5.5 million residents. That’s compared to 1,200 permits issued during the same period in 2007, which, in turn, was off 60 percent from the first quarter in 2006, according to Housing Consultants, another market watching firm. Housing Consultants’ owner, Byrne Benson, notes that of the 528 permits issued in the recent quarter, one-third were pulled by people building on lots they own.
It was hardly surprising, then, when Centex Homes announced last week that it would leave Michigan once it completes construction on two condominium projects already in progress. The Dallas-based builder, which had 67 of the market’s 828 permits in the first quarter (that total includes rentals), said it would also finish work on homes it has sold but hasn’t begun building yet, a spokesperson told the Oakland County Business Review. (A Centex spokesperson declined to comment further on the company’s decision to leave the state.)
Detroit’s housing market has been in a three-year funk, exacerbated by the severe financial strain its auto industry is under. Consequently, this market’s home prices have continued to erode. In a report released last month, Global Insight and National City Corporation estimate that the average value of a house in Detroit had fallen to $91,300 in the first quarter of 2008, from $113,700 in the same quarter in 2005. Last week, the Detroit News reported that builders were not only dropping their prices on new homes but were also offering to purchase their customers’ existing homes as an inducement to buy. Those maneuvers seem finally to be having some positive impact, as sales of new and existing homes and condos rose in April by nearly 27.5 percent over the same month a year ago, according to Farmington Hills, Mich.-based marker research firm Realcomp.
Builder Michael Magnoli doesn’t expect Detroit’s housing market to turn around significantly until the spring of 2009, at the earliest. For the time being, his company, Macomb-based Michelangelo Construction, is surviving because of its diversification into commercial and medical construction. “Right now, we’re busier than we’ve been in 18 years,” he tells BUILDER Online. He has 20 single-family homes in inventory, ranging from $210,000 to $310,000, and he says he’s dropped prices $10,000 across the board. “That’s irrelevant, though, because people are coming in with low bids, so we realize it’s a negotiation.” He is planning to build another 20 single-family homes because he expects his inventory to be sold by the time he completes those houses.
On the other hand, Magnoli is having more success finding buyers for his multifamily product. His company is currently building a complex whose 48 units will range from 1,200 to 1,600 square feet and $120,000 to $170,000. “We have a waiting list to finish,” he says. Magnoli expects to move all of the residents into this building within the next 120 days. And when asked whether he’d be interested in picking up any of Centex’s lots, Magnoli would only say, “I listen to anyone.”
Detroit’s problem, Housing Consultants’ Benson tells BUILDER, isn’t a lack of home buyers; it’s their access to mortgage capital, as lenders have all but shut off the spigot for home buying. Benson also notes that the banks aren’t lending money for new construction, either. “You can’t get anything funded, and we’re talking about some companies that are third generation with long-term relationships with their banks. It’s been like this now for 18 months.” That’s created a situation where, he says, there is no inventory of single-family homes in the market priced under $250,000.
Benson notes, too, that no major banks are headquartered in Detroit anymore, “so all of the decisions [about mortgage lending] are being made in places like New York, Charlotte, and Chicago.”
Learn more about markets featured in this article: Detroit, MI.