Recently, I was asked by an out of state relocation company to write a summary on the economic climate of the Southeastern Michigan Real Estate Market. The Relo Company needed to legitimize the shortage on a property in inventory that received an offer of 60% less then what the seller purchased it for. I thought I would share it with you.
Mike Sher
Detroit Metropolitan Real Estate Economic Summary
As you are aware, Detroit has been very strong in manufacturing/automotive sectors. Through good factory jobs and labor union contracts, many Detroiters enjoyed a high quality of life. During that time period, Detroiters purchased cars, homes and other expensive products using credit cards and overtime as their means. The prosperity ended; from 2005 -2007 Michigan has had job losses of over 200,000. In the 12 month period of 2007 alone, Michigan had 90,000 people leave the State (Detroit Free Press). Many of these job losses started with the manufacturing and auto sector--Delphi, Visteon, Ford, Chrysler and GM. Then, with the mass loss of people in the State, the job loss spread to all sectors from school teachers, to retail and service providers. Even higher-end providers, Doctors, Architects, Dentist having seen their clientele diminished, affecting their businesses negativity.
Because of the economy as described above, with the addition of tighter lending practices and a general fear to invest in the Detroit area, home values have decreased by more then 23% from 2005 (Detroit Free Press). Fewer and fewer buyers are entering the market; those who are buying have expectations of extremely low pricing. We have a huge inventory of homes for sale, with an average 17-month supply. For instance, in Oakland County, 3rd quarter 2007 had 13,974 homes for sale with only 2,388 sales.
The last piece of the puzzle is the extremely competitive pricing of REO/foreclosed properties. In the past, these REO homes were in horrible condition and were uncommon enough to steal few buyers from the market. Now these homes are in reasonable condition and are selling at 10% to 20% less then the retail homes which is plummeting the average sale price in southeast Michigan.
It is my opinion as a Real Estate Broker, Realtor and Salesperson since 2000, that our Detroit market will not stabilize until our economic and migration problems improve. This will hopefully happen sometime in 2nd to 3rd quarter 2009 after the 2008 Presidential election. By that time, Detroit business will have had the opportunity to change its practice to compete with foreign competition, develop new energy strategies, control wasteful spending, pay for past obligations to their employees and embrace the new world economy. When these changes occur, the metro area will be able to embrace and attract new sectors in technologies, medicine and other 21st century opportunities.
Fondly,
Mike Sher
Real Estate One, Associate Broker
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