"Driving a Deal"-Part 3: The Foreclosure State
Thursday, July 19, 2007SUSIE GHARIB: In Michigan, the U.S. auto industry drives the state's economy. And perhaps no segment of that economy has suffered more than the housing market. Last year home prices in the great lakes state fell 7 percent, while increasing about 1.5 percent nationally. As we wrap up our series "Driving a Deal," Diane Eastabrook looks at Michigan's struggling real estate market and efforts to jump-start it.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just a few weeks after planting a for-sale sign in their yard, Tom and Kathy Fisher sold their 1,300-square-foot ranch home in Livonia, Michigan. The couple then traded up to a larger two-story house in nearby Canton. Tom Fisher thinks he got a bargain on his new home, but admits he would like to have made more on the sale of his previous one.
TOM FISHER, HOMEOWNER: We made approximately $15,000 to $16,000 over what we originally paid for it.
EASTABROOK: Were you disappointed that you didn't make more?
FISHER: Sure, sure, we would have liked to have made more, but we also understood that that wasn't going to be the case this time.
EASTABROOK: It's a buyer's market for Michigan real estate. 150,000 lost auto manufacturing jobs over the past few years and high unemployment have made the state one of the toughest real estate markets in the nation. Comerica Bank chief economist Dana Johnson says the sluggish Michigan economy is dragging down the state's real estate market. He says that is different from what has happened in other parts of the country.
DANA JOHNSON, CHIEF ECONOMIST, COMERICA BANK: You are destroying jobs and income in Michigan and that has had a knock-down effect on the housing market, and that has been the cause of the weakness in the housing market, not affordability issues because house prices had previously risen so much.
EASTABROOK: The Michigan Association of Realtors says falling home sales and home prices during the first five months of the year reflect how depressed the state's real estate market is. Realtors say for every one house that sells quickly in southeastern Michigan -- like the Fishers' -- there are two or three more that sit on the market for months even after the sellers reduce their prices several times. That has been the case for this new Cape Cod home. The 2,400-square-foot house has been on the market for over a year and its price has already been reduced three times. Veteran real estate broker James Craver doesn't think the Michigan real estate market will improve until the U.S. auto industry does.
JAMES CRAVER, REAL ESTATE BROKER, REMAX: When people feel more comfortable about their positions in these factories in these jobs and feel their jobs are secure, I'm sure that will help.
EASTABROOK: But Detroit isn't waiting for an auto industry u-turn to turn around its real estate market. It has the ninth highest home foreclosure rate in the nation. Detroit Mayor Kwame Kilpatrick is trying to change that and even help more residents buy homes. He has cut property taxes and launched a neighborhood improvement program to jump-start home ownership.
KWAME KILPATRICK, MAYOR, DETROIT: So people now can get a 6,000, 5,000, 4,000-square foot all-brick house with a backyard, two-car garage and not have to pay the exorbitant amount of property taxes that Detroiters were paying before I came into office.
EASTABROOK: Developers are also coming to the city. In downtown Detroit, construction workers are clearing the way for the new Griswold Capital Park, an 80-unit condominium project. It sits next to the historic Book Cadillac Hotel, which is being renovated and will house another 70 condos. David Di Rita is a principal with the Roxbury Group, the developer of Griswold Capital Park. Di Rita thinks downtown condo projects like these reflect confidence in Detroit's real estate market and encourage investment.
DAVID DI RITA, PRINCIPAL, THE ROXBURY GROUP: I think we just have to have a healthy, stable real estate market in the long run to allow the kind of fluidity of the market that gives people the confidence that they can buy and sell.
EASTABROOK: Economists say that is why so much attention is being paid to the upcoming contract talks between the car makers and the United Auto Workers union. They say the industry that has driven Michigan for more than a century will continue to drive its economy and housing market for several more years down the road. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Livonia, Michigan.
