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"it’s incredibly hard for home buyers to get a mortgage right now” in Detroit, a national housing economist tells local author-journalist Anna Clark, who explores home-buying changes and challenges here.
Clark delivers this eye-opener at a national news site Monday:
In Detroit, there were 3,500 sales of single-family homes in 2014. Only 462 of them received a mortgage.
That means that nearly 87 percent of sales were in cash — and that doesn’t include homes sold in foreclosure auction.
Appraisers sometimes deliver "an appraisal that is lower than the agreed-upon price, which usually torpedoes the mortgage and the sale."
(Flickr photo by Rachael Sears)
That 87-percent figure is far above the region-wide level of 53 percent non-mortgage sales last year. Nationally, only 43 percent of home-buyers had to pony up the full amount themselves. (Non-mortgage sales don't necessarily mean the buyer pays cash. "Land contract or seller financed sales are big in the D," a reader comments under this article.)
Clark's detailed, important analysis is published by Next City, a nonprofit team of urban affairs journalists based in Philadelphia. Her 4,600-word article quotes a local banker, residents and housing specialists.
It's headlined "The Threat to Detroit’s Rebound Isn’t Crime or the Economy, It’s the Mortgage Industry." Here's the main point:
One of the most sinister legacies of urban development — redlining — is making a de facto reappearance in Detroit. The housing market is set up to invest in some neighborhoods, and not in others.
Even in a city that is 83 percent African-American, and where the median income is under $30,000, home purchasing favors those with liquid cash assets. That is, people who, disproportionately, are upper-income and white. . . .
In all but a handful of Detroit neighborhoods, you better have cash on hand for both the purchase price and the tens of thousands of dollars of rehab work. Loans here are nearly impossible to find.
Clark, a prolific freelancer who is editor of "A Detroit Anthology," compiles this evidence:
- Of the 462 [Detroit] mortgages in 2014, 364 went for homes that cost more than $52,000, even as the average house price varied between about $32,000 and $40,000.
- In 2013, 35 percent of mortgage applications were submitted by black applicants and 25 percent by white applicants.
- Black applicants were six times more likely to be denied a mortgage due to poor credit than white applicants.
The deeply researched article has two views of post-bankruptcy Detroit. One shows "select neighborhoods where the narrative is about revival."
Historic residences in Detroit’s most gracious communities are asking for eye-popping prices: $749,500 and $530,000 in Indian Village, $1.55 million in Palmer Woods, $500,000 in Lafayette Park, $80,000 for a high-rise condo in Harbortown, $1.125 million for a downtown penthouse.
Over the last decade, home values have nearly doubled along the Woodward corridor, which cuts through the center of the city, and they’ve increased by nearly two-thirds on the eastern riverfront. . . . “Move to Detroit” is the hip mantra echoing in New York City, Houston and well beyond.
"Many appraisers flat-out refuse to go into the city, or into a neighborhood," a Talmer Bank executive managing director says.
Not always a great deal
In contrast, a second perspective is visible "across vast swaths of the city . . . [with] swiftly deteriorating homes scrapped of water heaters, furnaces and plumbing."
Exposed to the elements, the historic molding absorbs moisture and crumbles. Animals take shelter inside their walls, or squatters, or drug dealers. Or all three.
Should someone take an interest in buying one of these homes, it might be priced as low as $500 or $1,000. That’s a loss for the seller; average home sale prices in Detroit have fallen nearly 28 percent since 2006.
But it’s not necessarily a great deal for the buyer either. The title may come with a forbidding burden of back taxes and water bills.
And the cost of rehabbing these cheap houses and making them livable can range from $50,000 to $90,000 for a small bungalow. Renovation will cost more than these homes will sell for.
Next City and Clark tackle urban affairs coverage the way serious magazines and newspapers do -- investing time and street-level reporting to supplement data and experts' comments.
Fearful appraisers
The reporter explains the pivotal role of appraisers who evaluate mortgage applicants' properties for banks -- sometimes delivering "an appraisal that is lower than the agreed-upon price, which usually torpedoes the mortgage and the sale."
The low appraisals also lead to a problem for owners who want to stay in their home but need to access equity to make improvements. When such an owner goes to refinance at the bank, they find that their $140,000 house is now valued at $17,000 — and there is no equity for them to access. This harms the individual, and further deteriorates the value of the home, setting the stage for the nearly inevitable cash sale at a low price if the owner does ultimately choose to put the house on the market.
Brace yourself for another startling eye-opener, this time from Patrick Ervin, executive managing director of Talmer Bank. Astonishingly, he tells Clark:
“You have to start off, very basically, with an appraiser who is willing to go into the city. Many appraisers flat-out refuse to go into the city, or into a neighborhood. That’s just a fact. There’s no way to pretty it up.”
On a weekday afternoon this fall, Clark visited residential blocks near Marygrove College, south of 7 Mile on the northwest side -- "a tipping point neighborhood, one that may be able to get back on its feet after a bruising few years"
Or not. What happens now depends on solving Detroit’s redlining problem.
Her article has a stark subhead at the top: "Redlining is alive, well and dangerous in Detroit."
