While we often get disturbing headlines locally, such as 13 of the 25 cities with the largest income plunge the past decade being in this 1 state [Sep 30, 2010: Michigan Sees Sharpest Income Plunge in Nation in Decade], every so often you read something that even rocks your numbed senses. Yesterday in the Detroit News we saw a story that home prices are back down to 1994 levels.... before accounting for inflation. If you take into account inflation a $100K home bought in 1994 is $34,000 in the hole. Did I mention I have Michigan economic bias? What is amazing is how far behind we are from even the 2nd to last city - Cleveland, which is back to 2000 price levels; that's a 6 year variance. Those of us in Michigan are really going to need The Bernank to get the Dow to 40,000 just to make up for our homes.
Via Detroit News:
- After slowly ticking up, home prices are falling in most of America's largest cities, but nowhere is the drop as huge as in Metro Detroit, where November home values were at their lowest point since the summer of 1994.
- The latest Standard & Poor's/Case-Shiller index released Tuesday showed November home prices in eight major markets hit their lowest levels since the housing bust began. Still, prices in all but one of the 20 markets surveyed are at or even above where they were in January of 2000. The exception: Detroit, where home values are off by 34 percent during the past decade.
- According to Case-Shiller, Detroit home prices dropped 2.7 percent from October, and are 48percent off their February 2006 peak. That's much worse than markets such as Tampa, Fla., where values more than doubled during the housing boom.
- But home values in Tampa remain more than 30 percent above their January 2000 level. That big gap in home values illustrates the big difference between the Detroit economy and the rest of the nation, said Dana Johnson, chief economist for Comerica Bank.
- "What Detroit experienced is plausibly a depression, rather than the sharp recession most of the country had to go through," Johnson said. "There were several years of downturns in Detroit and Michigan before the national recession ever got going."
- The news gets even worse when inflation is factored in. According to Case-Shiller, a Metro Detroit home worth $100,000 in 1994 would be worth, on average, the same today. But a home that fetched $100,000 in 1994 would have to bring $147,136 today just to keep pace with inflation. So instead of breaking even, the buyer of a $100,000 Detroit home in 1994 has lost more than $32,000.
- "Along with unemployment, we've got a pretty substantial backlog of homes," he said. For values to increase, he added, "We've got to work through both of those, and I don't see that turning around any time soon."
- As home prices do begin to pick up, banks holding on to foreclosed properties and homeowners who've been waiting for values to rise could flood the market, pushing prices down again, Walters added. Another issue is the larger number of Michigan homeowners who owe more on their homes than the properties are worth, which prevents them from selling to buy another home. In addition, more foreclosed homes are expected to hit the market this year, experts say.
- Nationally, the Case-Shiller figures suggest a double-dip in home values is here. The 20-city composite index had been improving steadily since June 2009, rising from around 142 to almost 148. But it's dropped for five months, to 142.7 for November.
- The uptick in Metro Detroit was less pronounced in 2009, climbing close to 72 in January 2010 then wavering before showing five straight drops since June. "Detroit never had the run-up in prices most cities did," said Johnson of Comerica. "Detroit had a similar downswing, but it never had the upswing. That has repriced housing around Detroit in a brutal fashion."