Real Estate Report: A Surplus of Buyers Calls for a Solution

As the city continues to soar, the demand for housing in Detroit remains high

Although the city of Detroit was hit hard during the crash of the housing bubble in 2008, the fast-paced revitalization of the downtown area has since created a hefty demand for affordable housing for those with jobs in the city.

With nearly 81,000 off-market vacant units, the city of Detroit does have sufficient housing stock with a net supply of nearly 25,000 owned units expected by 2045, according to a report issued in April by the Michigan State Housing Development Authority. Though many of the homes are in need of major rehabilitation work and financing remains a problem for many. While the city continues to return blighted and vacant properties into use through its Detroit Land Bank Authority program and private developers push to increase the housing options for potential homeowners, the stumbling block has been the tight inventory of homes and the lower supply has pushed up prices.

Chase Cantrell, executive director of Building Community Value, a Detroit-based non-profit whose mission is to facilitate real estate projects in underserved neighborhoods in the city, sees clear challenges for potential homeowners in Detroit because the housing supply just isn’t there. “Detroit was hit so hard by the economic crisis that it needs more developers and people willing to rehab homes than currently available,” he says. “Fixer-uppers abound throughout the city but many don’t want to go through that process. First-time home buyers are not signing up to be developers.”

However, Jeanette Schneider, vice president of Management Services for RE/MAX of Southeastern Michigan, offers a much brighter outlook for the city. “Detroit home values are seeing dramatic increases over last year,” Schneider says. “During the first half of the year, the median price for a home in the city of Detroit increased more than 20%. Driving the increase in home values is the demand for Detroit housing.” She says major tech companies, along with companies like Quicken Loans and General Motors based in Detroit, are attracting young professionals who want to live and work in the city. And with an uptick in restaurants, grocery stores, and other lifestyle amenities available, more folks are making Detroit home. “While some neighborhoods have seen skyrocketing prices, there are still affordable communities that offer the brick homes that people desire at affordable prices.”

In May, the latest figures as of press time in RE/MAX’s monthly housing report showed median prices in Detroit were at $40,000 up 18% from the year before. The prices appear low compared to Wayne County, where the median sale price rose to $139,500 and in Oakland County, the median price was $274,035. “Additional inventory came on the market [in May] providing a slight increase of options available for buyers to consider,” Schneider says. “At the same time, mortgage interest rates hit a low for the year making now a great time to be a buyer. For sellers, homes are selling relatively quickly and at prices that continued to inch upward.” Cantell says it’s not just Midtown and downtown that have seen high housing prices in the last few years. More and more, neighborhoods in Detroit like the University District, Corktown, and New Center are too expensive for many buyers.

With prices edging up, Cantell offers a few suggestions. Look at the neighborhoods adjacent to the hotter neighborhoods like Bagley, Fitzgerald, or Morningside — to find housing stock that’s priced at a more modest range. And, hire a real estate agent who knows the city well. “A realtor is pivotal in understanding the market and what’s available,” Cantrell explains. “They give insight to the neighborhoods, what is nearby, and what is coming along in development in the surrounding areas.” With homeownership comes the need for a mortgage and mortgages are still hard to obtain in the city, Cantrell notes. Although the number of mortgages made in the city is increasing — the city, reported in April 2019, saw the most mortgages lent in the city in 10 years — Detroit still lags far behind other cities. In 2018, Detroit had nearly 1,300 mortgages made — in a city of just over 673,000. Real estate changes hands often in the city and traditional mortgages are just one way that happens. Cash sales, auctions, and land contracts are common ways to buy and sell homes in the city.

The increase in mortgages comes with troubling statistics. A recent report from the Michigan League for Public Policy, titled Detroit: The evolution of a housing crisis, points to alarming trends Detroit has seen in the past. Detroit remains the largest poor city in America, with a median income of $27,838. Homeownership rates in African-American communities from 2000 to 2016 dropped from 51% to 40%; African-Americans make up 80% of Detroit’s population. According to the report, whites make up about 10% of Detroit’s population, but received over half of the mortgages issued in 2017.

“The impact of low-quality housing options is pervasive and profound.”

—Karen Holcomb merrill

“The impact of low-quality housing options is pervasive and profound,” says Karen Holcomb Merrill, the chief operating officer for the MLPP. “Housing struggles affect economic standing, public health, education, and more. As we have been saying about Michigan, economic recovery is only beneficial if it reaches all people, and there are many state and local policies that can alleviate Detroit’s housing crisis and also improve living options for African-Americans.” Because of low cost of homes in many areas, Elizabeth Tintinalli, a Real Estate One realtor in Detroit, says the appraisal process can still be challenging in many neighborhoods. The quality of renovations is another issue. For years, investors would buy cheap homes. Now, with greater regulation from the Land Bank Authority — which owns about a quarter of the real estate market — and the city, they’re selling. Some flips work, but many are not worth the price.

Ian McCain, 25, would like to buy a house in the city but is deterred by the struggles of home buyers in Detroit — low-housing stock for move-in ready homes and the increasing prices in several Detroit neighborhoods. Like many other millennials, the thought of taking on more debt, like a mortgage, in addition to student loans, is daunting.

“There is no easy or straightforward path to home ownership as a single person working on a non-profit wage,” McCain says. “Yet as much as I want to buy a home, this challenge pales in comparison to foreclosures and water shut-offs. Until we confront the legacy of redlining and other forms of de jure discrimination, I don’t know that the housing market in Detroit will ever fully rebound.”

However, there are programs available to help first-time buyers. Detroit Home Mortgage started in order to help fill the gap between financing a home in Detroit and getting needed renovations. Programs through the Michigan State Housing Development Authority, or MSHDA, can offer down-payment assistance to different ZIP codes in the state, which includes many in Detroit. Cantrell also suggests new home-buyers work with different community organizations, like Wayne Metro or Southwest Solutions. “Part of the trouble is that a lot of first-time home buyers don’t know the process,” he says. “But these organizations can help buyers in the city with financial counselors and renovation assistance — crucial steps to success.”

These preliminary steps could help with a trend Tintinalli sometimes sees — potential homebuyers choosing to rent while they figure out what they want. She says possible buyers think this gives them time to save or even wait until the market turns but that’s not what real estate experts are seeing. What Tintinalli notes is that prices just keep rising, and especially along the main corridors. 

Not For Rent

Here too, demand has begun to far exceed supply

Much like the gap in home sale prices in the city, the cost of rentals is also widening. According to the latest report from Apartment List, the median rent for a two-bedroom apartment in Detroit is around $900. But downtown and surrounding neighborhood prices now command well over $2 per square foot in many buildings. The latest Downtown Detroit Apartment Rental Report from Broder & Sachse shows the average rent in the Central Business District at $1,884 per month (studios, one-bedrooms, and more included).

In neighborhoods comprising the 7.2 miles around downtown, prices and occupancy rates are also high. Corktown has a $1,762 average rent, Lafayette Park (with nearly 3,000 apartments) has an average rent of $1,173. And Midtown’s average rent comes in at $1,648.

Even with the rising rents downtown and the relatively low cost of buy-in for home ownership in the city, renters outnumber homeowners in the city. According to a 2017 Detroit Future City report, due to the downturn in population and homeownership rate between 2000 and 2015, the number of renters surpassed homeowners in the city for the first time since 1950. But this could be a trend we’ll see more of in the coming years; RentCafe reported in 2018 that in 97 of the 100 largest cities, rentership growth is outpacing homeownership.