Real estate prices are hitting new records, and Metro Detroit is leading the way. That means obtuse problems and opportunities.
Dennis Capozza, a University of Michigan professor of finance and real estate, says housing prices have fallen to 1988 levels. The last four years of losses have wiped out gains of the last 10 years, leading Capozza to call Metro Detroit the canary in the coal mine for the housing crisis that is now overrunning Las Vegas, Phoenix, inland California metros, and many south Florida metros.
Capozza agreed to answer some questions over email about the current real-estate environment and what we can expect to see from it in the near future.
If Metro Detroit was the canary in the coal mine for the housing crisis, should we expect it to be at the forefront of the recovery, too?
No, Detroit will recover slowly.
Lots of people are obtaining once-in-a-lifetime real estate deals today. Could the low-to-non-existent housing payments being achieved today translate into more disposable income and a stronger local economy 5-10 years from now?
Yes, the less we have to spend on housing the more we have available for other goods. That is the adjustment that is taking place; but a lot more families are still saddled with mortgages they can no longer afford so the transition will take time.
Lots of local and out-of-state investors are picking up surplus property today. How can we expect this will reverberate through our local economy?
I have not looked at these data on out-of-state investors but I would guess that most of them are serving as intermediaries for investors liquidating foreclosed properties. If so, the properties will be quickly resold to local buyers.
Where is the bottom for the Metro Detroit real-estate market? Have we hit it yet and if not when could we realistically expect to?
Our forecast calls for real (inflation adjusted) prices to continue to decline at a slower rate for 1-3 more years, barring a significant recovery in the auto industry or highly targeted government programs. However, long-term recovery hinges on Michigan being able to replace the auto industry with a vibrant new industry, which often takes decades.
Source: Dennis Capozza, a University of Michigan professor of finance and real estate
Writer: Jon Zemke
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