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There's a geographic difference between METRO DETROIT and DETROIT
Lump the demographic statistics of both together and Detroit doesn't seem so bad, but tease out statistics that pertain to just DETROIT, and things arent' so pretty
You do realize the City of Detroit makes up 25% of all of Metro Detroit's housing supply, right? Yet it also has the regions lowest number of sales.
No, I don't "realize that" as it isn't true. Detroit has around 700k people in a metro area of 5.5 million, so nowhere near 25%.
And I have no idea what you're talking about re. Detroit and home price appreciation. The city of Detroit is mostly renters and the city-specific data is almost completely irrelevent to Metro Detroit's low home price appreciation. I doubt even 10% of metro-area sales are in the city proper.
Quote:
Originally Posted by animatedmartian
It's true that Detroit, the city, has extremely low home appreciation (and low sales) but it's erroneous to apply that statement to the whole metro area where sales are only just now beginning to decline because of how fast prices have appreciated.
No, you have it completely wrong. Case-Schiller is measuring home price appreciation by metro area. Home sales in the city proper aren't a major factor.
The fact is that Detroit Metro home price appreciation is among the worst in the U.S., which is why I'm always mystified why people think paying 200k for a home in Metro Detroit is a "deal", when odds are the same home will probably be worth 200k 20 years from now, and think paying 600k for a home in NYC, LA, Boston, etc. metros is a "ripoff" when odds are that same home will probably be worth 1.2 million 20 years from now.
The buyers in the "too expensive" cities are getting richer over time and have the better investment. I have seen it in my own family. I have family that bought in Orange County, CA and Oakland County around the same time in the late 70's, both paying around the same price. The CA homeowners are now millionaires many times over, solely due to home price appreciation, the MI homeowners have lost money on their home if you factor in inflation.
There's a geographic difference between METRO DETROIT and DETROIT
Lump the demographic statistics of both together and Detroit doesn't seem so bad, but tease out statistics that pertain to just DETROIT, and things arent' so pretty
You should probably read the thread more carefully before commenting. Either that or you're posting to the wrong thread.
I agree. Some of the Detroit suburbs are so picturesque with some amazing real estate. Just seems like a tremendous value to me compared to my native Chicagoland area where I came from. The Chicago suburbs are grossly overpriced (in hot areas such as the North Shore or wealthy Western suburbs) & have crippling property taxes. Doesn't make much sense to me. And I partied so much in Chicago when I was a wee young lad (back in my 20's), that it is way down on my totem pole of priorities these days. I feel much better off for now in SE Michigan. I can always visit Chicago.
Chicago has horrible home price appreciation too. It's also a bad deal relative to most other metros.
Whether or not a suburb is "picturesque" has zero to do with whether a home is a good investment over time.
And there's no such thing as "overpriced". A home's true value is whatever it sells for. You personally may think it's "overpriced" and that Sterling Heights and Livonia should be more expensive than the California Coast or Long Island, but the market disagrees with you.
Short of statistics this conversation is relatively meaningless.
But even with statistics it is pretty meaningless. For instance I just googled this and found this:
Over the last decade housing prices in Plymouth have appreciated +11%; Birmingham 10%; Novi 8.85%; Bloomfield Hills 8.85%.
Is that "horrible," "awful," "way below national averages" etc? I have no idea. Doesn't sound too bad, considering equity returns are usually around 8-9% and are considered very risky.
That being said, these stats are completely warped by the financial crisis and also arguably by what is likely another current real estate bubble due to ongoing low interest rates.
I'm not sure comparing a Midwestern real estate market to if you could have timed the tech boom in San Francisco 30 years ago makes much sense... LOL.
Heck let's go back further; if only I could have purchased cheap beach front property in sleepy Santa Monica in the Three's Company era my kid's kids would be set for life.
Ugh, so many made up stats and figures and... just... ugh.
The point is people buying a home as an investment vehicle are not smart investors. Invest in stocks, bonds, metals, a business, or commercial real-estate. While many Americans have stashed a significant portion of their net worth in their home, this isn't due to price inflation, rather it's due to the fact that their payment stayed the same while they paid down a loan balance. Outside of the elusive "hot" markets, home prices nationally increase at about the same pace as everything else, which makes sense if you think about it for a minute - we're not exactly limited on home supply and demand nationally demand will remain constant because people need homes, but typically not 4 or 5.
Yes, Metro Detroit homes had a dump taken on them between 2005-2015, but if you look at the prices now vs. then, they're about the same - which also makes sense since gas still costs $2.50 a gallon, the median household income is still in the 51k range, and a Hot n Ready pizza still costs $5. Truthfully, other than stocks, the prices of most things are about the same today as they were in 2005. So what if instead of buying that expensive home in 2005, you'd have bought a modest one for $500 a month less and invested that $500 a month in an S&P tracker fund? Well since annualized returns over that time were roughly 7%, you'd have about $85k sitting around and instead of that 85k being stuck in your residence, you could just pull it out of your Trade account and do what you please with it. But instead you bought the expensive home, and paid an extra 4% interest on 100k, to a bank, for 10 years.
A home is an investment, yes, but this is because typically you expect your salary to go up while your payment stays the same - this isn't because you're going to be seeing 10% year over year gains on it. A home isn't the stock market. So by all means, go buy that 900k bungalow in Santa Monica, maybe you'll score big and sell it for 1.1 million in 5 years, but had you bought a 300k colonial in Troy and invested that extra 3k a month you'd have come out ahead.
Ugh, so many made up stats and figures and... just... ugh.
The point is people buying a home as an investment vehicle are not smart investors. Invest in stocks, bonds, metals, a business, or commercial real-estate. While many Americans have stashed a significant portion of their net worth in their home, this isn't due to price inflation, rather it's due to the fact that their payment stayed the same while they paid down a loan balance. Outside of the elusive "hot" markets, home prices nationally increase at about the same pace as everything else, which makes sense if you think about it for a minute - we're not exactly limited on home supply and demand nationally demand will remain constant because people need homes, but typically not 4 or 5.
Yes, Metro Detroit homes had a dump taken on them between 2005-2015, but if you look at the prices now vs. then, they're about the same - which also makes sense since gas still costs $2.50 a gallon, the median household income is still in the 51k range, and a Hot n Ready pizza still costs $5. Truthfully, other than stocks, the prices of most things are about the same today as they were in 2005. So what if instead of buying that expensive home in 2005, you'd have bought a modest one for $500 a month less and invested that $500 a month in an S&P tracker fund? Well since annualized returns over that time were roughly 7%, you'd have about $85k sitting around and instead of that 85k being stuck in your residence, you could just pull it out of your Trade account and do what you please with it. But instead you bought the expensive home, and paid an extra 4% interest on 100k, to a bank, for 10 years.
A home is an investment, yes, but this is because typically you expect your salary to go up while your payment stays the same - this isn't because you're going to be seeing 10% year over year gains on it. A home isn't the stock market. So by all means, go buy that 900k bungalow in Santa Monica, maybe you'll score big and sell it for 1.1 million in 5 years, but had you bought a 300k colonial in Troy and invested that extra 3k a month you'd have come out ahead.
This entire thread is nonsense.
You can't argue with data (well you can try, but as your post demonstrates, it doesn't work).
The data show that Detroit is a poor long-term investment and LA is a good long-term investment. Real world example- I have family in Orange County that bought a 100k home in Corona del Mar in the 1970's. It's now worth around $3 million. I also have family that bought an 85k home in Bloomfield Township in the 1970's; it's now worth around $350k.
There is no possible way that the Bloomfield Hills home was a better investment. There's no way to spin it- residential RE in Metro Detroit has a very poor track record. Now that doesn't mean that no one should buy in Metro Detroit, as there are benefits to homeownership beyond appreciation. But the primary goal of homeownership- stable investment, is not being met in Detroit, hence the low prices, which some people erroneously think is "a deal" as if Sears stock were "a deal" just because valued less than Microsoft stock.
There are, of course MANY reasons to live in Detroit over somewhere like LA- lower housing costs, four seasons, family connections (where applicable), abundant fresh water, generally nice people, lack of congestion, lots of high paying engineering jobs. But real estate isn't a very good wealth vehicle in the region; in LA it certainly is.
Okay, let's say I buy a house in a modest suburb like Santa Clarita with 10% down for 500k. Including taxes, insurance, repairs, etc. After 5 years I've spent ~180k to live there at a price of $3,000 a month (36k a year). Of this 180k, 40k has gone toward my principal payment. We'll be optimistic and pretend real estate continues to boom and this house is sold at 580k. After real estate fees we have 45k leftover and having paid off 40k we have 85k of profit. Not a bad investment. Maybe I can roll it over into a bigger house, or move into a similar house somewhere hip like West Hollywood - with that kinda down payment I can still keep my mortgage under 3k!
Now in an alternate universe I buy that same house in Rochester Hills for 200k. I still put down 50k, but in this case that represents a 25% down payment. Now I have a monthly payment of $1200. I also have $1800 a month leftover from not buying the house in Santa Clarita. After 5 years with all things (taxes, interest, principal, insurance, repairs) considered, I've paid $75,000 - $28,000 went to interest and $14,000 to principal the rest to other stuff. I sell the house for 220k (minus 13k in real estate fees) and end up with a $21,000 profit (14k paid off, 7k return over initial purchase price). That's significantly smaller than the scenario in California - and if we end things here, you're right, and I can't make money in Michigan.
But let's not. Let's not end things here.
Let's look at the part I'm not talking about.
To make that profit living in California, I spent $180,000.
To make that profit living in Michigan, I spent $75,000.
Assuming my salary was the same, had I done absolutely nothing with that extra 105k except stashing it in a savings account - I'd come out ahead.
180-75 = 105
105+21 = 125
125 > 85.
But what if I took that 105k and invested it? $1,800 a month over 5 years? At the end of 5 years it's worth 136k. Let's say I'm super boring and modest and instead of selling my house in Rochester Hills, I just stay there. I also keep investing that $1,800 a month for the next 20 years @ annualized 8% returns... and now I'm a millionaire, and I don't even have to sell my house to access the money.
All done while living in a modest house, in a modest city, in a modest state. Ah, but there's no image in that is there? I probably still drive a 6 year old Ford and wear jeans to work. Man, life is rough for a Michigander. Sure wish I was ballin' with my $3,000 mortgage and that Benz that I need so people will take me seriously in LA. Hey honey, did you pay for the gym membership? I need to go tanning.
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