Detroit Homes Selling For Less Than SUVs: A Housing Bust Metaphor

by: Tim Iacono

Reading story story that sat atop the main page at Yahoo! (NASDAQ:YHOO) yesterday made me think of how homes in Detroit selling for less than automobiles is somehow a metaphor for the current state of the economy.

When the sedans and SUVs that roll sparingly off of the Motor City's production lines are of more value than the residences they pass by en route to dealers, hasn't something gone terribly wrong somewhere in the economy?

Yes, change comes slowly and painfully in the competitive global economy, but these are not Bugatti Veyrons they're talking about, these are Fords and Chevys.

With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

A slowdown from recent rates of growth for the U.S. economy is already well underway. It's now really a matter of whether there's a recession lying in wait later this year or if somehow Ben Bernanke will be able to pull up the nose just quickly enough to effect the holy grail of all central bankers - the "soft landing".

The landing doesn't appear to be shaping up as a soft one in Detroit - it sounds like they completely missed the housing boom and went straight to the housing bust.

The city, which has lost more than half its population in the past 30 years and struggled with rising crime, failing schools and other social problems, largely missed out on the housing boom that swept much of the country in recent years.

Prices have gained less than 2 percent per year in the five years since 2001, when the auto industry entered a renewed slump.
Detroit, where unemployment runs near 14 percent and a third of the population lives in poverty, leads the nation in new foreclosure filings, according to tracking service RealtyTrac.

With large swaths of the city now abandoned, banks are reclaiming and reselling Detroit homes from buyers who can no longer afford payments at seven times the national rate.

Michigan was the only state to see home prices fall in 2006. The national average price rose almost 6 percent but prices slipped 0.4 percent here, according to a federal study.

Not surprisingly, million dollar condos are still selling in the revitalized downtown area, or so says the mayor.

Somehow this is a metaphor for something.