City of Detroit’s Falling Market Helps Stabilize the Suburbs

City of Detroit’s falling market helps stabilize the suburbs
What happens to real estate at 29% unemployment?

Michigan Department of Energy, Labor and Economic Growth statistics show Detroit's unemployment rate of 29-percent is the highest since 1970. Unemployment in all of Wayne County is 19-percent.

Property values have fallen 80% to 90% in the city. However, net population loss in the city may be providing the surrounding areas stabilization in real estate values as the population continues to shift. Macomb County has experienced close to 6% growth over the past 9 years. Population from the city is helping to fill the net loss of people from the tri-county area. Support to real estate prices in the suburbs are coming from an interesting source, the cities inability to manage itself.

Marketplace Homes is uniquely positioned to see a population shift first hand through our tenants and move up buyers through out Metro-Detroit. People are moving to areas that have lower tax rates, better schools, and lower crime in heavy volumes due to depressed pricing. This is happening in two waves. Renters are finding great values outside of Detroit in areas such as Redford, Westland, Eastpointe and Livonia. Those that own these homes are covering mortgage payments with rent and moving to areas that have even lower taxes, better schools and extremely low crime. Areas of high growth include; Macomb County, Novi, South Lyon, Canton and Northville.

This flood of movement based on the new lower prices are leaving a hole at the start of the chain, that is in the city of Detroit.

Why is the city at 29% unemployment?
1) Highest Taxes in the State
2) Poorest Schools in the Nation
3) Highest Crime Rate in the Country

Highest Taxes in the State:
Property taxes have long been higher than any other city in Michigan. A rate of 65.79 mills for owners and 83.3 mills for those that attempt to invest in the city. Naturally, most homes are not properly valued so the net tax rate ends up being astronomical.

Example: A home that used to sell for $100,000 in Detroit is probably still valued around that amount by the city. However, the property may sell for $10,000 in today’s market. This means the home’s annual tax bill will be $4,265/yr or over 40% of the home’s value in annual taxes.
In Green Oaks Township just outside of South Lyon you would be able to own a home worth $370,000 for the same tax as a home valued at $10,000 in Detroit.

In addition, a city income tax acts as a further disincentive to living in the city. A rate of 2.5 percent hits residents on the south side of 8 mile, but not north. As a worker in the city you pay a 1.25% tax that those working in the suburbs do not. If you are a corporation you pay an additional 1% in tax on income.

Since the average income in the city of Detroit is $28,000 per household. An average family that owns a $10,000 home would pay close to 17% of gross income to the city in tax (property tax rate on $100,000 home plus 2.5% income tax on $28,000 would equal about $4,965/yr). This does not include state tax and federal tax. Would you move a couple miles to get a 17% raise in income?

Poorest Schools in the Nation

Below is a chart that compares the state average MEAP scores in grade 11 verse Detroit Public Schools. Although some numbers are rising (reading went from 32% to 36% proficient), the numbers are low. Only 14% of the students are proficient in Math.

Scale: % at or above proficient Grade 11
Reading
36% (2008)
32% (2007)
The state average for Reading was 62% in 2008.

Social Studies
56% (2008)
63% (2007)
The state average for Social Studies was 80% in 2008.

Science
23% (2008)
22% (2007)
The state average for Science was 57% in 2008.

Writing
17% (2008)
17% (2007)
The state average for Writing was 41% in 2008.

Math
14% (2008)
14% (2007)
The state average for Math was 46% in 2008.

Highest Crime

Violent crime in the city of Detroit is at 2,418 per 100,000 while the national average is 553 per 100,000. This means citizens in the city of Detroit are about 500% more likely to experience a violent crime then others throughout the country.

How did city government get so out of control?

With almost 1/3 of the people unemployed and an additional 15% over the age of 65, almost half the voting population of the city do not pay the taxes they impose on the other half that do. Common Detroit politics have included pandering to the non taxpaying citizens with programs that redistribute the taxes from those that have to those that don’t. Political promises regarding more programs and larger government tend to appeal to the ones that don’t pay. With little focus on lowering taxes and little oversight from a largely un-invested population, city government grew out of control and eventually forced many of the productive members to move.

ROCK BOTTOM:

Cities, just like individuals in tough situations, tend to hit a certain point when they realize that they need to try a different approach. A time that you realize that you are at “Rock Bottom”. Many point to the Kilpatrick administration as the absolute rock bottom politically corrupt time for Detroit. Robert Bobb is making news by rooting out corruption in the schools. Mayor Bing is considering making huge government cuts to bring down costs. Only time will reveal if 29% unemployment is the moment when the city hit rock bottom, or if it can get worse. What some fear is that since almost half the citizens are no longer paying for the programs the politicians put into place, votes for lower taxes may be a thing of the past. This leaves only one choice for producers who grow weary of poor services and high taxes; consider a new home in an area that is run by those that actually pay for what they vote for.

The Opportunity

There are opportunities in every market, and in this case, because of the Detroit market. Call Marketplace Homes and see how we can help you take advantage of the increased amount of affordable housing in the metropolitan area. Due to low prices, you may be amazed at what you can now afford!

Marketplace Homes based in Plymouth, Mich., is a privately held company with operations in Metro-Detroit. In 2007 and 2008, Marketplace Homes purchased or leased hundreds of homes while generating over $18 million in new construction sales for local and national builders. During its 7-year history, the company has purchased and sold hundreds of homes. Since 2002, Marketplace Homes has been an innovator in creative Real Estate solutions running 2 distinct business models-The New Home Buyout Program and Rent-to-Own. Currently, Marketplace Homes helps to market over 40 communities in the Metro-Detroit market through partnerships with local and national builders using the Marketplace Homes New Construction Long Term Corporate Lease Programs.CONTACT: Mike Kalis, Managing Partner, Marketplace Homes, LLC, @1-248-723-6490, mike.kalis@marketplacehomes.com / site: http://www.marketplacehomes.com/ Mike Kalis