Posted on 03/11/2007 6:53:33 AM PDT by machman
WASHINGTON -- The American dream of owning a home is becoming a nightmare for some Michigan families.
After investing their life savings in a home, many families facing layoffs or pay cuts are finding it impossible to pay their mortgages. What's worse, the value of their homes -- often their key investment -- is deteriorating.
Michigan was the only state in the nation to see its home prices decline in value in 2006, according to a recent study by the U.S. Department of Housing and Urban Development. The national average was a 5.87 percent increase, compared with Michigan's -0.44 percent decline.
"You have this incredible overlay of worry in Michigan as people respond to declining jobs and declining incomes," said Dana Johnson, a Detroit-based senior economist for Comerica. "For many families, their house is their largest asset. To see it eroded in value after having seen only modest increases in the last year or two causes real concern."
Michigan was second in the nation in the rate of new foreclosure filings in January 2007 (Nevada was first), according to RealtyTrac, a national real estate and foreclosure tracking site. Michigan saw 11,554 new filings, up 147 percent from a year ago. Nationally foreclosures totaled 130,511 or one for every 866 U.S. households; Michigan had one for every 355 households.
It's not news that Michigan finds itself in a one-state recession, or that the state's economic fortunes have turned sour as a result of the ailing automobile industry and the flight of companies such as Pfizer Inc. and Comerica.
But what is shocking for many families is that the place they call home could become a stone around their financial necks as they try to stay afloat during rough economic times.
"Typically people worked one job to reach a certain income level and now they have to take three jobs to survive," said Karry Reith, manager of the Oakland County Community and Home Improvement program, which provides housing counseling. "It's very difficult times for a lot of people. Their only option may be to leave their house and turn it over to a mortgage company with the hope they can become a homeowner again in the future, when things are better."
Many experts say it's hard to know when things will get better. Michigan's real estate market had ticked along at a steady if not spectacular pace in the last five years while the rest of the nation was experiencing a real estate boom. Today the future is uncertain, and a number of economists don't think Michigan's housing market has hit bottom yet.
The Michigan Association of Realtors reports that the average selling price of a home in December 2006 was $149,753, compared to $153,297 in 2005. The number of residential sales in Michigan dropped from 137,069 in 2005 to 118,407 in 2006.
It's been more 22 years since Michigan saw a three-month quarter with a decline in home prices, according to the U.S. Department of Housing and Urban Development. The last time was the third quarter of 1984 -- the tail end of the 1980s recession -- when home prices declined by -0.28 percent. In 2006, it happened in both the third (-0.51) and the fourth (-0.44) quarters. Many economists expect it to continue in 2007.
"We've had bad patches here before in this state," said Lee Schwartz, executive vice president for government affairs for the Michigan Association of Home Builders, which represents the state's builders. "But I don't think we've had anything like this for a while."
Schwartz said what's especially difficult for the construction industry is that for many years home building remained strong. Despite Michigan's woes, the builders were usually busy. Not so anymore.
"Everybody's down," he said. "There isn't a section of the state that's doing as well as it did in the last four years."
Schwartz said a recent analysis of the Michigan market by his group shows that 1,000,359 families in the state cannot afford to purchase a home priced at $100,000 or more. Another 907,000 families cannot afford a house priced at $175,000 or above.
"That's over 2 million families in the state of Michigan that are out of the market right now," he said. "They can't afford the price of an average new home that's about $175,000."
Analysts say the reason for this is clear.
"Housing prices are just a reflection of what's happening in the rest of the economy," said Marcia Howard, executive director of Federal Funds Information for States, a Washington-based research group. "In terms of general job loss, Michigan has consistently been there at the bottom. ...Michigan is a state that is still so entrenched in the auto industry that it can't overcome the huge liabilities that it's facing."
Given those liabilities, some economists say families should steer clear of putting all their savings into their home. Look no further than the recent spate of property owners challenging their spring property tax assessments to see the downside of a real estate-only investment plan.
"Unfortunately homes have become the nest egg for a lot of people," said David Littmann, an economist with the Mackinac Center for Public Policy, a free-market policy group in Midland. "They really thought this would be a way they could save for retirement or emergencies. It's become a negative investment at this point. It shouldn't even be called an investment now."
Sadly, The majority of the state is turning into Detroit economy wise....
This article makes no sense.
First they complain that the housing boom passed them by.
Then they say that families can't afford housing there...
Well if the boom passed them up, houses are more affordable as a result. In addition their property taxes are also lower as a result. You can't have it both ways.
And second complaining that people "put their nest egg" in their home is odd too. As long as they are living in the house, what's the problem? It isn't for sale anyway - they are living in it.
It doesn't matter if there are no jobs available.
In addition their property taxes are also lower as a result.
Property taxes never go down. Never. They adjust the tax rate to maintain their budget.
You can't have it both ways.
You are not thinking this through.
"And second complaining that people "put their nest egg" in their home is odd too."
Do people really do that? I'm not sure I see the logic there.
In general a house is a very good long term investment. Especially if the alternative is paying rent.
The key words are "long term".
And the bottom line is you have to live somewhere.
If you want to flip houses for money that's an entirely different issue.
A buddy of mine just lost his house in Detroit after moving out here to get a job, it was on the market for to years just couldn't afford it anymore.
That's really reaching. That's like saying gas prices are higher in CA but they didn't go up as much here in CT and I should be grateful. It doesn't make a difference. They still went up. I would guarantee that RE taxes went up over the last five years in MI.
Michigan's real estate market had ticked along at a steady if not spectacular pace in the last five years while the rest of the nation was experiencing a real estate boom.
I don't see that as a lament merely a statement of fact. It sounds to me to have been a reasonable increase in value.
I think you simply want to jump on this as "bad news" when it's reporting facts.
They won't be if they can't afford their mortgages and taxes.
Twelve years ago I came within an inch of buying a new house in suburban Grand Rapids that I really could just barely afford. Something told me NO. Instead I paid off my current home and now am banking almost all paychecks.
Thank you Lord for looking out for me. Lots of people in Michigan now have mortagages under water.
"Put all your eggs in one basket -- and watch that basket!" - Bernard Baruch.
Few of us are Baruch so most of us will trip and break all of our eggs.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
"In general a house is a very good long term investment."
I agree but It didn't require me to put my nest-egg in my house. Didn't even touch it.
I guess my point was, if you are going to live in the house for long-term, why dump your savings into it? If 100% of the value was financed, after 15 years, a person could have some good equity in their home AND their nest-egg for other investments. Buy a rent house or two to cover the mortgage, and build equity in all the property.
Just me thinking.
Thank the unions for driving business out of Michigan.
Thank the govenor, who will retire rich, for raising taxes.
Vote demoncrat and join a union.
Just inquirin'
Many parts of the country have had their property "values" increase 50% in the last 5 years or so. That's also a 50% increase in property taxes.
If Michigan really missed much of that boom, housing is far more affordable there.
"As for home prices declining ... this isn't the ONLY state. It's happening all over. Many have paid too much for the house and it's not worth that NOW. They have mortgages for a bubble price, taxed at a bubble price and if they get laid off or lose their job"
You ain't kidding, in Rhode Island the Mortage Sale listings in the Providence Journal pretty much occupy two thirds of the paper's business section.
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