House prices tumble 18%

House prices tumble 18%

Glut, foreclosures push Metro values down from '04 peak

Nathan Hurst / The Detroit News

WARREN

A glut of homes on the market combined with a sharp rise in foreclosure sales have driven Metro Detroit home prices down 17.7 percent since their peak three years ago, according to new data.

The region's median home price -- half the homes sold for less, and half sold for more -- fell from $188,275 in August 2004 to $154,919 in August 2007, according to data from Realcomp Inc., Metro Detroit's largest multiple listing service.

In Wayne County, the drop has been a staggering 35.6 percent.

Experts say that until the supply of homes for sale is significantly reduced, prices will continue to drop.

"The low prices are changing attitudes on both sides of the market," said Steve Cole, an agent at Weir Manuel Realtors in Birmingham. "Sellers are being very unrealistic about what they're expecting to sell for; everyone thinks their house is the exception to the rule. Buyers are also expecting to have an offer at half the asking price accepted."

The impact of falling home prices is widespread. For homeowners without equity, it can mean being "upside down" on their mortgages, owing more than their home is worth. For home sellers in that position, it means bringing cash to the closing just to pay off the loan. For sellers who saw their homes as retirement nest eggs, it means a lower return on their investment. And dwindling values means many homeowners can no longer borrow against their equity for major home repairs or purchases.

The low prices have created an upside: For those in the market for a house, there are plenty of good deals in every price range in every community.

Home investment shrinks

Count John and Dana Declark of Warren among those who have seen their home investment shrink. Back in 1984, the Declarks bought their modest three-bedroom home not only to provide a roof over their family's heads, but also as a retirement nest egg.

One day, they planned to turn their property into enough cash to build their dream home in Lapeer County.

Just a few years ago, the value of their home seemed to grow by the day. Today, the Declarks have their house up for sale for $162,900 -- more than $10,000 less than its estimated worth just three years ago.

"We decided now is the time," Dana Declark said. "Values are going down, people are losing their jobs. Looking at how many houses are for sale around here, we figured it's now or later, when it could be worse."

State leads price decline

Michigan, with its economy battered by the downturn in the auto industry, has led the way in the decline of home prices. The housing slowdown that started here in 2005 hit the rest of the nation this year, and now median prices are falling in markets across the country. The latest Standard & Poor's/Case-Schilling housing price report showed the national median home price in the second quarter of this year was down more than 3 percent from the same period in 2006.

A rash of foreclosure sales in Metro Detroit in the past year has skewed the sales prices downward, explained Francine Green, director of marketing for Realcomp. Foreclosed homes usually sell for much less than their typical market value, she noted.

Nonetheless, foreclosure sales drag down the value of other homes in a given neighborhood, as assessments are largely based on how much similar properties in an area sold for.

In Wayne County, 305 homes that were sold in August, or 18.4 percent of the county's total, were foreclosure sales, the Realcomp report said. That compares with 10.2 percent in August 2006.

It ultimately will take a critical mass of homeowners willing to sell low to significantly reduce the supply of homes for sale, which would then start driving prices back up.

"The only way this gets solved is by having a lot of people taking a huge hit in their home prices," said Don Grimes, a senior economic research specialist at the University of Michigan. "Until people make that decision, it'll just keep dragging on and on."

Mortgage exceeds worth

For Mary McKenzie of Detroit, the slump in home values has cut into her greatest source of personal wealth.

The 64-year-old elementary school secretary bought her southwest Detroit home in 1974 and worked diligently with her husband to pay off the mortgage. When she needed money to pay off mounting medical bills for her family, she leveraged some of the house's equity to provide the extra cash she needed.

But falling prices in her neighborhood have put her in a situation that's become common: She now owes more on her mortgage than her house is worth.

McKenzie owes nearly $59,000, but similar homes for sale in her neighborhood have asking prices for well below $50,000. With payments on her adjustable-rate mortgage set to jump for a third time next year, she's now considering walking away from the place she's called home for more than 30 years.

"The house was a financial foundation," McKenzie said. "Now, I feel like that's been taken away from me. I couldn't get anywhere near enough money to pay it off if I tried to sell it."

A buyer's market

While home sellers suffer, times couldn't be better for home buyers, who have their pick of hundreds of houses at bargain prices, in virtually every community in Metro Detroit.

"There are factors coming together that are really good for people looking for an opportunity," Grimes said. "If the house prices come down enough, people who are forced to be renters now can actually afford to buy them. "

Jesse Yates has joined the hunt. The 28-year-old marketing consultant from Rochester Hills is looking for a condominium in Detroit -- one that's closer to his office and nightlife spots. A self-described bargain shopper, Yates said he's looking at used condos rather than new, because he feels he'll have a better chance of negotiating a good deal.

"I'm on the right side of the bargaining table," Yates said. "People are practically begging you to buy their place. I'm feeling pretty good that whatever I end up buying will be a good deal."

Couple's return is timely

Alan and Lauren Ducharme of New York City are betting low prices will yield them a big home with a small price tag in Brighton, where they're returning to be closer to family. The Ducharmes, who telecommute with East Coast technology firms, weren't planning on returning to Michigan for a few more years, but decided it was the right time for a good deal.

Looking around their target neighborhoods in Brighton, the couple is confident they'll be able to shave $15,000 to $20,000 off asking prices simply by waiting.

"We've been keeping our eyes on a few homes and seeing how long they're lingering," Alan Ducharme said. "We're betting that if we wait until the right time, we can drive a hard bargain. They'll get sick of that 'For Sale' sign eventually."

The one downside right now for home buyers is the credit crunch that has lenders tightening their requirements for mortgages. But those with good credit and a small down payment shouldn't have any problems getting a loan.

Prices will continue to drop

Bargains for buyers will be prevalent through at least the end of the year, according to the National Association of Realtors, which estimates that average home prices nationwide will drop another 1.7 percent by January.

Grimes said the Metro Detroit housing market likely will have its low point sometime in the next two or three years. In the meantime, he suggests homeowners put the current situation in perspective.

"We've seen sharper (home price) declines in other parts of the country -- California, Florida, D.C.," he said. "And the fact is that nobody's fallen back to (1990s) levels. That would have really hurt."