Forclosures - You need to know

The incredible deflating housing market

Region's home prices fall most, but is rebound near?

Dorothy Bourdet | The Detroit News / The Detroit News

First came the sting of massive job and income cuts, making Metro Detroiters nervous about their futures. Right behind were fear and caution, which kept homebuyers on the sidelines and created an oversupply of homes that can sit months, even years, on the market.

Now, comes home price deflation, the worst in the nation, according to a survey released this week by the National Association of Realtors. The median home price in Metro Detroit sank to $154,100 in the third quarter, down 10.5 percent from $172,100 at the same time last year. It was the largest percentage drop of U.S. cities.

"The overall feeling in Michigan is everybody's knees are knocking a little bit," said Nancy Warson, a Livonia Realtor.

While prices are down, at least one top Realtor predicts the market may be ready to rebound.

"We're ready to turn around," said Pat Vredevoogd Combs, National Association of Realtors president and a Grand Rapids Realtor. "What we're seeing, we think, is that it's bottoming out."

The steep decline in home prices can be blamed on big losses in jobs and income in Metro Detroit, said Dana Johnson, chief economist at Comerica Bank.

"Overlaid on top of that fundamental is the fear and uncertainty that pervades this region," he said

Would-be homeseller Brian Kurtz knows that uncertainty well. The financial planner from Troy has dropped the price on his Sterling Heights colonial by $36,600 to $259,900 and is now paying $4,000 per month for two mortgages.

"It's like trying to sell ice cubes to Eskimos," said Kurtz, whose home has been on the market since August 2005.

Warson, with Real Estate One, said buyers are just not out there. One of Warson's clients in South Lyon, who is selling their house for about $500,000, has had only one potential buyer look at it in seven months.

Those kinds of waits are reflected in the state's slumping home sales, which are down 17.2 percent in the third quarter. Those kinds of waits also can quickly force down home prices, as sellers often drastically cut their asking prices so they can snag a buyer.

In a state where the jobless rate has soared above the national average, buyers are wary of getting into long-term financial commitments, Warson said. Current homeowners, such as empty nesters, are also reluctant to move or downsize, fearing they'll take a loss on their home.

"Some are scared about their job, some are scared (because) they don't know where the market is and they would prefer to buy at the very, very bottom, so they're holding out -- and nobody knows where the bottom is," Warson said.

Sellers have to be patient

Home prices are slipping nationally, too, though not as drastically as in Michigan. The median single-family home price in the U.S. was $224,900 in the third quarter, down 1.2 percent from last year when the median price was $227,600.

While the national decline is seen as an expected correction in housing prices that had soared out of control with five years of double-digit increases, the big drop in the Metro Detroit median home prices over the past six months has been unparalleled since 1989, the furthest back data is available.

"We're kind of an oddity out there," said Combs, the Grand Rapids Realtor.

Economists say home sellers will have to be patient as they wait for the local real estate market get upright again.

"It's going to be a while before that fear and uncertainty goes away. We're at least six months away from the time when jobs and income bottom out here in Michigan," Johnson said.

Falling home prices mean people have fewer options when they hit financial rough spots.

Wayne County had the nation's second-highest metro foreclosure rate in October, with one in every 196 households filing for foreclosure, according to RealtyTrac, an online firm that tracks foreclosures.

"When it (the median house price) drops sharply, it leaves people with no equity and when they get into trouble they have no choice but to walk away," Johnson said.

"It's an example of how the distress in the economy ripples from one sector to another."

Agents are getting creative

To jump start the housing market, real estate agents have pulled out all the stops. They've developed individual Web sites for each house, increased commissions for the buyer's agent and added other incentives for buyers.

"We've seen plasma TVs, we've seen $5,000 bonuses, we've seen cars, we've seen airline tickets. We're about as creative as we can get at this point," Warson said. "It's still not driving the market up."

In an average year, real estate broker Rob Scalici closes on about 75 to 100 home sales. Right now, he's got 30 listings and no buyers.

"It's kind of amazing. I'm back to doing things that I haven't done in a long time," said Scalici, a broker with RE/MAX Metropolitan in Utica, who is spending more and more Sundays in open houses hoping to snag a buyer.

Scalici hopes 2007 will be a better year for home sellers.

"You've gotta hope that with the New Year comes renewed spirits," he said.

Combs of the National Association of Realtors is optimistic.

Her open houses have been busier -- just this week she sold two homes in the Grand Rapids area.

"Buyers have been sitting on the sidelines watching," she said. "We're seeing them coming back into the market."

You can reach Dorothy Bourdet at (313) 222-2293 or dbourdet@detnews.com.

State's economy's liable to get much worse first despite Tuesday's political turnover.

Tuesday's political tsunami may be poised to change a lot in Michigan, but the dismal state economy isn't one of them.

As much as exultant supporters of Gov. Jennifer Granholm may want to strike up the band in a rousing rendition of "Happy days are here again," the reality is that Michigan's economy -- built on expectations of high pay for low-skill work and long-term stable employment -- is likely to get much worse before it gets better.

"We're in the same economic shape that we were," says Lou Glazer, president of Michigan Future Inc., an Ann Arbor think tank. "The flat world is real and efforts to resist it aren't going to work. The state, on a bi-partisan basis, is struggling with that reality. What's driving the economy are knowledge, creativity and entrepreneurship."

Not here, not yet, which is why Michiganians would be deluding themselves to think the Revenge of the Democrats will ease the global economic pressures bearing down on the state and its core industries. It won't and, to her credit, Granholm isn't claiming that it will.

"All I know," former Gov. Jim Blanchard told me Thursday, "is we're not going to be able to build a wall around the country or Michigan. We're going to have to deal with global competition.

"This in a state whose major players, their unions and the culture they bred were not built to play in an environment that prizes flexibility, speed, innovation and constant change over predictability and fulfilled expectation. This in a state where too many folks would rather stop change than manage it.

And it shows.

Michigan still claims the dubious distinction of the nation's highest unemployment rate outside the Gulf Coast, record personal bankruptcies, home foreclosures and stagnating home prices. And that's before thousands of workers at General Motors Corp., Ford Motor Co. and bankrupt Delphi Corp. preparing to leave the company payrolls actually do.

The hollowing out of Michigan's economy, most likely the centerpiece of Granholm's second term, is just beginning and most likely will define her legacy for good or ill. That'll give new political meaning to the adage, "Be careful what you wish for."

We don't yet know how much strain the buyouts, plant closings and white-collar layoffs will put on the state budget, how deeply they will cut into local tax bases, how much they will pressure school budgets, pinch charitable groups or further depress home values and retail sales.

We don't know when GM, Ford and the Chrysler Group will find collective bottom in market share decline and, when they do, how many Americans will give Detroit's metal another chance to impress. The more Detroit slides and cuts production, the more they will sweat suppliers and push some more into bankruptcy.

Among other realities overshadowed by the glow of triumph:

Broad swaths of Michigan's work force remain comparatively ill-prepared for 21st-century jobs, a fact repeatedly reinforced by myriad surveys, polls, studies and Granholm's own overdue push to dramatically reform curriculum requirements for high school graduates. Changing that culture could take a generation or more -- the sooner the better.

Second, Michigan's business tax regime, epitomized by a Single Business Tax set to expire next year, remains one of the least competitive in America. Granholm insists a replacement must be "revenue neutral," a condition she's more likely to get in January than a week ago. Major manufacturers mulling big capital investment want her to take on Michigan's personal property tax, too, a move that would require comprehensive business tax reform.

Third, Michigan's culture of expectation and entitlement, forged from the prosperous decades that built a solid middle class, stands as a bulwark against the kind of economic change that can be driven best by business and civic leadership. Where does it invest? Who does it hire and promote? What's more valuable -- innovation or time served?

Fourth, how will foreign investment in Michigan be affected by the demonization of China in the gubernatorial campaign? An easy answer would be "not at all" because the criticism was campaign rhetoric focused on Republican Dick DeVos and allegations he shipped jobs to China while heading Alticor, parent of Amway.

He didn't. But the charges evoked, in a repetitious and embarrassing way, a crude Midwest xenophobia that could impact future investment decisions by foreigners with scores of choices. We'll get a sense of the impact soon enough, considering two local delegations are in China right now stumping for business.

Sixth, the re-ascendancy of Michigan Democrats on Capitol Hill -- of Rep. John Dingell to the chairmanship of the powerful Energy and Commerce Committee, of Rep. John Conyers to the top seat on Judiciary, of Sen. Carl Levin to the chair of Armed Services and of Rep. Sander Levin, a member of the trade subcommittee -- is raising expectations that Washington will ride to Michigan's rescue.

Perhaps in a few qualified areas, such as bilateral trade with South Korea or federal fuel economy rules or limited health care programs. What's ailing Michigan in general and Detroit's automakers in particular has far more to do with the products they sell, the business model that created them and how those products are perceived by consumers than trade policy or government programs.

Get the business right, turn Michigan's culture and communities toward the future and away from the past, and a lot more things fall into the right places.

"The truth is there's no federal panacea," says Blanchard, ambassador to Canada during the first Clinton Administration. "Our solutions are going to have to be homegrown. The fall-out for a lot of this restructuring" in the Michigan economy "hasn't occurred yet."

But it will.    

Metro area foreclosure rate leads the nationOne of 80 households at risk in region that includes Detroit, Livonia and Dearborn.Eric Morath / The Detroit News

The Detroit area led the nation in homes in foreclosure in the third quarter, with one of every 80 households at risk, more than four times the national average, according to a report released today.

The Detroit area reached the top of the list with a staggering 42 percent increase in foreclosures over the second quarter, according to California-based Realty Trac Inc.'s ranking of the top 100 metro areas. Realty Trac defined the area as Detroit, Livonia and Dearborn.

Homeowners in foreclosure are those who fail to make their mortgage payments and are at risk of losing their property.

Michigan's floundering economy and high unemployment rate (the second-worst in the nation) are clearly playing a role in homeowners' struggles to make their mortgage payments, experts say.

But cities across the country also are experiencing huge spikes in foreclosure rates, a trend fueled by low down payment and adjustable-rate loans.

"It used to be you had to come up with 20- or 10-percent down payments so buyers had a serious ownership stake in the house," said Furhad Waquad, president elect of the Michigan Association of Realtors. "That made it much more difficult to walk away from a home when you hit hard times."

James Saccacio, chief executive officer of RealtyTrac said, in a statement that it's also likely that part of the reason for the increased rates is "the long-anticipated effect of the first wave of adjustable rate mortgages re-setting at higher monthly payments, putting homeowners into financial distress."

Also making RealtyTrac's list -- ranking 29th in the nation -- was the region encompassing Oakland, Macomb, Livingston, Lapeer and St. Clair counties.

In that region, 1 of every 231 households was in foreclosure in the third quarter, and the number of foreclosures jumped 36.5 percent from the second quarter.

The increasing number of foreclosures wreaks havoc on an already volatile real estate market, said Joel Root, a real estate consultant with RE/MAX First in Clinton Township.

The glut of homes means sellers are often getting less for their house than what they paid four or five years ago.

Root also said foreclosures leads to more abandoned and stripped homes that can mar neighborhoods.

"I recently sold a house in Warren for just $12,500 because it was in such poor condition," he said. "For this to change we need a total resurrection on how Michigan makes money and that's not likely to happen for several years."

You can reach Eric Morath at (313) 222-2504 or emorath@detnews.com.