The last few years have seen much nervous discussion about just when the real estate market will hit bottom. Underlying such discussion is the inherent fear of just how low can values go? One needs only look to Detroit to see the nightmare scenario.
What would you guess the median price for a home in Detroit is as of the summer of 2009? Whatever you guessed is far too high. The median price in the summer of 2009 for the City of Detroit was $7,100. That is not a mistake. $7…1…0…0. Feel a bit better about your situation? In truth, the price is a bit misleading because huge swaths of the city have simply been abandoned and home prices have dropped to $50 or so. Don’t believe me? Go do a search.
The problems in Detroit constitute the perfect storm of misery, one which may take down one of the great industrial cities of the country. The first problem is simply the loss of jobs over the last forty years as car manufacturing has moved abroad. This has resulted in a population drop from over 1.6 million people to less than 780,000 today. Think about that for a second. That means more than half the population simply left. Imagine what it would be like if half the people in your city just up and left. Traffic would be a heap better, but the local real estate market would be crushed.
On top of all this, things are getting worse in Detroit. The implosion of General Motors and Chrysler certainly hasn’t done anything to help. Although the companies have come out of bankruptcy and are functioning, they have done so after shedding a lot of jobs. Detroit has no method for replacing them and the downward spiral simply continues.
Will this deadly Detroit scenario repeat in other places? Well, yes. It already has. Real estate markets in cities that rely on one big industry or company are always at risk. Consider Wilmington, Ohio. The major employer of the 12,000 people in the town was DHL. The company moved its operations to another plant. Suddenly, all those workers were out of a job and there is simply no way to put them back to work. As companies consolidate to try to survive the Great Recession, this process will continue.
So, what can we count on when it comes to housing prices? The near term will be a bit ugly. The first-time homebuyers tax credit is set to expire at the end of November 2009. If it is not renewed, the impetus in the market will be gone much like what we saw in the auto industry after the end of the Cash for Clunkers program. As a whole, however, 2010 should start to see some solid recoveries.