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Money Blog

Sep 26, 2012
01:14 PM

New Home Sales Down, but Detroit's Real Estate Market Keeps Going Up

There’s good news on the home front for the U.S. and better news for Detroiters hoping for a real estate comeback. While the U.S. new home sales report released today from the Commerce Department shows the numbers are down, there’s still reason to be excited.

As for increasing property values, Detroit is about three times higher than the national average, with an increase of 3.31 percent over the past month and more than 6 percent over the past year, according to the Standard & Poor's/Case Shiller index released Tuesday.

A lot of economists are claiming that because investors, rather than individuals or families, are buying most of the foreclosed real estate—and Detroit had A LOT of it—that the recovery we’re witnessing isn’t real. I’m confident the opposite is true.

As of right now, we have a 65.5 percent home ownership rate in the U.S., according to the US Census Bureau, which is still comparable to any time in the history of the real estate market. The levels of home ownership seen during the real estate boom from 2000–2007 were unsustainable rates manufactured by subprime lending, complete lack of government oversight and a citizenry so blind with passion for the American dream that they ignored common sense.

A true real estate recovery rightly includes more renters who rent their home from investors and are living within their means. Detroit is a great example of this.

Detroit has had big month over month increases in home buying for almost the entire year. I wrote in July, “Detroit is fast becoming a real estate investment hotbed and primed for an upwards explosion of home prices. Median home prices in the city rose faster than any of the other 146 metropolitan areas tracked by Realtor.com.”

That was reaffirmed when Crain’s Detroit Business reported that home prices gained 7.2 percent in July from a year earlier, “the city’s biggest jump in more than a dozen years, according to the mortgage-data firm FNC Inc. In comparison, an index of prices in the nation’s largest 100 cities increased 0.6 percent in the same period.”

The other big thing helping those who have bought real estate in Detroit is the new round of quantitative easing by the Federal Reserve, or as I like to call it, the free money big bank giveaway. With the Fed giving away gobs of free money to the banks until unemployment drops significantly, inflation is expected to be on the rise. This will increase home values and give a big boost to those who already bought homes and anyone who buys one in the near future.

Property values are up and the sales rate, down 0.3 percent for August, is only down because sales from July were up more than originally thought. Last month, the Commerce Department calculated 372,000 units were sold and changed it to 374,000. In August 373,000 were sold. That means we’re still above the highest level the country has seen since April 2010. Compared to August last year, new home sales were up more than 27 percent.

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