The Forces Behind our Housing Market Recovery

Less for sale signs and more sold signs around town have been a refreshing change from previous years.  Blinded by the constant bad news pouring out of Detroit from the media, the reasons why this area is recovering might surprise you. 

Inventory in the five Grosse Pointes has continued to drop a bit further to approximately 235 single family homes currently for sale. While I have heard from an isolated few that somehow this is a bad thing, it is not.  There are segments of the market with very little inventory, so this is not ideal for buyers, but it is wonderful for anyone who owns property. Basic economics would indicate that lower inventory would precipitate higher prices because demand would outpace supply.  While prices have rebounded ever so slightly, basic economics do not always apply when it comes to real estate.  All deals that involve any kind of bank financing must go through the appraisal process, and that is not always simple.   

A couple of months back I had a deal on a bank owned home on Grosse Pointe Woods.  The buyer was my client.  The buyer ended up being involved in a multi-offer situation.  The house was only on the market 7 days and I believe they had 3 offers on it.  My client ended up winning the bid. They had offered $95,500.  Everything was rolling along smoothly, the inspection was complete, and all of the documents were in to the lender.  So an appraisal was ordered. 

Appraisers are picked by an appraisal management company, not the lender themselves.  It is essentially a third party system developed to eliminate fraud.  The appraiser who was sent to us was from Westland.  I left a package of comparable properties for the appraiser, and thought this was a no-brainer.  Well, it turned out that the appraisal came back at $81,000.  The deal was in trouble.  The seller could have agreed to the lower price, but since it was a bank, we knew that was not happening.  The lender spent over a week appealing the appraisal, and eventually got it thrown out. 

It was appraised again by another appraiser and everything worked out fine this time.  Although more rare than a year or two ago, these things are still happening and putting a cap on a purely textbook real estate recovery.  There is a third party (often with a scary lack of knowledge of the area) dictating price, and this can cloud a true supply and demand economic model.  We will continue to recover, just at a slower pace than everyone would like.

So, the question now is “what is driving this stabilization of our housing market?”  It is a combination of factors.  The biggest is probably the reinvestment in downtown Detroit, and the jobs that are following that.  Dan Gilbert’s Real Estate Investment division Bedrock Real Estate Services is one of the biggest factors.  Bedrock has purchased and renovated over 3,000,000 square feet of Real Estate (most of which was empty) in downtown Detroit alone.  Some of these buildings are a combination of residential and retail, so people are living downtown, but right now demand is outpacing supply.  The buildings they have renovated have been filled very quickly.  The M@dison building right outside of Comerica Park is one of the best examples. In approximately one year that building went from being largely empty to being 100% renovated and occupied.  Take a look at it at http://vimeo.com/37200986.  It is very different and far outside the box for Detroit.  Twitter recently announced they are opening an office in that building. 

Old staples downtown are seeing a boom as well.  The Renaissance Center is at 94% occupancy.  That is the highest occupancy rate ever there.   Midtown is heart of this downtown rebirth.  Residential housing there is essentially sold out, so we are now seeing some of the overflow of college students, grad students, and young professionals in Grosse Pointe Park.   In Grosse Pointe Park, a foundation for housing was established to “Create educational housing incentives for university students in the manner of housing grants while concurrently adding vitality to the Grosse Pointe Park rental market and surrounding commercial business districts,” (http://tinyurl.com/7h7928k).  The foundation was set up to pay half of therent of university students up to $350 a month. It is having a big impact by encouraging landlords to upgrade their property to compete, and rents are on the rise.      

Both the Grosse Pointe Chamber of Commerce and The Grosse Pointe Board of Realtors are actively working to encourage new employees downtown to live in our community.  I have made this my top priority this year, and there are many likeminded people on board helping to make this a reality.  If you have a question or ifyou would like to help us work to further promote the Grosse Pointes, please do not hesitate to contact me at chacewakefield@yahoo.com.