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http://www.guardian.co.uk/business/2008/oct/24/subprime-crisis-usa-housing-detroit
For sale at $1,250: the Detroit houses behind the sub-prime disaster
Andrew Clark in Detroit
guardian.co.uk,
Friday October 24 2008
What can you buy in America for a thousand dollars? A flat-screen television, perhaps. Or a weekend break in the sun. Or a three-bedroom suburban home with stripped wood floors, venetian blinds, a garage and a barbecue in America's motor capital.
One of the 12,000 abandoned homes in the troubled city of Detroit. Photograph: Jeff Haynes/AFP/Getty Images
Property markets on both sides of the Atlantic have suffered a plunge - but nowhere has the collapse been more spectacular than in the down-at-heel industrial city of Detroit. Prices are so low that it is possible to buy a repossessed house for the cost of a couple of months' rent.
"If you've got just a little money coming in, you can afford to live here," says Lolita Haley, a resolutely upbeat estate agent in Detroit's inner suburbs. "I've had people call me from as far away as India in search of property at these prices."
Haley's firm, Prime Financial Plus, has homes on its books for as little as $649 (£416). But these tend to be in poor shape, damaged by squatters, looters and vandals. For something a little classier, buyers will need to dig deep - by writing a cheque running into four figures.
The princely sum of $1,250 would be enough to secure 14,918 Stansbury Street, a three-bedroom brick house on a leafy, tree-lined street with pointed gables, coved ceilings and a decorative, stone-bordered garden which was recently somebody's pride and joy. While hardly an exclusive enclave, the neighbourhood is tidy, with family cars parked on paved driveways and southern-style restaurant, Corrine's, on the corner.
"We've got $1m houses within a few miles of here," says Haley, a fierce advocate for her city. "I've lived in Detroit all my life and I've had a good time. I'm not one of these naysayers. If you want the good, you'll get the good. If you expect the bad, you're gonna get the bad."
A land registry search for Stansbury Street provides a clue to just how spectacular the crash has been. In 2001, the same property changed hands for $88,000. As prices declined, it was sold again for $33,500 two years ago. But the buyer was unable to keep up mortgage payments. After foreclosure, the bank dumped it on to the market at its present rock-bottom price tag on October 15.
Laden with thousands of vacant Detroit homes, banks have become desperate to sell, accepting a pittance simply to avoid ballooning bills for maintenance and security. These homes are the root cause of billions of dollars of write-offs for banks on Wall Street and the Square Mile, crippling institutions such as Lehman Brothers and Bear Stearns.
"It's sad - it's sad to see what's happening here," says Tracie Peltier, who runs another local estate agency, 3 Tier Realty, with her husband, Jay. "The longer they keep a house on their books, the higher the chances of vandalism, the chances of somebody going in and burning it up, of someone going in and stripping all the copper out. They could have squatters in there; it's happening all the time."
America's 11th largest city has been bleeding people for years. Its population, which peaked at 1.85m in 1950, has halved to 917,000 and a third of its residents live below the poverty line. The economy revolves around America's "big three" car manufacturers - General Motors, Ford and Chrysler - which are in dire straits. Between them, they have cut more than 100,000 jobs in five years and a real prospect of bankruptcy looms as the trio struggle to cope with high fuel prices and an economic slowdown.
Robin Boyle, the professor of urban planning at Detroit's Wayne State University, says the city was at the forefront of ill-fated US efforts to encourage home ownership among the poor: "The sub-prime mortgage industry was in full flag in Detroit. There was an enormous emphasis, for many years, in trying to assist people with access to home ownership."
Some were lulled into unsuitable deals by predatory lenders. Regulation was appallingly lax - according to the Detroit News, just 12 examiners were responsible for overseeing Michigan's 2,800 mortgage companies.
In some cases, borrowers behaved recklessly by taking on mortgages they could not afford, intending to refinance a year or two down the road, an option which evaporated as property prices stalled.
According to research firm RealtyTrac, banks have filed foreclosure proceedings on 37,370 Detroit properties in the year to September. Half of the city's home sales in 2008 have been for less than $10,000. Even the queen of soul, Aretha Franklin, faced a fight to stave off foreclosure on her Detroit mansion because of unpaid taxes back in March.
"It's the perfect urban storm," says Boyle, who has seen foreclosures spread even to well-to-do suburbs such as Glenmont, Rosedale and Indian Village. "These are the most troubling areas - they are supposed to be the nucleus of tomorrow's Detroit."
An underground economy has sprung up in scraps salvaged from abandoned Detroit properties. The aluminium cladding which covers many of the city's cheaper houses will fetch $20-30. By stripping out copper plumbing, looters can get $40-50. Furnace heaters illegally change hands for $250-300.
The city's reputation was damaged further by a political furore which saw Detroit's mayor, Kwame Kilpatrick, resign last month to serve a jail sentence over a wide-ranging scandal involving obstruction of justice, an assault on a police officer and an affair with an aide. Local people say that a perceived culture of corruption is deterring companies from investing locally.
Jay Peltier, who negotiates loans at 3 Tier Realty, says: "The vast majority of people who live in Detroit are good people. It's truly a vocal minority who are destroying the city, coupled with a large number of people turning a blind eye."
One industry, demolition, is thriving in the slump. On Stansbury Street this week, Frank Farrow of Farrow Demolition pulled up in a pickup truck to hawk his services. He displayed a list of a dozen bank-owned properties which he was contracted to destroy in a week.
"A house like this, we could have it down in 15 minutes," he says, eyeing the up-for-sale property at number 14,918. The only problem? It will cost $4,500 to cart away the rubble and back-fill the foundations. For the banks, it is cheaper to give away houses than to knock them down.
For sale at $1,250: the Detroit houses behind the sub-prime disaster
Andrew Clark in Detroit
guardian.co.uk,
Friday October 24 2008
What can you buy in America for a thousand dollars? A flat-screen television, perhaps. Or a weekend break in the sun. Or a three-bedroom suburban home with stripped wood floors, venetian blinds, a garage and a barbecue in America's motor capital.
One of the 12,000 abandoned homes in the troubled city of Detroit. Photograph: Jeff Haynes/AFP/Getty Images
Property markets on both sides of the Atlantic have suffered a plunge - but nowhere has the collapse been more spectacular than in the down-at-heel industrial city of Detroit. Prices are so low that it is possible to buy a repossessed house for the cost of a couple of months' rent.
"If you've got just a little money coming in, you can afford to live here," says Lolita Haley, a resolutely upbeat estate agent in Detroit's inner suburbs. "I've had people call me from as far away as India in search of property at these prices."
Haley's firm, Prime Financial Plus, has homes on its books for as little as $649 (£416). But these tend to be in poor shape, damaged by squatters, looters and vandals. For something a little classier, buyers will need to dig deep - by writing a cheque running into four figures.
The princely sum of $1,250 would be enough to secure 14,918 Stansbury Street, a three-bedroom brick house on a leafy, tree-lined street with pointed gables, coved ceilings and a decorative, stone-bordered garden which was recently somebody's pride and joy. While hardly an exclusive enclave, the neighbourhood is tidy, with family cars parked on paved driveways and southern-style restaurant, Corrine's, on the corner.
"We've got $1m houses within a few miles of here," says Haley, a fierce advocate for her city. "I've lived in Detroit all my life and I've had a good time. I'm not one of these naysayers. If you want the good, you'll get the good. If you expect the bad, you're gonna get the bad."
A land registry search for Stansbury Street provides a clue to just how spectacular the crash has been. In 2001, the same property changed hands for $88,000. As prices declined, it was sold again for $33,500 two years ago. But the buyer was unable to keep up mortgage payments. After foreclosure, the bank dumped it on to the market at its present rock-bottom price tag on October 15.
Laden with thousands of vacant Detroit homes, banks have become desperate to sell, accepting a pittance simply to avoid ballooning bills for maintenance and security. These homes are the root cause of billions of dollars of write-offs for banks on Wall Street and the Square Mile, crippling institutions such as Lehman Brothers and Bear Stearns.
"It's sad - it's sad to see what's happening here," says Tracie Peltier, who runs another local estate agency, 3 Tier Realty, with her husband, Jay. "The longer they keep a house on their books, the higher the chances of vandalism, the chances of somebody going in and burning it up, of someone going in and stripping all the copper out. They could have squatters in there; it's happening all the time."
America's 11th largest city has been bleeding people for years. Its population, which peaked at 1.85m in 1950, has halved to 917,000 and a third of its residents live below the poverty line. The economy revolves around America's "big three" car manufacturers - General Motors, Ford and Chrysler - which are in dire straits. Between them, they have cut more than 100,000 jobs in five years and a real prospect of bankruptcy looms as the trio struggle to cope with high fuel prices and an economic slowdown.
Robin Boyle, the professor of urban planning at Detroit's Wayne State University, says the city was at the forefront of ill-fated US efforts to encourage home ownership among the poor: "The sub-prime mortgage industry was in full flag in Detroit. There was an enormous emphasis, for many years, in trying to assist people with access to home ownership."
Some were lulled into unsuitable deals by predatory lenders. Regulation was appallingly lax - according to the Detroit News, just 12 examiners were responsible for overseeing Michigan's 2,800 mortgage companies.
In some cases, borrowers behaved recklessly by taking on mortgages they could not afford, intending to refinance a year or two down the road, an option which evaporated as property prices stalled.
According to research firm RealtyTrac, banks have filed foreclosure proceedings on 37,370 Detroit properties in the year to September. Half of the city's home sales in 2008 have been for less than $10,000. Even the queen of soul, Aretha Franklin, faced a fight to stave off foreclosure on her Detroit mansion because of unpaid taxes back in March.
"It's the perfect urban storm," says Boyle, who has seen foreclosures spread even to well-to-do suburbs such as Glenmont, Rosedale and Indian Village. "These are the most troubling areas - they are supposed to be the nucleus of tomorrow's Detroit."
An underground economy has sprung up in scraps salvaged from abandoned Detroit properties. The aluminium cladding which covers many of the city's cheaper houses will fetch $20-30. By stripping out copper plumbing, looters can get $40-50. Furnace heaters illegally change hands for $250-300.
The city's reputation was damaged further by a political furore which saw Detroit's mayor, Kwame Kilpatrick, resign last month to serve a jail sentence over a wide-ranging scandal involving obstruction of justice, an assault on a police officer and an affair with an aide. Local people say that a perceived culture of corruption is deterring companies from investing locally.
Jay Peltier, who negotiates loans at 3 Tier Realty, says: "The vast majority of people who live in Detroit are good people. It's truly a vocal minority who are destroying the city, coupled with a large number of people turning a blind eye."
One industry, demolition, is thriving in the slump. On Stansbury Street this week, Frank Farrow of Farrow Demolition pulled up in a pickup truck to hawk his services. He displayed a list of a dozen bank-owned properties which he was contracted to destroy in a week.
"A house like this, we could have it down in 15 minutes," he says, eyeing the up-for-sale property at number 14,918. The only problem? It will cost $4,500 to cart away the rubble and back-fill the foundations. For the banks, it is cheaper to give away houses than to knock them down.
