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10 Jan 2009 05:00
What can you buy in America for $1 000? A flat-screen television, perhaps. A weekend break in the sun.
Or a three-bedroom suburban home with stripped wood floors and a garage in the country’s motor capital.
Property markets on both sides of the Atlantic have plunged, but nowhere has the collapse been more spectacular than in the down-at-heel industrial city of Detroit.
“If you have 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. But these tend to be in poor shape, damaged by vandals. For something classier, buyers will need to dig deeper—the princely sum of $1 250 would be enough to secure 14918 Stansbury Street, a three-bed room brick house on a tree-lined street with a garden.
“We have $1-million 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’ll 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. Then, 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 to avoid bills for maintenance and security.
These homes are the root cause of billions of dollars of write-offs for banks on Wall Street and in the City of London, crippling institutions such as Lehman Brothers and Bear Stearns.
“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.”
America’s 11th biggest city has been bleeding people for years. Its population, which peaked at 1,85-million in 1950, has halved to 917 000 and a third of its residents live below the poverty line.
The local 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 they struggle to cope with high fuel prices and an economic slowdown.
Robin Boyle, professor of urban planning at Detroit’s Wayne State University, says the city was at the forefront of ill-fated efforts to encourage home ownership among the poor.
“The subprime mortgage industry was in full flag in Detroit,” he says. “There was an enormous emphasis, for many years, in trying to assist people with home ownership.”
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 Aretha Franklin, the “Queen of Soul”, faced a fight to stave off foreclosure on her mansion because of unpaid taxes back in March.
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. On Stansbury Street this week, Frank Farrow, of Farrow Demolition, was hawking 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 14918. 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.—
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