Why So Many Detroit Home Buyers Are Paying in Cash
Why So Many Detroit Home Buyers Are Paying in Cash
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Most home buyers across the country finance their purchases with a mortgage. In Detroit, though, the vast majority pay cash, even as home prices in the city are rising.
Low housing prices, affluent buyers, challenges with appraisals and strong interest from investors hoping to make gains on a revived Detroit are making cash deals more common. An eye-popping 87% of all single-family home and condominium buyers in the first half of 2018 paid cash in the city, compared with 28% nationwide, according to Irvine, Calif.-based housing-research firm ATTOM Data Solutions.
“The City of Detroit has an absurdly low share of financed home purchases relative to the nation and even relative to the greater Detroit metro area,” says Daren Blomquist, ATTOM senior vice president. In the Detroit metropolitan statistical area, which includes outlying suburban areas, just under 40% of buyers paid cash during the first half of 2018.
Many city buyers are paying cash simply because home prices are so low in Detroit. The median price of a home in the city was just $32,428 in the first six months of 2018. That’s an increase of 20% over the year-earlier period, but still well below the national median of $234,000, according to ATTOM Data.
People looking to buy those renovated homes—often affluent young professionals or empty-nesters—may also face challenges in getting a mortgage because those properties are difficult to appraise. Lenders have trouble determining the value of a newly renovated home in a neighborhood otherwise filled with distressed properties because there are few comparable sales to benchmark against.
“You may be the first one with a resale in a particular neighborhood, so there may not be very much to compare to, making it difficult for appraisers to find tangible evidence of value,” says Jonathan Miller, an appraiser and president of Miller Samuel Inc. in New York. So those buyers often end up paying cash too.
Some companies with local roots are trying to change that dynamic. Detroit-based Quicken Loans is collaborating with Home Depot and the Detroit Land Bank Authority, a public authority working on returning Detroit’s vacant, abandoned and foreclosed property to productive use. Under the “Rehabbed and Ready” program, the Authority selects properties in its inventory for Home Depot to rehab, Quicken preapproves interested buyers for mortgage financing and the homes are sold. The ultimate goal is to stabilize the market and create comparable sales to help future buyers.
“Tax foreclosure is a force that has generated blight, increased speculation and driven property values down,” says Laura Grannemann, vice president of strategic investments at the Quicken Loans Community Fund. “But by creating strategically placed sales, it has a ripple effect across the community and allows other individuals to refinance their home and get some equity out or to sell that home and buy a new one.”
TIPS | House-hunting in Detroit
Don’t give up on getting a mortgage
Mr. Swink, of Coldwell Banker, says that there are banks lending in Detroit, including local lenders such as Flagstar Bank, Chemical Bank and Independent Bank. These lenders are familiar with the city and the challenges facing borrowers.
Know your neighborhood
Conditions and pricing differ not just neighborhood-by-neighborhood in Detroit but sometimes block-by-block. Many areas are slated for redevelopment, which could raise property values and impact home prices. Consult with a local real estate professional.
Consider other cities for investment
Mr. Swink says he receives a lot of calls from people interesting in investing in Detroit real estate. His response? “This conversation we’re having would have been great three years ago,” he says. “You’re a little late to the party now.”
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