Saturday, September 26, 2009

Wall Street Journal - The Sad Story of a House in Detroit

In many ways, Detroit has been hit as hard by the deindustrialization of the United States as New Orleans was hit by Hurricane Katrina. In July of this year, the median selling price for a home in Detroit was $7,100. That's not a misprint.

Writer Michael M. Phillips explains the sad state of Detroit's housing market in a first-class article in today's Wall Street Journal. Phillips' article is titled In One Home, the Story of Detroit's Rise and Fall. (Available to WSJ online subscribers here.) In the article, Phillips traces the 92 year history of a single house, located at 1626 W. Boston Boulevard, in the once-exclusive Boston-Edison neighborhood of Detroit. Boston-Edison is a neighborhood of mansions and minimansions. Past residents of the neighborhood include Henry Ford, Joe Louis, and Berry Gordy, Jr. The house at 1626 West Boston Boulevard was big for its time, with four bedrooms, a maid's quarters and a butler pantry.

Mr. Phillips chronicles the complete ownership history of this house, with background information on each of the owners. The original owner of this house was an engineer named Thomas Avery. Mr. Avery gained a degree of fame in engineering circles by working with Henry Ford to perfect the moving assembly line for automobile production. In 1999, an urban pioneering police officer bought the somewhat frayed home for $79,900. In 2005, the property was sold for $250,000. The article doesn't come right out and say it, but this sure looks like a straw-buyer, property-flipping scheme. Since that time, the house was vacant, deteriorating and vandalized until this past April, when a community development organization bought the house for $10,000.

The story of this home demonstrates how inadequate current government programs are to address the problems of home-price declines and hollowing neighborhoods. When the market value of your house is less than what it would cost to put a roof on it, it's easy to see why many homeowners end up abandoning their homes and/or let them fall into disrepair. Detroit has an unemployment rate of almost 29%. For many Detroit residents, the prudent thing to do would be to pick up stakes and move somewhere else. Unfortunately, when your home is worth much less than what you owe on it, it makes picking up stakes that much harder. Moving is hard enough under the best of circumstances, but when you owe a huge deficiency after a mortgage foreclosure, or if you end up filing bankruptcy because of the foreclosure, moving is even harder. A chapter 13 bankruptcy cramdown to the actual value of the home would allow many of the upside down homeowners to get a fresh start. Unfortunately, that's the exact kind of mortgage relief that we're not getting.

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