In a single day the Detroit News featured two human-interest pieces that gave a perfect snapshot of the real estate mess we’re in.

The first told of Detroiters having terribly long commutes because their jobs have left the city but they can’t find buyers for their modest homes:

“Residents who can’t find work close to home are traveling further distances — 90 minutes or more — to get to a job in another city, county, or, in some cases, another state. Others who would like to move closer to their new jobs can’t because they’re stuck with a house they can’t sell.”

and the other reported that 600+ perspective McMansion buyers crammed into a Troy hotel ballroom to participate in a home auction:

[QUOTE]
A three-bedroom home on Winding Brook Circle in the Sanctuary in the Hills subdivision in Rochester Hills sold for $400,000 in the first 15 minutes of the auction. The original price of the 3,031-square-foot, three-bedroom home was $523,297.

A few minutes later, a home in the same subdivision sold for $315,000.
[END QUOTE]

Troy and Detroit: Two communities that are 26 minutes and $200,000 apart.

Just for comparison, imagine a universe where you couldn’t sell a sturdy family home in Manhattan to save you life, but larger houses of questionable structural integrity in Newark started at over a quarter of a million dollars. Detroit is bizarro New York.

How did we end up in such a screwy real-estate situation? Is it all due to Detroit being a crap city? No, as I sorta-kinda explained in the comments to this post about Detroit leading the nation in foreclosed property, this is fallout from the recent nationwide real estate boom:

The low interest rates of the early 2000s inspired a lot of real estate speculation: people bought second homes as an investment.

In the usual course of events, for each house bought one is sold, because a home sale means folks are changing their primary residence. During the real estate boom of the ’00s, people were buying second homes with the notion that the value would increase and could later be sold at a profit (like buying shares of stock.) Since homes were leaving the market without replacement homes entering the market, an artificial scarcity was created (coincidentally, causing the values of homes to rise: Tada! The speculators saw confirmation of their theory that houses were the new stocks.) This scarcity spurred new home construction, and folks snapped these up as an “investement” — often taking advantage of “interest-only” and variable-rate mortgage offers that had attractive introductory rates. Lather, rinse, repeat.

Then interest rates rose, the boom busted, and folks saw their investment in those secondary properties dwindle, forcing them to sell at break-even or a loss, or simply lose the property to the lender.

Between all of these secondary homes re-entering the market and the new construction over the last several years, there are far too many homes available in Michigan, and little guys — regular old home owners who have to move for the regular old reasons, like Lisa Harris in the first article — are unable to sell their homes for what they paid just a few years ago.

Put succinctly: TANSTAAFL

Dave-o unabashedly supports Poor Mojo’s Newswire, a blog of merit since 1905 — now available electronically!

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