September 14, 2018
Good Morning! In this morning’s eBlog, we report Congressional agreement to avert a shutdown, and we report on the remarkable cash purchases of homes in the Motor City, marking mayhap the most dramatic mark yet of Detroit’s Phoenix-like recovery from the nation’s largest ever municipal bankruptcy.
Keeping the Federal Government Open. The House and Senate yesterday reached agreement to avert a federal government shutdown by passing a large package of appropriations bills, as well as a continuing resolution which will, if signed by the President, fund the rest of the federal government through Pearl Harbor Day, December 7th. The package would keep the government funded past Oct. 1, the deadline for Congress to act. House Appropriations Committee Chair Rodney Frelinghuysen (R-N.J.) reported that the respective House and Senate bodies had completed work on the Defense and Labor, Health and Human Services and Education annual spending bills—bills which in this case represent the bulk of federal discretionary spending: combined, they total $786 billion, nearly two-thirds of all discretionary appropriations. The anticipation is that by including the continuing resolution (CR) in the package, it will make it less likely the President will make good on threats to shut down the federal government over border wall funding, albeit, last week, the President stated: “If it happens, it happens. If it’s about border security, I’m willing to do anything.”
Motor City Comeback. There is stunning fiscal reversal of fortune in Detroit, where, after, decades ago, families fled the city, and suburban families wanted no part of moving in from the suburbs—contributing to what triggered the largest chapter 9 municipal bankruptcy in U.S. history, suddenly buyers appear to be home shopping—and shopping to purchase homes in Detroit with cash. It seems that affordable housing process, higher income buyers, and growing investor interest—with the investors smelling signal profits from flipping—have made cash deals more common. For the city, a relatively unique one in that it relies on income taxes more than most cities, the impact on assessed property taxes will be icing on the fiscal cake. In the first half of this calendar year, nearly 90% of all single-family and condo purchases were made with cash—more than triple the national average. One cause is that the median price in the first part of this year was only $32,428—which, albeit 20% higher than in the first half of this year: and it seems to be a heck of a bargain: ATTOM Data reports the national median price is $234,000.
So many purchasers are buying for investment purposes: renovating and flipping distressed homes, some as—some as large as 4,200 square feet and with architectural significance—in Detroit’s downtown area and historic neighborhoods. But in older neighborhoods near the regional Federal Reserve offices and the Detroit Institute of Art, home buyers 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 a challenge in 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. That also makes payments in cash a likely option.
In effect, for the Motor City, this could be a phoenix moment of its fiscal and physical recovery: Quicken Loans is working with Home Depot and the Detroit Land Bank Authority to return Detroit’s vast stock of vacant, abandoned, and foreclosed property to productive use. Under the city’s “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 purchased—all part of an effort to stabilize the market and create comparable sales to help future buyers.
Quicken Loans Community Fund Vice President of strategic investments, Laura Grannemann, noted: “Tax foreclosure is a force that has generated blight, increased speculation, and driven property values down…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.”