Nearly Nine in 10 Detroit Buyers are Paying Cash
Cash is king in most markets, but there are few places it is as dominant in home-purchase transactions as Detroit, Michigan. In fact, according to recent data from ATTOM Data Solutions, 87 percent of all single-family home and condo purchases made in Detroit during the first half of this year were cash deals. That staggering number compares to a national cash-purchase rate of about 28 percent.
The buyers are not all investors, either. With a downtown housing occupancy rate of 98 percent according to vice president of economic development at the Detroit Regional Chamber, Justin Robinson, the metro area is alive and actively revitalizing. “Prices in that [greater downtown] area have gone up significantly,” Robinson told Bankrate.com during a recent interview. “Office buildings are being converted into residential, and even those apartments are seeing some appreciation.” He added that there are, at present, about 6,000 new units on the market and that “about a dozen” neighborhoods remained “intact” during the area’s housing downturn, which means that homeowners can purchase properties prices ranging from $100,000 to $300,000. “These are beautiful homes that, to build new, would cost $500,000 to $600,000.”
Why All the Cash Purchases?
Robinson insisted that a lot of Detroit’s buyers are “young, college-educated professionals, followed by empty nesters.” The city’s millennial population has been skyrocketing thanks to a strong tech sector and highly affordable metro housing. But why aren’t these new homeowners financing their homes?
In a lot of cases, the city’s rapid growth in recent months may make it difficult for traditional buyers to get the appraisals most lenders require in order to provide financing. “You may be the first one with a resale in a particular neighborhood, so there may not be very much to compare it to,” warned Jonathan Miller, president of a New York-based appraisal company. Of course, there are also many real estate investors buying distressed properties in the Detroit metro area and surrounding areas, and these individuals tend to be comfortable with cash purchases and prepared to make that type of capital commitment.
Not Everyone is Happy, Though
With all-cash purchases come the investors, and not every Detroiter is happy to see them. The Detroit Free Press recently “investigated” 23 properties it tagged as products of “speculation” because they had been purchased by a California investment company. The publication eventually concluded, among other things, “The Wayne County Tax Foreclosure Auction is one of the greatest destabilizing forces in Detroit,” as one University of Michigan professor put it. The article went on to vilify institutional investors, out-of-state investors, tax lien investors, and those who purchase or sell properties using unconventional financing, such as lease-options or subject-to agreements.
Despite some community distaste for the real estate investing process, however, the likelihood is that if you are buying in Detroit, you are going to need some unconventional financing in order to do so and to be competitive. The only question is whether you plan to stay long-term, own long-term cash-flowing rentals, or flip your investment property and improve local comps for the one in 10 buyers relying on the bank to make their home purchase.
Do you think that there are too many investors in Detroit?