Typically, Americans finance their home purchases with a mortgage. But in Detroit, even as home prices in the city are surging, the vast majority of home sales are fully paid for in cash.
According to real estate data company ATTOM Data Solutions, 87% of deals on condominiums and single-family homes in Detroit in the first half of 2018 have been paid for in cash.
This figure compares to just 28% of deals paid in cash only on a nationwide basis.
Daren Blomquist, ATTOM’s senior vice president, told The Wall Street Journal, which first reported the findings that “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.”
(You can read the Wall Street Journal article here: “Why So Many Detroit Home Buyers Are Paying in Cash”.)
So why is there a sudden spike of cash transactions on Detroit properties then?
It’s likely a combination of a number of things:
- Lower home values
- More affluent, cash-heavy buyers
- More investors
- A desire to skip the appraisals process
What’s the Median Price of a Home in Detroit?
So just how much are homes in Detroit going for?
The median price of a Detroit home was just $32,428 in the first half of 2018 according to data provided by ATTOM.
All-cash home buyers are reportedly taking advantage of the significantly lower prices in Detroit compared to the rest of the U.S.
While this median price of homes in Detroit has gone up 20% from the previous year, this figure is still a lot less than the national median price, which is $234,000.
More People Are Moving To Detroit
According to CBRE Inc.’s annual Scoring Tech Talent report, Detroit’s millennial population grew by 10.4% in 2018, ranking fourth in growth among tech talent markets with labor pools of more than 50,000.
“The majority of people buying these homes are young, college-educated professionals, followed by empty nesters,” says Justin Robinson, vice president of economic development at the Detroit Regional Chamber.
A lot of these couples and starter families have been leaving cities with higher costs of living (like Seattle, Los Angeles, or New York City) to take advantage of the lower cost of acquiring a home in Detroit, and to take another stab at the American Dream.
This means a lot more of their income can go to other purchases, or to pay off student debt or other obligations.
Downtown Detroit is particularly a choice location for new homebuyers, according to Robinson, as the neighborhood is awash with businesses, breweries, upscale restaurants, art galleries and music venues.
“The greater downtown has undergone a tremendous revitalization. Prices in that area have gone up significantly,” says Robinson. “Office buildings are being converted into residential and even those apartments are seeing some appreciation. There are about 6,000 new units, so an enormous amount of construction is taking place.”
(You can read the Bankrate.com article here: “Homebuyers Can’t Believe What’s Happening in Detroit”.)
Strong Investor Interest
ATTOM also believes that a significant amount of activity is coming from investors– with purchases of Detroit homes usually for business purposes.
Investors would snap up as many properties as they can, renovate them, then sell them afterwards, making a bit of a profit by doing so.
Other investors might prefer to rent these properties out, as Detroit’s continued upswing brings in more jobs as well as more people moving into the city to take advantage of opportunities in key growth industries.
This might be particularly true with properties in Detroit’s downtown area where the proximity to historic neighborhoods and other nearby places of interest greatly add to the appeal of these home purchases.
Challenges in Appraisal
The Wall Street Journal has also pointed out that appraising these particular homes might be difficult.
A newly renovated home in a neighborhood with many distressed properties won’t quite match up fairly against comparables, “making it difficult for appraisers to find tangible evidence of value,” explained Jonathan Miller, president of appraisal company Miller Samuel Inc. in New York in the Wall Street Journal article.
Traditional financing has thus been more difficult to obtain, especially in neighborhoods that have yet to recover.
“You may be the first one with a resale in a particular neighborhood, so there may not be very much to compare to,” says Miller. And so “buyers may end up paying cash as a result.”
Advice From a New Detroit Homeowner
38-year-old retail manager and single mother of two Keitha Caldwell was able to buy a fixer-upper in Detroit for $17,500.
Determined to never worry about housing ever again, she bought her new Detroit Home in 2018 and moved in just before Christmas.
“Initially, I just wanted something located between my daughter’s high school and my job,” said Caldwell. “I didn’t care about what the house looked like or how many bedrooms it had, but it was a big deal for me to have a yard because I love being outside.”
As it turned out, her new house has five bedrooms and two baths, as well as a backyard for her little dogs to run around. The property had major problems with the gutters and plumbing when she made the purchase, as well as a few cosmetic issues.
Other than that, Keitha’s new home had everything she needed.
“I think I bought a house at the right time,” says Caldwell noting that, while her home buying journey might have been a challenge, she wouldn’t have done anything differently.
“I actually would do this all over again because even though the home needs some work, it’s livable and I have a vision of what it will look like when all the improvements are done.”
Her advice to those considering moving to Detroit?
“Make sure you get your home inspected. Get a walkthrough and see what you’re up against before you take on a fixer-upper.”
(You can read the NerdWallet article here: “How I Bought a Home in Detroit”.)
About ATTOM Data Solutions
Based in Irvine, California, ATTOM Data Solutions has positioned itself as the premier provider of real estate and property data in the country.
The company provides cutting-edge vital real estate information for innovators in many industries and delivers data in a variety of flexible customer solutions, including Data-as-a-Service (DaaS), property data APIs and bulk data licensing.
ATTOM blends property tax, deed, mortgage, foreclosure, environmental risk, natural hazard and neighborhood data for more than 155 million U.S. residential and commercial properties multi-sourced from more than 3,000 U.S. counties.