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Detroit Builders Aren’t Betting on a Housing Recovery But Investors Are

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More than 100 creditors, unions and retiree groups (and even some residents) have filed objections to Detroit's right to file for Chapter 9 bankruptcy. This sets up what will surely be a long and bitter fight. U.S. Bankruptcy Judge Steven Rhodes will oversee a trial starting Oct. 23 to hear arguments.

"Detroit's had both economic challenges...and some fiscal challenges," says Jed Kolko, chief economist and vice president of analytics at Trulia, a real estate website. So how will a potential bankruptcy effect buyers and sellers in the Detroit housing market?

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"The hope is that the bankruptcy will be the beginning of a solution and that might even be encouraging some investors to jump in now in the hopes that Detroit will get its fiscal house in order," he says. "But we'll have to see how the bankruptcy plays out. In a bankruptcy there are always winners and losers."

Metro Detroit home prices jumped 19% in May compared with a year ago, according to the S&P/Case-Shiller Home Price Index.

Kolko points out that "you might be forgiven for thinking that Detroit looks a lot like California right now: bidding wars, tight inventory, hard to find a home for sale, big price increases."

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Incredibly, it's still two-thirds cheaper to buy a house in Detroit than rent. So it's affordable...though it's all relative since unemployment is so high (around 15%) and the city economy is in such dire straits. That's why Kolko thinks the current housing market in Detroit is so attractive to investors.

"Investors who are looking to buy in Detroit and rent out a unit will find the math looks better in Detroit than almost anywhere else in the country," he explains.

Despite this, Kolko insists Detroit's housing market is still one of the most challenged in the U.S. Especially because construction has not ramped up despite rising home prices. So it remains to be seen whether the city's affordable housing market can attract people despite high crime, a crumbling infrastructure and general uncertainty about the future of the Motor City.

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