Recent media reports about the debt crisis facing American cities outlines the problems that could bring many American cities to their knees. Meredith Whitney, a United States-based research analyst describes the ticking time bomb of both municipal and state debt as the next big problem threatening the United States' economy. Michigan's economy seems particularly hard-hit with massive job losses; in November of 2010, Michigan's unemployment rate stood at 12.4 percent, 2.6 percentage points over the national average as shown in this chart:
Notice that Michigan's unemployment rate ranges from 2.6 percent to 4.5 percent above the national average and that it has dropped 2 percentage points over the past 12 months bringing it closer to the national average.
In light of that, I thought I'd take a brief look at the real estate market in another American city. Flint Michigan is a city located 65 miles northwest of Detroit and is the seventh largest city in Michigan. Flint is best known as the birthplace of General Motors. Flint is also renowned as the birthplace of filmmaker Michael Moore, the director and producer of movies like Fahrenheit 9/11, Bowling for Columbine and Capitalism: A Love Story. The city has a population of 117,068 (2006 estimate from the United States Census Bureau), down from 124,943 in the year 2000, a drop of 6.3 percent. In 2008, Flint ranked third in the state of Michigan for the greatest number of residents lost. In 1999, 26.4 percent of Flint's population was living below the poverty line compared to a state-wide average of 10.5 percent. In the year 2000, the median home value was pegged at $49,700 and 58.8 percent of residents owned their homes.
As I stated, Flint was the birthplace of General Motors with the founding of the Buick Motor Division in 1904 and the Chevrolet Motor Division in 1913. General Motors was the main employer in Flint for decades; at one time, the company employed 82,000 workers in Flint (out of a peak population of nearly 200,000 people in the 1960s and 1970s). By 2008, the 100th Anniversary of General Motors, the company had downsized to the point where only 14,500 workers in Flint were employed by GM. The drop in the number of employees by the "only show in town" and the de-industrialization of the heartland of America defines the issues facing the city today.
Now, on to Flint's real estate market. I'm using the Realtor.com website to search for properties. As an introduction, of the 1365 homes listed on the website, nearly 250 homes have an asking price of $10,000 or less. The Demographia "6th Annual International Housing Affordability Survey: 2010" ranks metropolitan real estate markets in Australia, Canada, the Republic of Ireland, New Zealand, the United Kingdom and the United States by their respective median house price as a multiple of their median household income. Severely unaffordable housing has a median multiple of 5.1 or more and affordable cities have a median multiple of 3.0 or less. Flint, Michigan comes in sixth place with a multiple of 1.8 as shown on this chart:
Like Detroit, there are a lot of houses listed at fire-sale prices. There are houses for as little as $900 like this one located at 2539 Mount Elliot Avenue:
It's a two story, 1188 square foot single family dwelling with 3 bedrooms. There are no interior photos so we have no idea what condition the house is in. It is interesting to click on the property history tab; for the years 2009 and 2010, the home is assessed at $14,300 for property tax purposes and the $942 taxes assessed for the property were more than the asking price of the house.
Here's one for sale at 1383 Cleveland Drive - its asking price is $2900. It's a foreclosure but from what we can see on the photos of the interior it looks reasonably well cared for other than the rather hideous paint in the bedrooms:
One last listing. This two bedroom, 1185 square foot home is located at 1630 Dupont Street. From the photos, it looks very well cared for and it appears to be occupied. Its asking price is $11,000 and it has been listed for 385 days. This two bedroom home is assessed at $9931 in 2010 and the property taxes were $409:
What is particularly heart-breaking about Flint, Michigan is seeing what happens to a city when it is de-industrialized. With property values plummeting and many homes being unoccupied simply because the mortgage is worth way more than the value of the property to any buyer, revenues from property taxes drop making it more and more difficult for the city to provide programs necessary to keep its population from dropping even further. A drop in revenue from business taxes accompanies the drop in residential taxes compounding the fiscal issues facing any city undergoing urban devastation. Despite the fact that Flint has dropped its spending from $66.3 million last year to $57.1 million this year, it still needs to borrow between $13 million and $18 million to pay off its general fund deficit that reached $10.1 million in fiscal 2009.
The coming year will be an interesting one for municipal bond holders. Many American cities are facing debt crises that will result in them begging for help from their state governments. With both state and federal governments already heavily indebted, it will be interesting to see if anyone can come to the rescue of America's municipal governments.
Posts
My heart absolutely bleeds for them. Combined with a very real fear of it could happen here.
ReplyDeleteI wonder what rents are going for in the area?
Jenn
Reap what the country (USA) sow.
ReplyDeleteThere are just some places that people who have money don't want to live or invest. If they happen to be the same places where there is no employment, then in those places, the value of land, houses etc. is 0. There is simply no market for them.
ReplyDeleteThe best thing to do, is to bulldoze them, and allow the land to return to nature.
de-industrialized....thats the key point here. Why would anyone with more than 2 brain cells, stay there after he/she turn 18???
ReplyDeletethe ones that stay either cant move or just too old to relocate.
Thats the time bomb of any suburb. Unless there is some alternative jobs around such in tourism or biotech and whatever- plenty of options to explore.
This is the direct result of bad policies!
The leftists should take the blame for protecting the simple people...GM drove out of the US cause they coudnt "exploit" people anymore (or forced to give pension that they couldnt cover). Well china isnt complaining about pensions rights. (of course GM had a fair share in running a business like amateurs. But if it was easy to employ people and sack them other companies would have filled the gap...
And the list goes on--animal right- 15 years to develop a new drug in the age of knowledge!!! I bet if you check the legal costs of running a hospital you will see how much of our money is wasted to protect doctors from doing anything wrong. Like anyone actually believes that a human being can wake up and be perfect everyday of his career..its stupid and holding all the western countries crippled.
The right wing is just as bad. Talking about cuts and economical responsibility while they running 10 years war in the other side of the world!!!!! 10 fucking years!!!.....Lets pretend we are back in 9/11....US was attacked, Ok whoever messed with the boss should pays the price....how many carriers there are in the indian ocean? around 3 (for crisis right?)....send the jets for couple of weeks for pay back time. US made its point, every country witnessed what will happen...10 years of occupation of a shit hole...Iraq is not even worth mentioning....and of course the right sadly also keeps children ignorant to think god and not evolution.....ok finished my rant :-) not sure the dots connect but anyhow
peace!
I do believe the US is a poorly run and badly managed country. No one wants to pay taxes and the national debt keeps climbing. The Chineese own them now and they don't even realize it. Will the last person leaving please turn out the light!
ReplyDeleteLet's just get the Africans to move in.
ReplyDeleteReal estate has collapsed in most states, over 40% of the population don't have health care, a huge and unmanagable national debt...we northern neighbours look south and sadly shake our heads!
ReplyDelete...we northern neighbours look south and sadly shake our heads!
ReplyDelete================================================
.......the southern neighbours look North and lick their lips. That is what we should be worrying about.
Flint may become a future retirement community! If the city can position itself right, they could draw a raft of people who are retired and are looking for an inexpensive place to live. In Canada, Elliot lake took that route (mining was closed down) and they have become very successful. Elliot lake is also quite far north so I could see Flint being successful as well.
ReplyDeleteIngenuity is needed to find solutions to a difficult situation.
The Green movement undertook to drive industrial companies out of the USA a few decades ago. Mindless gov't officials jumped on the band wagon and drove basic industry out thru harassment, over regulation and stupid taxation policies. The Green cult is still strong and advocating Renewable energy as the solution. Renewable energy costs about 4 times as much as conventional energy. It doesn't take a guru to understand that we won't be able to be competitive with the rest of the world if we take the renewable direction. Additionally, progressive liberals do not want jobs. Keeping the population poor will permit them to gain power thru welfare and wealth redistribution. Don't see the political impetus from either party to avoid economic collapse at this point. Move over Argentina, Greece, Ireland, Portugal, Spain....the Yanks are coming!
ReplyDeleteAmerica can't compete because Chinese and Indian workers make $1 an hour, if they are lucky. How do you compete with that?
ReplyDeleteThe companies today think about margin of profit, they buy goods produced in China for pennies and sell them to us making 900% or more in profits, even when we see 50% off in price in reality is 450% still in profit for them, there is not way to get out from this hole unless the system make drastic changes. On top of that, when you buy houses for cheap, check the taxes in the area because what you saved in price the local government will suck you in taxes. The perfect storm ehhhh?
ReplyDeleteYou need another example, check this, the Montreal government sold the idea that a necessary increase of 4% in taxes is mandatory, OK maybe it's right, but when you read in the newspaper that the same government increased 6% the salary of the government employees then you realize the total corruption of the system, still I have to listen to this crocked chief of government selling to me a better future
ReplyDeleteThanks, America. Keep voting Republican. Idiots. We needed to HEAVILY regulate the free market. We need to SERIOUSLY address market failure on all levels. But you're all to stupid to realize it. Keep on watching Neil Cavuto and Fox News. They're laughing at you and shaking your hand with one hand, and stealing your investments, savings and homes with the other. We deserve to get kicked in the teeth.
ReplyDeleteBlame the Green movement. That's funny.
ReplyDeleteBlame the Government bailouts. That's funny too.
Blame the Republican or Democratic parties. My humor cup runneth over.
Blame yourselves.
That's fact.
I wonder if some of those low priced homes have tax or other liens with them.
ReplyDeleteThe greater drive for more profits, less expenditures on workers, and Wall Street's unending greed is why 95% of goods at Wal-Mart come from Communist China now. This is done by plan, however. It makes the consumer think that the money that is devaluing in their pocket is still worth what it used to be, as goods are cheaper even though they are vastly inferior now. This allows the ultra-wealthy to still reap profits from 3rd world labor while keeping the middle and lower classes from getting picks and torches and burning them alive.
ReplyDeleteI fear for your country and by extension Canada,my own. There is no free ride or happily ever after when it comes to uncontrolled debt, growing unemployment, financial or political stupidity. When the public and politicians can be bought or told fairy tales that all we need to do is blame the other party or country then reason and logic fails to stop the rot. Unfortunately human resistance to change and crisis management all too often requires a near total collapse of financial and political systems before wisdom finally prevails.
ReplyDeletehttp://www.youtube.com/watch?v=gnmO8CuLwuw
ReplyDeletei do blame myself!
ReplyDeleteBut its easier to change and it did!
there is little I can do about populist movements like the parties and the movements...In the end we have to realize that there is no other way to teach the public rather than the hard way....we earned whats coming!
It's sad and disappointed with what happening to #1 country proud to be for a long time.
ReplyDeleteUSA sleeping on success after soviet union collaped,they forgot the enemies already in their house waiting for the right moment to attack american let their country run by typoons, only aim for profit nothing else mater.American made a mistake when they though China is big maket they sell they products what American didn't think of is majority of Chineses can't buy any thing over 1 dollar but they can make the same thing and sell it back to you for 2 cent that why they kill american's industries. american said ok let them do the small stuff we will sell them the high tech goods,they don't think the Chinese already learn or steeling the high tech from the west and make their own or even buy once and coppy to make it their products and sell them back to American for the faction of the price.Evident China claim to have super computer more powerfull then american's.
American said what they're going to do and they do it.
Chinese said one thing and they the other.
A lesion to the west about Chinese, some time straigh talk end up, the looser.
I am from this area of Michigan and had to leave the state for work. So have most of my family and friends. Those that stayed stayed because they own businesses and homes and are struggling. Some of my family are working full time and they are still losing their homes to foreclosure. MY Mother had to file for bankruptcy because no one would her house when she had to move for work. Its a sad reality.
ReplyDeleteI was born and grew up in SE MI. I remember folks who worked in the auto industry could throw out last year's furniture and buy new. My husband was a mere auto mechanic so we always marveled at how they could do that. I left MI a long while back because I didn't want to be a factory worker (aka shop rats) despite their seemingly fantastic salaries and benefits (thanks to unions). My future is much brighter though I still miss Michigan's lovely natural beauty and generally great climate.
ReplyDeleteDear Flintonians:
ReplyDeletePlease follow/understand/research about Michael Moore's vision to make the great state of michigan fall/spring/summer's hollywood and work towards realizing this vision.....u have plenty of help in maize n blue stalwarts like: jeff daniels, lloyd carr, magic johnson, eric schimdt, chris weber, only to name a few.......just imagine more movies like "revolutionary road" being homebred in one of the historically most superior states than others in north america!
"Additionally, progressive liberals do not want jobs. Keeping the population poor will permit them to gain power thru welfare and wealth redistribution"
ReplyDeleteAbsolutely laughable claim. That ANYONE repeats this is a staggering indictment of the failure of our educational and political systems....freedom of speech is amazing, but it allows the ludicrously ignorant to expose themselves for what they are.
@jan 17 thinking eikther political party is in it for your interest and not theirs shows how ignorant you are.
ReplyDeleteThose that stayed stayed because they own businesses and homes and are struggling. Some of my family are working full time and they are still losing their homes to foreclosure.
ReplyDelete