While Hampton was successful cutting costs in some areas, he’s faced difficulties reducing his housing expenses. It’s not news that Detroit is one of the hardest hit housing markets in the country. Hampton has tried to sell his three-bedroom house to get out of a $1,172 monthly mortgage and alleviate his debt burden. He had plans to use the savings to generate more cash flow. But Detroit is far from a seller’s market. Home prices there are at their lowest level since May 1994, according to the Detroit Free Press. The city had a 9.1% year-over-year drop in home prices through December, the worst decline among the nation’s 20 metropolitan areas in the S&P/Case-Shiller National Home Price Index. Detroit is one of 11 cities posting new home price lows since peaking five years ago, according to David Blitzer, chairman of the Index Committee at Standard & Poor’s. “Despite improvements in the overall economy, housing continues to drift lower and weaker,†said Blitzer in the report.
In March 2008, Hampton’s house was valued at $116,000. Today it’s worth $39,500, according to Zillow.com, an online real estate index and search engine. Even though that decline means he’s underwater in his mortgage, he is currently up-to-date with all his payments.
Nationwide, homeowners like Hampton are also plagued with conservative home appraisals. New federal laws, such as the Home Valuation Code of Conduct passed in May 2009, push for more realistic home values as a way of safeguarding homebuyers and lenders. But with large gaps between the home price and appraisal, sellers can’t get their dollar amount because buyers can’t secure the financing. Reportedly, Detroit-area real estate agents have complained that up to 40% of their recent deals unraveled because appraisals were too low.
“Through all my cost cutting measures, I haven’t been able to tuck away enough money if a disaster happened, such as losing my job,†says Hampton. His concern is valid. Michigan automotive employment fell from 316,300 in 1999 to 173,600 in 2007, a decline of about 45%, according to the Center for Automotive Research, a nonprofit think tank based in Ann Arbor, Michigan.