By GRETA GUEST
FREE PRESS BUSINESS WRITER

Berry Gordy’s former residence in Detroit’s Boston-Edison neighborhood will go up for sale on Monday.

The asking price: $1.395 million.

The house features nine bedrooms, five full bathrooms and four half-baths plus a five-car garage and a 4,000-square-foot pool house, said Kenan Bakirci, the listing agent who works for Coldwell Banker Weir Manuel in the Birmingham/Bloomfield South office.

The main house is 8,500 square feet.

The Motown mansion was built in 1917 by lumber magnate Nels Michelson. It features Italian renaissance design and old world craftsmanship including a black walnut paneled living room and a marble-columned ballroom.

Motown greats including Smokey Robinson, Diana Ross and The Supremes, Billy Dee Williams, Stevie Wonder, Aretha Franklin, The Jackson 5, The Four Tops, The Temptations and others were visitors to the house.

Determining a sales price in today’s housing slump wasn’t easy, Bakirci said.

“Wow, that is the toughest thing on earth,” he said. “It is 10 cents on the dollar for what it would cost to replicate this house today. It has a crazy pool house that is 4,000 square feet with bowling lanes and a billiard room. So how do you price it?”

Bakirci said the house might have been able to sell for closer to $2 million during the market peak.

The current owner, Cynthia Reaves, president and CEO of Jackson Gates Associates Inc., restored the home over the past five years, Bakirci said.

Article From:

http://www.freep.com/article/20100708/ENT04/100708034/1017/Business04/Berry-Gordys-former-residence-goes-on-sale-for-1.395M

And even the faint promise of better days ahead might not come true, given all the headwinds the housing industry is facing at the moment.

“This is going to be another difficult spring,” said Mark Zandi, chief economist at Moody’s Economy.com. “I think we are at the beginning of the end of the housing downturn, but it is going to be a long and painful end.”

The devastation is certainly a far cry from the boom years from 2001 to 2005 when sales of new and existing homes were setting records for five straight years. During that time, home prices were soaring, luring thousands of investors into the market, hoping to buy homes and flip them for quick profit.

But since 2006, the country has been mired in a housing bust which, in many ways, is the worst since World War II. Construction is expected to drop to the slowest pace since the 1940s and prices are expected to decline by the largest amount since the Great Depression.

Hardest hit are the states where sales boomed the most: California, Florida, Nevada, Arizona and parts of the Northeast. In the Midwest, the problem is shrinking jobs in the auto industry, making homes hard to sell.

But virtually all of the country has felt the aftershocks of the housing slump, either through weaker home sales or the massive drag housing has imposed on the overall economy.

Housing has shaved more than a full percentage point off economic growth, trimming the gross domestic product for the past two quarters to a barely discernible 0.6 percent rate and raising the threat that the country could topple into a full-blown recession.

The National Association of Realtors reported that 46 states saw sales decline in the first three months of this year compared with the same period in 2007.

Two-thirds of 149 metropolitan areas saw prices decline during the same period, the largest percentage of cities reporting price drops in the history of the NAR survey, which goes back to 1979.

The state with the biggest sales decline was Maryland, with sales down 38.6 percent in the first three months of this year compared with the same period in 2007. The drop nationwide was 22.2 percent.

The price decline nationally was 7.7 percent in the first quarter, with the biggest plunge a 29.2 percent decline in the Sacramento, Calif., area. As the spring sales season got under way, the slump was continuing.

The Realtors reported Friday that existing home sales fell 1 percent in April, the eighth drop in the past nine months, with the median home price falling 8 percent compared with a year ago, the second-biggest drop on record.

So just how much worse will things get? Lawrence Yun, chief economist for the Realtors, sees some hopeful signs.

Some parts of the country that have been hammered with sharp declines in sales and prices, such as San Diego, Calif., and Fort Myers, Fla., are now reporting sales increases, as buyers are being lured back into the market, looking for bargains.

“Lower prices and low interest rates are starting to generate results,” Yun said, noting that 30-year fixed-rate mortgages averaged 5.92 percent in April, down from 6.18 percent in April 2007.

That reflected an aggressive rate-cutting effort by the Federal Reserve to try to keep the country out of a recession.

Sales should also be helped in coming months, Yun predicted, by the reappearance of more mortgage products as lenders reopen the tap for certain loans. That supply had been closed following the credit crisis that hit last August, triggered by rising defaults in subprime mortgages.

Other economists are not so optimistic, noting that the Realtors’ latest report showed the number of unsold single-family homes jumping to a 23-year high, reflecting, in part, a rising tide of mortgage foreclosures, which are dumping more homes on an already glutted market.

Adding to the foreclosure problem is the weak economy, which has resulted in four straight months of job layoffs, an indication to some analysts that the country has already fallen into a recession.

Rising job layoffs and higher gasoline and food prices have sent consumer confidence plunging — not a great environment to mount a rebound in housing.

And then there is the problem of the huge overhang of unsold homes generating further declines in prices, which seem to be keeping more prospective buyers on the fence.

“Right now a lot of people are staying away because they don’t want to buy an asset that might lose value right away,” said Patrick Newport, an economist at Global Insight.

Newport predicted that prices, which by some measures have fallen by about 15 percent nationwide from their peak two years ago, will decline another 10 percent before bottoming out in the spring of 2009.

A 25 percent fall in prices would be the biggest since home prices plunged by about one-third during the Great Depression of the 1930s.

David Seiders, chief economist for the National Association of Home Builders, said he believed sales will bottom out by the middle of this year and then start to move higher by the end of this year.

He said builders, trying to control inventories, will continue slashing production, with housing starts expected to drop by 39 percent this year following a 30 percent decline in 2007. That will push activity to the slowest annual pace since the end of World War II.

Seiders predicted a gradual rebound in construction starting next year. “This is stacking up as the most dramatic housing contraction in the post-World War II period,” he said.

And while sales, construction and prices should all start to recover by next year, the rebound is not expected to be a rapid one. Some analysts are forecasting it will take a couple of years for housing to regain its footing.

“It is going to take some time first to restore confidence that housing is a reasonably OK investment, then to work off this inventory and then for the financial system to revive,” Zandi predicted.

Remember, we have access to the direct bank lists and our homes are all pre-mls unlike the majority of the garbage out there.

Full article at Detroit Free Press

Detroit’s housing slump is attractive to investors

Some buyers look to get 100 or more

Investors from as far away as Hong Kong and Hawaii are coming to Detroit to make their fortune buying foreclosed homes in bulk.

“This is a millionaire’s market,” said Jeremy Burgess, a 28-year-old investor from Washington state who has been living in Detroit for the past year. “I feel like I’m driving through the city and stopping to shovel diamonds in the back of my truck.”

His wife, Jeanna Kiehle, and partner Jared Pomranky formed Urban Detroit Wholesalers to scour the city for houses they can fix and rent. The idea is to generate cash flow until the market improves, and they then can sell the houses. They own 38 houses now and close on 15 more before the end of the month.

Some buyers are looking to buy larger numbers of homes, perhaps 100 or more at a time.

People tuned in to the Detroit area’s distressed housing market say the majority of sales now are to investors, often in bulk deals.

Sales were up dramatically in Detroit in February, rising 49% from a year before, and realty watchers say foreclosure properties played a key role in the increase.

Some see significant risk to investors who could get low-end properties without being familiar with pitfalls of the market.

“Real estate is not a commodity. You have to know what you are buying,” said Mark Nagy, a broker and consultant for RE Investments Inc. in Southfield. “What typically ends up in bulk sales is stuff that has sat on the market for more than six months.”

Banks see Detroit as a sore spot, Nagy said, because they cannot move the properties and there are so many.

“Bulk buying will become more commonplace by the end of the summer,” Nagy said. “Right now, so many properties in Detroit are like a hot potato. Whoever ends up with it will be crushed.”

Burgess and others say there are plenty of good properties.

Smith Kitporka, 28, an investor in San Jose, Calif., said he has been buying Detroit foreclosures for two years, often paying as little as $10,000.

“No war-zone houses or anything like that. Just good houses in good neighborhoods,” he said.

Burgess said he can pick up an $85,000 house in Detroit for $20,000 to $30,000 these days. Listings on Fannie Mae’s Web site show many Detroit foreclosures for less than $25,000.

Last year, metro Detroit led the nation in foreclosures. Of the 10,342 homes on the market in Detroit as of Wednesday, 3,355 were bank-owned foreclosures, according to Realcomp Inc. And in the tri-county area, 7,104 bank-owned foreclosures were listed out of 47,095 homes on the market.

Eddie Peters, 44, an asset manager for 15 years at various banks who left GMAC’s Homecomings Financial office in Berkley last month in a wave of layoffs, said bulk sales are picking up.

When banks were getting 10-20 foreclosures a month, they would list them with local agents and recover what they could. But now, as foreclosure volume has risen, banks must sell in bulk so they don’t get overwhelmed with property, Peters said.

“The bulk sale is an acceleration of what is normally done,” he said. “About 80% of the houses sold now are being bought by investors.”

Banks contacted for this article either declined comment or did not respond.

Peters said lenders don’t want to be identified with the subprime loan collapse that hit last year and rippled through the U.S. economy as lenders tightened all forms of credit.

The prices in metro Detroit — mainly within the city limits and nearby suburbs — are so low that investors from more expensive markets such as California, Nevada and Florida feel certain they can grab bargains here.

“Right now, people are buying for the thrill because prices keep going down,” said John Graham, a real estate agent with Keller Williams in St. Clair Shores who works primarily with investors. “The rental market is going to be crazy good. That’s what these out-of-state people are seeing.”

Burgess and his partner started out by buying foreclosed houses, fixing them up and then selling for a profit, a practice known as flipping.

But after the subprime loan crash last year, potential buyers had trouble obtaining loans and flipping essentially ended.

The new trend is to buy properties cheap from banks in bulk and then sell the properties to investors who hope to collect rent until the market improves.

Burgess said homes in Detroit’s better neighborhoods are renting for $850 a month. His company manages the properties for the out-of-state investors.

The investors are banking on a Detroit recovery in the next 5-10 years.

Drew Sygit, vice president of the Lending Edge in Bloomfield Hills, said that most of the investors he talks to in Michigan are trying to be wholesalers and sell property to other investors.

“The Michigan people are scared of Detroit,” Sygit said. “It’s not a sure thing. They have to worry about inspections, copper stealing, equity stripping. It’s challenging, but there is a big reward.”

Tarik Dinha II, 30, of Clarkston is the owner of Urban Development Solutions Group LLC and Deeds4Cash.com. He buys 20-40 houses at a time from banks for “pennies on the dollar” and then sells them as fast as possible.

But making those connections with the right people at the banks is not easy.

None of the investors interviewed for this story would divulge which banks they work with.

But Dinha said he has made the right connections and has contacted banks with a list of properties for which he can pay cash within 72 hours.

“I usually buy 40 at once, but anything over 10, 15 is a bulk deal. The key thing is to be able to not get stuck with a bunch of junk,” he said.

More bulk sales are combining hard-to-move property in several states that have been hit hard by foreclosures, said Marshall Mandell, a realty agent and foreclosure expert who deals only in bank-owned properties in metro Detroit.

Nagy, the Southfield broker, said he saw a bulk listing for 256 properties valued at nearly $30 million in five states, with 105 of the properties in Michigan. The deals can be difficult to close, as investor Travis McKee, 35, of Pontiac found. He made an offer recently for clients on 195 houses owned by a bank, but the deal fell apart.

“I haven’t completed any bulk deals yet. I’m still interested,” he said.

Letitia Patterson, a realty agent and foreclosure specialist at RCH Brokerage in Southfield who also runs DetroitCashDeals.com, said banks must prove to auditors that they are getting a reasonable return for each property, she said.

“It is very few brokers who deal with the banks,” Patterson said. “It is really sexy and exciting to say we are buying 100 houses for pennies on the dollar. The deals often don’t close.”

Nagy said that in many cases, there’s still a disparity between what banks want to get for foreclosed properties and what investors are willing to pay.

In many cases, a bank today wants 55-65 cents on the dollar for a suburban property, yet investors want to pay 40-45 cents on the dollar, he said.

In Detroit, the bank may want 30-35 cents on the dollar, and investors want it at 20-25 cents on the dollar.

“Those two points have not met in the middle yet,” Nagy said. “It’s an evolution process. It’s going to evolve that bulk sales will increase.”

Contact GRETA GUEST at 313-223-4192 or gguest@freepress.com.

The bulk craze, by the numbers

Investors are buying foreclosed Detroit homes in large numbers, hoping that the real estate market takes a positive swing and they can make a hefty profit.

$10,000
What some Detroit homes are selling for.

80%
Estimate of houses sold in Detroit being bought by investors.

One-third
Homes listed for sale in the city that are bank-owned foreclosures. It’s 15% in Wayne, Oakland and Macomb counties.