Detroit's Renaissance: #1 in Appreciation in USA Over Last 10 Years!

[Drew Sygit]

How high can housing prices in the City of Detroit go?

In case you missed it, Detroit' Mayor Duggan announced that the value of houses in the city increased 23% in 2024.

In the last 7 years, Detroit housing is up over 300%!

That's an average of 17% annually over that time.

The City of Detroit has not only outperformed every city in the Metro Detroit area, its outperformed every city in the USA from 2014-2024:

Let that sink in for a minute ... you'll probably need more time than that to process this!

Not only did Detroit beat every city in other popular Midwest states like Indiana, Missouri, Ohio, Wisconsin, etc...

Detroit beat every city in the super popular states of Arizona, California, Florida, and Texas - Detroit beat them ALL!

Now let's be real, yes housing values are up overall in the city, but they do vary by Neighborhood. So, it's still NOT a good idea to try to invest by zip codes - which are too big in our opinion/experience. Please stop asking us for "the best" zip codes to invest in.

Detroit has around 183 Residential Neighborhoods - wouldn't it be nice if "some proprety mangagement company" Classified them all as A, B, C, or D on an interactive map that real estate investors could use to make better decisions?

[Steve K.]

Quote from @Travis Biziorek:

Quote from @V.G Jason:

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Quote from @V.G Jason:

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Quote from @V.G Jason:

Quote from @Travis Biziorek:

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Love to see it as I've been pounding the table on Detroit for a long time now.

@vgj makes a good point... yes, it's from a small base, but you quickly lose the plot. 

When I started aggressively buying in 2019 the median home price in Detroit was $40,000... it's now $95,000.

That's massive, and it doesn't matter if it's a small base or not as long as you're putting the same amount of capital to work you'd invest in another market.

Second, what are people going to say 5 years from now when the median price of a Detroit home is $200,000? 

But... BUT... it's from such a small base! Who cares? It's about rate of return and it's been hard to beat Detroit over the last 10 years. I imagine that's not going to change over the next 10.

But you're welcome to keep betting against it. I won't be.

 In bold, that's exactly what I mean. The absolute value is 55k.

Go show me the other large metros 2019 median house price versus today. Check the absolute value. I'll give an example Nashville was $300k, now $425k. That's $125k.

If it's $95k going to $200k in 10 years, it means Nashville is $425k going to $700k. Check the absolute value differential. 

I'm not saying Detroit isn't going to go higher, or suggesting I am betting on it. Go read my post again, I just said the message in the OP actually tells me a different story-- those larger metros performance is superior. If we changed the metric to absolute value, not percentage, not sure Detroit is even on that list. Whereas those are likely on the list if it's absolute value OR percentage. Now, that's impressive and that's the real story here. 

FWIW, I'm not betting the dollar is stronger only weaker just a matter of how. So I expect (general) appreciation everywhere, Detroit included. 

You're thinking in nominal returns when you should be focused on ROI.

If you had put $1,000,000 in Nashville in 2019 and $1,000,000 in Detroit in 2019 you'd have $1,400,000 in Nashville and nearly $2,400,000 in Detroit.

I know which of those I'm taking, but I understand some people prefer worse returns.

 

A million dollar of value adds in Nashville versus Detroit is no question to which is superior, did you factor that in to your equation?

Also, I think when you're evaluating returns, you're associating no risk. 

In 2019, $1mil is 25 houses in Detroit. 3.3 houses in Nashville right?

That's 3-4 tenants, 3-4 sets of capex, 3-4 sets of reserves versus 25, do you agree?

Tell me which is riskier. Then go give me risk adjusted returns, not blanket biasedness assuming every dollar in RE extrapolates like that. Infact, I can find a ton of your posts where you mention the risks of investing in Detroit. ****, the OP has that in his disclaimer at the beginning. 

The right answer to your question is at the house level, not just at the capital invested level. That's more appropriate.

 Quality over quantity. I'd take 4 houses over 25 **** houses. Pretty confident, we've been through this quality over quantity argument on this board a lot, but incase you weren't privy to it maybe you should understand why and the exposure risk of quantity. 

Don't get me started on the value add process. 

Thanks, Jason, I very much understand risk adjusted returns. 

But that wasn't your argument. You were simply pointing to nominal returns and, no that you're clearly wrong, you're moving the goal posts.

I have no interest in doing a risk-adjusted return analysis between Detroit and Nashville. If you do, I'm sure we'd all love to see your results and detailed methodology. I'd be willing to be Detroit still outperformed Nashville since 2019.

But I've already made my bet.

I pointed out an obvious detail which was AV versus %. You wanted ROI.

I simply pointed out risk in the cities profiles, and you chose to step out. Tells me everything.

Also, we can use ROI. Let's do ROI on $1mil of rehabs in Nashville versus Detroit, pretty sure the return is higher in Nashville too. Absolute value wise and probably %. I don't think you want to go down that route, neither. 

Then again, your business here is to push Detroit. I don't have anything to push.

LOL, I already showed you ROI on $1MM invested in both markets.

We have not done a risk-adjusted ROI, that's correct. I'm not going to waste my time doing that and neither are you.

But that won't stop either of us claiming to be right.

And that's the beauty of it. I invest in Detroit because I've done a "quick and dirty" risk-adjusted return analysis for me, personally. And you've done the same.

I could invest in Nashville or anywhere else. But I favor higher returns, even if they come with higher risk.

Obviously, you're on the other side of the spectrum.

I don't care. But when you go around touting nominal returns while ignoring actual return on investment, I have to call that kind of silliness out.

I never said nominal returns only, that's what you came to the conclusion of. I said look under the hood, it's a percentage versus AV thing because of the host of dilapidated properties. I wasn't associating risk in that former part?

Shoot, next time I will be sure to be clear and concise, and let me people know the dilapidated properties are higher risk. Glad, you don't do that and sell it to the prey. 

Your first reply to me literally cited only nominal returns. It's not until I called you out for it that you started immediately moving the goal posts to risk-adjusted returns.

And yes, being clear and concise is great advice always. 

If you think I don't warn people about the risks of Detroit you're incredibly ill informed. I literally have blog articles detailing why NOT to invest there.

But, by all means, continue to make assumptions. 

 Fair, my reply to you did. That's right.  My original post did not. I was making that more of a continuation.

The percentage basis vs AV is likely(and predominantly) due to the risk. 

The point stands against the OP; this isn't exactly what it looks like. 

 Fair. I still believe Detroit wins on a risk-adjusted basis. Prices in Detroit are unlikely to drop at this point. The bottom is in.

Sure, there are other risks like age of housing stock, tenant base, etc. but a lot of that is normalizing as well. 

At the end of the day, real estate risk-adjusted returns aren't as easy to calculate as they are in the stock market. Real estate risks can't simply be quantified by historical returns.

So a lot of these risks (e.g. tenant risk) are weighted on a subjective basis by the individual taking on that risk. 

So for me, personally, the risk of investing in Detroit, compared to the potential for much higher returns, was more than palatable. I've had conversations with people where I literally tell them NOT to invest there because it becomes extremely evident that their risk tolerance doesn't align with some of the challenges of that market.

But again, I don't think you can quantify this with a simple equation because of everyone's varying risk tolerance for these non-quantifiable variables.

 Travis what leads you to believe that prices in Detroit are unlikely to drop? Isn't it historically more of a boom/bust market than a steady and consistent appreciation market? Is the recent steep appreciation curve due to strong underlying fundamentals like a diverse, recession-resistant job market with high-paying jobs, population growth combined with restrictions on new construction/ supply and demand imbalance, desirability, affordability, etc. or was it driven more by speculative outside investor money that could quickly dry up in a down market and cause it to crash again? According to this study that made the rounds last fall, 40.7% of homes in Detroit are overvalued making Detroit the most overvalued RE market in the US: https://www.fau.edu/newsdesk/articles/detroit-most-overvalue...

Have wages increased proportionally to home prices? Are homeowners going to be able to survive the next round of tax assessments or the next big recession? Or will the median home price go down to $7,500 again like in 2008? Isn't the population still around 1/3 what it was in 1955? 

My take is that the steep appreciation in the last 4 years is due to Detroit being the last market in the US to finally recover from the global crash of 2008-2010. Prices didn't come back to 2007 levels there until recently. If you zoom out beyond the last 4 years, the numbers are actually not good. For example if you apply the national average appreciation rate to Detroit from 2007 to now, the average home should probably be like $350,000 there, but it is only $95,000. Detroit has performed worse than any other city in the US over that time period, with the exception of the last 4 years... seems high risk to me but I don't know the market that well, other than that historically all the jobs there were in industries that have now crashed...