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Detroit Home Auctions Surged, Driven by Underwater Mortgages

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By : John Cutts    99 or more times read
Detroit home auctions surged in February, largely driven by underwater mortgages.

A total of 131,262 mortgages in metro Detroit or a staggering 47 percent of all mortgages in the area were underwater as of December, according to a California research firm.

Over the next 5 years, home prices in metro Detroit are expected to drop further by 30 percent, according to University of Michigan professor Dennis Capozza who also co-heads advisory firm University Financial Associates.

Across Michigan home prices have fallen by over 35 percent from their peak in 2005 and are expected to plunge further by 22 percent over the next 5 years.

In metro Detroit, which encompasses Wayne, Macomb and Oakland counties, foreclosure activity shot up compared to filings in February 2009. Completed filings and pre foreclosures in Detroit pushed up overall Wayne County postings by 69 percent as foreclosure activity in Oakland and in Macomb spiked by 71 percent and by 53 percent, respectively.

A total of 5,782 housing units in Wayne County entered default and foreclosure listings in February, including a large number of foreclosed homes in Detroit. Detroit is not only the administrative seat of Wayne County; it is also the largest Michigan city. Before the auto industry crisis, Detroit was among the most populous city in the U.S.

Despite the continued entry of residential units into Detroit home auctions, analysts are hopeful the housing inventory will eventually reach normal levels. Because of the bargain prices, investors have been snapping up properties, making significant dents on the supply.

In the meantime, housing advocates are looking for remedies to help solve the underwater mortgage crisis, especially in Michigan, where the manufacturing sector cut almost 1 million jobs over the past 10 years.

Some have been calling for reductions in loan principal balances, but Julia Gordon of the Center for Responsible Lending said that any billion-dollar bailout for homeowners will create a huge backlash. She explained that ultimately it is the taxpayers that will pay the bailout, so those that have been paying faithfully their mortgage over the years will certainly raise a ruckus.

A federal bailout of underwater mortgages nationwide would need around $801 billion, far above the federal bank bailout in 2008, according to a research firm.

Analysts said that it will take money and time to heal the effects of continued Detroit home auctions, but according to Detroit Mayor Dave Bing, the city can survive if residents cooperate and support his city downsizing initiative.

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