*Donut city bucks national house price trend

It’s cruelly known as the donut city. All the life and activity has allegedly been sucked out of Detroit, leaving an economic and social waste land at its centre.

However, the surprising news today is that Detroit is the only American city in the respected S&P/Case-Shiller home price index to post a month-on-month price rise.

In fact, it seems to be the only piece of good news in the US media coverage on housing over the past week. Prices continue to fall but with lending still propped up by Fannie Mae and Freddie Mac, a weak mortgage market and uncertain economy, volumes are not responding as expected.

So is there a credible explanation for the rise in prices in Detroit? One explanation is that markets tend to over-react to bad news. The Detroit housing market has received some of the most negative media coverage of any US city. It is possible that house prices and the economy have overreacted and are now stabilising.

Michael Patterson from US Property Direct seems to think so:

“The government has given huge subsidies to industry in Detroit over the past few years and the benefits are now being seen. Ford posted record profits last week and the population now seems to be stabilising after sharp declines”.

“There is also a huge shortage of quality upper-middle class property. We have a huge waiting listing for rentals in the city,” he says.

The Wall Street Journal speculates (ironically), that the reason could be the popularity of the Eminem adverts.

It's only one months data so the most credible explantion is perhaps that is a statistical blip.  However, markets always over-react on the way up and on the way down. A proven method to beat the markets is to buy ugly, unfavoured and undervalued investments.

Detroit is certainly two of the three. Only time will tell whether it's all them.
 

Source: Global edge