How Detroit's bankruptcy will hit the housing market

by Diana Aqra19 Jul 2013

Detroit constitutes the biggest municipal bankruptcy in US history. What will the move mean for the beleaguered city's housing market?

Detroit filed for Chapter 9 bankruptcy protection Thursday, paving the way to start managing the city’s estimated $20bn in outstanding debt.

Bankruptcy is likely to mean further benefit cuts for city workers, and public sector employees run the risk of seeing their retirement funds slashed or eliminated completely, according to a report by NBC News. This could see potential homebuyers taken out of the market, or see further financial strain put on homeowners facing foreclosure.

The bankruptcy could also lead to the city seeking back taxes from the nearly 150,000 current homeowners reported to have not paid property taxes in years. According to a Detroit News report, uncollected property taxes totalled approximately $246.5m in 2012 alone. Collections would likely put further strain on homeowners in a city swarming with foreclosures and blighted homes.

Property prices could ultimately feel the impact of the city’s bankruptcy. With demand low and foreclosures rampant, a recent RealtyTrac report indicated Detroit has the highest number of vacant homes of any city in the US at around 79,000.
CoreLogic has predicted that house prices will fall another 0.2% by the end of 2013, and restructuring the city’s public debt, pension cut-backs and property tax collections could see even greater impacts on Detroit’s housing market. Overall, housing prices remain about 40% lower than their peak in November 2005.