Housing Crisis Knocks Loudly in Michigan

Losing Jobs and Value

Brian Minjares, 40, is living that recession first-hand. His story is proof that no one in Michigan is immune to the state's financial woes.

Three years ago, he left his job at a financial services firm to start his own practice with a partner in the Detroit suburb of Southfield. Minjares took out a home equity line of credit to finance the business. At the time, his house was appraised at $350,000 and he owed $275,000, he said. The bank gave him a loan equal to 100 percent of his equity.

As the housing crisis worsened, the value of his home dropped to $260,000. Minjares could not afford to sell it because he owed more than it was worth. He could not afford to keep it because, as the rates on his loans adjusted, his monthly payments jumped to $3,000 from $2,100.

Meanwhile, his client roster was drying up. With the auto industry in decline, many of his customers' businesses crumbled. "So they had no money to give me to invest for them," Minjares said. He coped by running up credit-card debt.

But he fell behind on his payments and the bank foreclosed on his Colonial in Flat Rock, not far from Detroit. Minjares shut down his business and now sells cleaning products. He rents a condominium from his brother.

"You just have to cut your losses and run," Minjares said. "You have to take into consideration your marriage and your health and you say to yourself: 'It's just a house.' "

Ralph Newkirk, an agent with the Michigan brokerage Real Estate One, hears similar stories every day. The foreclosure situation is so extreme that his firm created a division two years ago with 25 agents who sell only foreclosed homes; Newkirk heads it.

Back then, the average sales price on foreclosed homes was about $70,000. Since then, the price has more than doubled, suggesting the problem is no longer confined to low-income neighborhoods in Detroit. "The problem is moving out to the suburbs," Newkirk said. "It's spreading like a cancer."

A Tangible Form of Pain

Michigan's strong tie to the auto sector has been a source of pain before. Strikes damaged its economy in 1967 and high oil prices crippled Detroit in the 1980s.

But Michigan's most recent trouble is "the most severe crisis in the state's existence," defying the pattern of past economic cycles, when Michigan bounced back quickly, said David Littmann, senior economist at the Michigan's Mackinac Center for Public Policy.

This time, the rest of the country recovered from the 2001 recession, but Michigan's per capita income remains 7 percent below the national average, Littmann said. For the first time since the Great Depression, Michigan is a poor state relative to the rest of the nation.

"This is not a cyclical problem anymore, and housing is the most tangible form of the pain," Littmann said.