Consider Detroit. In the historic Green Acres district, a haven for hipsters, a pristine, three-bedroom brick Tudor recently sold for $6,000 – about what a buyer would have paid during the Great Depression. Yet just 15 miles away, in the posh suburban enclave of Birmingham, bidding wars are back. Multi-million-dollar mansions are selling quickly. Sales this August were up 21 percent from the previous year.
Think of this as two housing markets. In the luxury sector, occupied by 1.5 percent of the U.S. population, the recession is a memory and sales and prices are rising. “Luxury is the best performing segment of the housing market right now,” says Zillow.com chief economist Stan Humphries. But everywhere else, the market is moving sideways or getting worse.
In the housing market inhabited by most Americans, prices have fallen 30 percent or more since the peak in 2007. That’s a steeper decline than during the Depression. Almost a quarter of American homeowners owe more on their house than it’s worth. About half of homeowners couldn’t get a mortgage if they applied today.
The divide is also making credit a perk of the rich. Mortgage rates are the lowest in decades. But what good are absurdly cheap rates if you can’t get a mortgage?
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