What Changes in a Bankrupt City?

Property-value adjustment -

  • Short term: Prices stagnate as the bankruptcy works through the system.
  • Long term: Prices will improve as confidence increases.

Recently, phones have been ringing off the hook at the Abrams Team, a Keller Williams real-estate brokerage in Commerce, Mich., a suburb of Detroit, as out-of-town investors hunt for deals, co-owner Jason Abrams says. With abandoned properties abundant and the city’s future uncertain, Abrams says he doesn’t see property values rising in the short term.

“I think property values are going to stay stagnant, until this thing works itself out,” he says.

In the long run, investors may feel more comfortable betting on Detroit because of the bankruptcy, Tatelbaum says.

“If I were thinking of relocating to Detroit, the filing makes me feel better,” he says. “I know my tax dollars are going to go for things that are current, rather than to pay back the sins of the past.”

There is some evidence that a property value increase is possible in the long term. The median sale price of homes in Stockton, Calif., has increased from $120,000 to $149,000 since the city filed for bankruptcy protection last summer, according to the real-estate website Trulia.

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