BLOOMFIELD HILLS, MI - Southeast Michigan land developers and builders struggling to pilot out of a prolonged tailspin don’t see a break yet in the economic clouds. So residential and commercial property companies are cutting payrolls and projects to survive.

This region’s real estate market is reeling from a sudden blow - the residential sector seemed to fall out of the sky last year after reaching an all-time peak in sales volume and prices during early 2005. Real estate markets around the nation are enduring downturns, and while some are starting to see a brighter horizon, Michigan’s recovery likely will lag behind the pack.

As employment falls, so does demand for housing and all types of commercial space – leaving developers, builders and landlords with bloated inventories and sharply reduced revenue. A widespread cash crisis among residential real estate companies is one result of Michigan’s jobless rate -- which reached 7.2 percent this summer, the highest nationwide. Southeast Michigan unemployment was 7.7 percent.


Forces battering developers also include a weak local economy, lack of consumer confidence, population loss, rising interest rates and decreasing mortgage availability due to credit tightening provoked partly by a flood of foreclosures.

The result is a landscape as bleak as veteran builders have ever seen. New housing starts in Southeast Michigan plunged from nearly 30,000 in 2004 to 12,000 in 2006 and just 1,500 in this year’s first quarter, according to data collected by MarketGraphics Research Group. If that 2007 pace continues, Metro Detroit’s housing construction will be only 20 percent of what it was three years ago. “The Southeast Michigan market has hit bottom,” concludes Jeff Steidle, president of MarketGraphics. “We anticipate that the market will continue to run along the bottom and do not see any firming up until the fall of 2008 to early 2009.”

Market Imbalance

As often happens with industry nosedives, few anticipated or responded in time to the severity of the situation. Land development and home building continued at a bullish pace well into the downturn, burdening firms with excess inventories. As of May 2007, MarketGraphics Southeast Michigan inventory statistics showed 147,000 developed and undeveloped lots, plus 6,000 homes under construction and another 6,000 that were finished and unoccupied. Looking ahead, the data-tracking firm forecasts demand for fewer than 12,000 homes annually through 2010.

That severe supply-demand imbalance explains why developers and builders can’t necessarily attract buyers even with deep discounts. Auctions to liquidate excess inventory sometimes fail to generate even minimum bids.

In this brutal environment, even a national player feels pain and shows strain. Pulte Homes of Bloomfield Hills lost $593 million during the first half of 2007 and has had three rounds of layoffs since 2006.

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