Detroit Story of the Day

Your more pessimistic economists often predict continuing devastation for housing markets based on the idea that an underwater home is necessarily a home in default (or will soon become one). They simply conclude that no rational homeowner would continue paying more for a home than it's worth, and given the large number of underwater homes in the country, defaults are sure to grow, pushing down prices ever further and leading housing markets to something like eventual apocalypse.

But of course, this isn't actually how things work. Underwater homeowners may (and do) keep paying for any number of reasons -- the potential that prices will eventually recover, to protect credit ratings, out of a sense of obligation, or simply because they don't want to move. There's also a reputational cost to default; we would expect public figures to be particularly unlikely to mail in their keys, for instance.

But not, alas, in Detroit. The AP is reporting that Detroit councilmember Kwame Kenyatta walked away from his home in North Rosedale Park after it lost over 50% of its value, and despite contemplating a bid for mayor of the city. Notes the AP, "Kenyatta said he hopes voters can separate the personal from the political with the August mayoral primary approaching." Good luck with that!

The median price of a Detroit home is now less than $6,000.