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Cities where homes cost less than a car

Wheels or digs? For the price of a Chrysler 300, a person could buy a house in Flint, Mich.
Wheels or digs? For the price of a Chrysler 300, a person could buy a house in Flint, Mich.Stan Honda / AFP - Getty Images

For many Americans, homeownership is the epitome of living the American dream. Yet, in towns with high tumbling home prices and double-digit vacancy rates, median-priced homes now cost the equivalent of new American cars -- except, as investments go, they’re slightly more risky.

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Call it the dark side of the American dream. But if you can only afford to buy just one, which would you choose? In hard-hit cities, why own a home when you can rent one without the risk of foreclosure if your job falls through? Or, for about the same money, you can sport new wheels, facing only the risk of repossession -- a lesser credit report complication than a foreclosure. While a car is unlikely to increase in value, its depreciation is both more manageable and predictable than a home.

“Buying a home in most places is risky,” says Jed Kolko, chief economist and head of analytics at real estate site Trulia. These high-risks in towns such as Detroit or Youngstown, Ohio, have helped depress housing prices. And until the labor market improves there’s no real chance of a strong recovery in housing. “Towns with a history of job losses probably won’t see big price gains, especially if they have high vacancy rates, because it means buyers have a lot of homes to choose from,” says Kolko.

This quandary is especially meaningful to residents of Motor City, who have experienced deepening levels of housing hell in recent years. Much has been written about Detroit’s high misery index, and the challenges of thriving in a city with high unemployment, high crime rates, and city services under severe budgetary constraints. And yet, for those willing to take a long view of the city, Detroit also offers amazing bargains to residents dedicated to living in that community.

Despite its problems, even in Detroit, it’s not unusual for multiple buyers to vie for an appealing home in a nice neighborhood. The city has one of the highest rental vacancy rates in America and boasts a four-month supply of homes on the market, according to a recent report in the Detroit Free Press. A buyer’s market is typically six or more months’ supply.

Many residents of depressed cities in Michigan, Florida, Indiana and Ohio have been slammed by job losses and tumbling housing prices, too, and recovery is coming slowly if at all. Yet, on the positive side, these towns also offer a low cost of living by American standards that make for attractive buy-side opportunities for those willing to take a long view of homeownership.

24/7 Wall St. asked Trulia, a leading provider of real estate listings and market data, to identify and rank cities by the median prices of homes sold last year. Trulia limited the list to markets with an adequate supply of non-foreclosure, single-family homes, which ruled markets that may have unusual spikes in median sales prices. To provide further context of how economic data can impact local housing market conditions we also gathered median-income data as well as Q1 2012 vacancy rates from the U.S. Census Bureau, unemployment numbers from the U.S. Bureau of Labor Statistics, and June 2012 foreclosure figures from RealtyTrac.

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With home prices at 30-year lows and mortgages available at record-low rates, some residents in troubled cities will be tempted to take the plunge and buy a home. Yet, amid this fledgling recovery there’s still the allure of plunking down a small deposit and buying a car that can take you to a city that offers a healthier housing market and stronger long-term job prospects.

These are the cities where homes cost less than a car:

1. Detroit

  •  Median listing price: $21,000
  •  Comparably priced car: Chevy Malibu ($21,000)
  •  Housing price change (year over year): 5.2 percent
  •  Median household income: $29,447
  •  Unemployment: 9.9 percent

Detroit’s leaders are committed to reducing spending and creating a more livable and prosperous city for families and businesses of all sizes. The local automotive economy is improving, especially as Chrysler stages a comeback from its near-death experience. Some may interpret a year-over-year housing price increase as a positive sign for Detroit’s future. But unkind economists might call it a dead-cat bounce. Unemployment is not merely high, population is decreasing, and in 2010, one-in-five homes were vacant. Long term, that’s a lot of downward pressure on housing prices.

2. Flint, Mich.

  •  Median listing price: $31,950
  •  Comparably priced car: Chrysler 300 ($31,950)
  •  Housing price change (year over year): n/a
  •  Median household income: $28,835
  •  Unemployment: 8.9 percent

According to Trulia’s Kolko, both Flint and Detroit experienced significant housing-price declines, not because of overbuilding as in Florida but because of “long-term job decline coupled with declining populations.” Worse, Flint suffers from a significant amount of poverty with about 44 percent of the population earning less than $25,000 a year, according to Census economic data.

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3. Gary, Ind.

  •  Median listing price: $39,900
  •  Comparably priced car: Ford Expedition ($39,900)
  •  Housing price change (year over year): - 7.5 percent
  •  Median household income: $27,367
  •  Unemployment: 8.5 percent

In Gary, as in most other troubled housing markets, employment or rather the lack of opportunities holds the key to its housing recovery. The current high unemployment rate is not a blip unfortunately -- Gary has 3 percent fewer jobs than it did a decade ago, according to Trulia. Much of the local population lives at some of the nation’s lowest income levels as 46.5 percent earn under $25,000 annually according to Census economic data. Such data suggest that local businesses may have trouble leading the city of recession.

4. Redford, Mich.

  •  Median listing price: $40,000
  •  Comparably priced car: Ford F-450 ($55,000)
  •  Housing price change (year over year): 5.2 percent
  •  Median household income: $52,573
  •  Unemployment: 9.9 percent

Redford is not a large city, but it suffers from problems such as 1-in-159 homes in foreclosure, the worst rate among cities on this list. It also has aging homes, most of which were built just after World War II and may be expensive to maintain. Like Warren, prices have dropped by 38.5 percent from their peak according to FHFA data. On the bright side, at $52,573 the average annual income in Redford is higher than in many of its neighboring cities on this list.

5. Warren, Mich.

  •  Median listing price: $49,900
  •  Comparably priced car: Lincoln Navigator ($59,900)
  •  Housing price change (year over year): 6.5 percent
  •  Median household income: $46,247
  •  Unemployment: 9.9 percent

Chief among several promising housing trends for Warren is a surprisingly low homeowner vacancy rate, which suggests that the town has seen fewer foreclosures than many other cities in Michigan. Still, sales prices have dropped 35 percent over the past five years in Warren, says Trulia, which suggests that quite a few homeowners are underwater and perhaps holding onto their properties until things turn around.

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