It’s no secret that Detroit’s population has been on the decline for decades. In fact, the city’s population peaked in the 1950’s and just hasn’t been able to get back on a growth trajectory. And while there is some drama around whether or not the 2020 census accurately counted Detroit’s population, I prefer not to get into the weeds on the issue.
As a real estate investor in Detroit I actually don’t care that the population is declining.
You heard me right.
I don’t care that Detroit’s population is declining because ultimately it has zero impact on my decision to invest. But likely not in the way you’d think.
How Out of State Real Estate Investors Identify Markets
I have at least a dozen calls with people each week that are looking to start investing in the Detroit real estate market. Invariably, population comes up on these calls. But more often than not I’m seeing people in online forums boasting about how they identify worthy out-of-state markets.
What’s the number one filter/criteria they use? A city with an increasing population.
So by definition, Detroit is out. It’s not that they even dismiss Detroit as an opportunity, they don’t even consider it because it doesn’t tick the first box on their list.
It’s Not Actually About Population
Here’s the thing, investors don’t actually care about population.
They think they do. And they sound smart when they talk about this being a baseline criteria. But it’s actually just a super easy rule of thumb with one big underlying assumption.
The assumption is an increasing population translates to increasing real estate prices.
The logic here is that an increasing population leads to increased demand for housing which pushes home prices higher. And it’s much easier to Google a city’s population trend than it is the real estate values. It’s also easy to look up articles like this one that cover the topic of the correlation to population growth and real estate.
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And I’m not saying this is wrong. If you’re playing the appreciation game these might be great markets to get into and hope that the trend continues. But it doesn’t mean this assumption is bullet proof.
Are there markets where population is increasing but housing prices are flat or declining? I don’t know, but I can imagine scenarios where that could happen. For example, if housing stock is outstripping demand, even as population grows, why would prices increase?
Analyzing Cities with Declining Population
But it’s actually more interesting to look at this filter from the other side.
For example, what cities are experiencing declining population but increasing home prices? That’s a bit harder to run a simple Google search on but I know one such market.
Detroit.
There are also several others like Cleveland, Baltimore, and St. Louis. I went ahead and dove into the numbers to see how these cities have performed between 2010 and 2020.
Detroit home prices are up a whopping 79% between 2010 and 2020 despite a reported 10% decline in population. And while all four of these cities experienced appreciation over those 10 years, it’s very clear that the momentum is in Detroit.
It makes you wonder what exactly is going on in Detroit. Why are homes appreciating so much despite a decline in population?
Potential Census Miscount
The first is that perhaps Mayor Mike Duggan is on to something and the census completely botched the count. Wouldn’t that explain the fact that home prices in Detroit have been appreciating for over ten years? If the population did actually increase that would help explain what appears to be a glaring juxtaposition.
And if that is the case… If Detroit actually did see a population increase between 2010 and 2020 that’s a big opportunity because that’s not at all the narrative. That means there is structural growth occurring in a city that most believe is still on the decline.
To me that’s where I want to be investing; getting in before the crowd!
Something Else
The other option is perhaps the census count was correct, or even directionally accurate, and Detroit’s population decline continues to be a trend.
But then why are housing prices increasing?
The short answer is I have no clue, but I find it incredibly interesting. Clearly SOMETHING is driving demand for houses in Detroit because prices are moving higher. And while I understand all the good things happening in Detroit, I’m not confident I can accurately point to the reason for increasing home values if population is indeed declining.
But I also know that something is driving that demand and as long as investors continue to overlook Detroit, because of the reported declining population, there’s a mismatch of value here.
When the masses do eventually catch on… when Detroit’s population does actually start reporting an increase… well, that’s when things are really going to take off for home prices. And I’d like to be early to that party rather than late.
Detroit’s Population Decline Really Doesn’t Matter
What all of this boils down to is that it doesn’t matter if Detroit’s population is currently increasing or decreasing because we know home prices have been moving higher and that’s the trend we really care about.
It seems most people look at Detroit, see the population decline (as reported by the census) and simply assume that there’s no appreciation to be had. But we know that couldn’t be further from the truth.
We’ve seen the numbers and I’ve personally seen it with my own portfolio with values now up 2-3x on average since buying between 2019 – 2021.
There’s still a huge opportunity to invest in Detroit’s resurgence before it’s even on most people’s radar.