Why people are leaving New York, L.A. for Detroit

Erica MacKinnon and Bill Sneed have lived all over the world and spent a couple of years in a rented Los Angeles duplex considering whether to move to Miami or Seattle, Oakland or Portland, Maine.

Instead, nearly a year ago, the business and life partners packed up and headed to Detroit, which they had visited months earlier in search of computer coders for their small commercial digital-animation company.

"We spent three days in Detroit, and we just fell in love with the city," said MacKinnon, 38. "We couldn't believe the mix of the location and the water and the people." They also appreciated the expansive 90-year-old brick homes priced below most nondescript L.A. bungalows.

Those homes, in Detroit neighborhoods filled with 4,000- to 7,000-square-foot beauties, are in hot demand, both by newcomers to Michigan and Detroit suburbanites.

New residents have come to Detroit from Paris, Panama, New York, Washington and San Francisco, lured to the city by its creative vibe, sense of urban adventure and affordable homes - even when they buy abodes with a butler's pantry and third-floor servants' quarters.

Buyers think: "Why not trade a two-bedroom apartment in Manhattan and have an 8,800-square-foot mansion in Detroit for half of that?" said Kenan Bakirci, an agent for Max Broock who for almost 20 years has focused on Palmer Woods and Sherwood Forest, two historic neighborhoods in north-central Detroit.

In a city where homes still can cost less than a beat-up Chevrolet, demand has revved up for luxury residences that look as if a Bentley or vintage Cadillac belongs in their garages. These high-end homes in the city's historic neighborhoods frequently attract multiple offers and often sell above the listing price, real estate agents say.

Detroit is a city of empty lots and faded or abandoned homes, and the poverty rate is more than twice the national average. Many blue-collar workers live in suburban bungalows, and executives own sprawling homes in the suburban cities of Grosse Pointe or Bloomfield Hills.

Many people are not aware of Detroit's mansion districts, where auto barons and wealthy business owners spared no expense to build homes from 1900 to 1929. Homes in the Palmer Woods neighborhood have living rooms large enough to seat 110 at a jazz concert. Some come with carriage houses and basement bars big enough for 50 guests.

"Homes that are move-in ready get heated action - multiple offers within the first week," said Ryan Cooley, who leads O'Connor Realty and landed Sneed and MacKinnon their home. Some receive eight or more offers, he said.

In September, MacKinnon and Sneed moved into a stately 1923 brick home with room for an art studio for Sneed, guest rooms for visits by nieces and nephews, and a home office for their Yankee Peddler animation and design company. They beat out several other offers for the home in Indian Village, one of the half-dozen Detroit neighborhoods where mansions and luxury homes or condominiums are found.

Betty J. Warmack has sold homes in Detroit, mainly in Indian Village, for more than 30 years and says she has never seen this much demand and multiple offers. "I sold an attorney from New York a house, a psychiatrist from New York a house and a blogger" from Europe bought in Indian Village, a neighborhood on Detroit's east side that is on the National Historic Register, she said. "It's quite a comeback."

Homes that four years ago rarely sold for more than $200,000 fetch twice that amount if they are ready for their new owners to move in, real estate agents say.

About 15 homes sold for $500,000 or more last year through October, more than double the seven high-end sales for the same period in 2014, according to Realcomp, which runs the city's multiple-listing service.

A few carry price tags of more than $1 million, a rarefied amount that only one Detroit home has sold for since 2006. That home, the Alfred J. Fisher mansion in Palmer Woods, went for $1.6 million in 2014 - more than homes in the tony suburbs fetched that year, according to Realcomp. It sold again last year, for $1.55 million to General Motors President Daniel Ammann and his wife, Pernilla, a partner in a New York advertising agency. (A high-profile mansion once owned by Motown Records founder Berry Gordy Jr. in the Boston-Edison neighborhood was taken off the market in July.)

Austin Black II, a broker and owner of City Living Detroit, says he is amazed at how many executives have decided that it's time to live in Detroit, because for years they would house-hunt only in the nicer suburbs, where there were 217 million-dollar homes that sold in 2014 and 229 through October, Realcomp data shows. Inventory in the city has been low for months, Black said, with only a few homes for sale in prime neighborhoods. It's gotten so tight, he said, that he has gone door to door in a few neighborhoods seeking homeowners who want to sell.

"I have 20 or so clients who are ready and able to purchase a home right now," Black said.

Demand in the mansion districts is so high and inventory so low, Black and others say, that some buyers are opting for adjoining neighborhoods, with stately but less elegant homes.

The rising home prices may begin to persuade current homeowners to cash in their mansions and elegant abodes, some of which could fetch record or near record prices. But "because the market is doing so well lately, some sellers get aggressive with pricing" and those homes sell much slower, Black said.

To many, the influx of new residents is one of several signs that Detroit may finally be on a roll.

Quicken Loans Chairman Dan Gilbert, a Detroit native, is one of the city's largest commercial landowners, purchasing more than 60 properties downtown for $1.3 billion. And the Kresge foundation, JPMorgan Chase and others have committed millions of dollars to revitalization.

Still, those efforts are not enough to jump-start the real estate market and undo the prolonged structural decline of Detroit's housing stock. So city officials have introduced efforts to either raze or auction abandoned houses. And a community bank is experimenting with a program to renovate vacant houses and, if necessary, absorb a loss to sell them to buyers who may not qualify for traditional loans.

Detroit has neighborhoods that have been ravaged by years of neglect and middle-class flight. It's a city where dozens of homes are purchased at auction for as little as $1,000 to $7,000. That helps explain why in Detroit and three adjoining cities, homes sold for a median price of $20,158 through October of last year, which is up from the $15,011 median in 2014 and more than double the median price of $9,751 in 2012, according to Realcomp.

Despite an influx of entrepreneurs, artists and hipsters, Detroit's population fell from 951,000 in 2000 to about 680,250 in 2014. So new residents are moving into a city full of contrasts: Population and employment bases have declined for decades; crime and insurance for home and auto are high. Yet new restaurants and art galleries are opening, and high-end shops are starting to show up from New York, Germany and elsewhere.

Demand for larger luxurious homes may be an indication of Detroit's comeback; buying has heated up since the city filed for bankruptcy in July 2013 (it emerged about 17 months later). Tech startups and boutiques have opened, and investors from China and Europe started buying commercial properties or blocks of homes, many in marginal neighborhoods.

Sneed and MacKinnon said they knew that the market was competitive and that they wanted a home in Indian Village, citing its architectural beauty and proximity to the Detroit River and Belle Isle, a 985-acre island park.

So they moved to Detroit in frigid February and rented a loft near downtown. "I wanted ... to be ready when spring hit for any houses on the market," MacKinnon said. "We wanted a beautiful, craftsman, old historic home."

They looked at eight homes and then saw the one they bought: a 4,878-square-foot property on a double lot filled this past summer with peonies, hostas and wind chimes. The Georgian revival has a big homey kitchen and a beautiful fireplace in the living room, four bedrooms on the second floor, and a third-floor office and fifth bedroom. It was spacious without being grand and just felt right from the moment they walked in, MacKinnon said.

So they were aggressive and offered $430,000 - well above the $395,000 asking price. The owner accepted in two days. They have learned about their home's history from him: It was built in 1923 at a cost of $12,750 for W.J. Davidson, who worked in General Motors' executive offices, and was said to be a wedding present.

Despite being self-employed, Sneed and MacKinnon had prequalified for a larger loan, so they landed a mortgage quickly using a local lender. Home insurance was a bit trickier, but after shopping around, they found a policy they could afford.

Their new home requires some improvements - paint and hardwood floors, electrical and fire- and security-alarm upgrades - but basically it was ready for them to move in, except for cleaning out items left in the basement and a few small repairs. "We have had personal invites to join Thanksgiving parties and 100-year house parties, which is something that never happened in Los Angeles. Back there we never knew our neighbors," MacKinnon said.

Family members have come for visits, including MacKinnon's mother and sister, who have shown up three times, she said. Other guests say they were misinformed about Detroit, from negative headlines, and appreciated the food culture, parks and how easy it is to get downtown.

For some higher-priced deals, buyers need to put down more cash because their homes may not appraise at the prices they are paying, some agents said. Some offer all-cash purchases - an easy choice for New Yorkers who sell their $3 million apartment and buy a $500,000 mansion. About 40 percent of high-end purchases are all-cash sales, Cooley estimates. Nationwide, 27 percent of housing purchases were all cash in November, often by investors, according to the National Association of Realtors.

Valrie Honablue, a psychiatrist who grew up in Panama, paid cash for her first Detroit home in 2010. She was living in Atlanta when she read about Motown's real estate opportunities. "The prices are so low; something is wrong," she said. So she drove to the city to see for herself. She bought one in Indian Village. Shortly after moving to Detroit, she left for "the job of a lifetime" but bounced back within two years, drawn by "the people and the possibilities."

Her second Detroit home had been vacant for 17 years when she bought it in June 2014. She got it for a bargain price but expects to spend five or six years renovating it, partly to spread out the improvement costs.

Warmack, her agent, calls her "the pied piper of Detroit." A dozen people have followed her to the city and bought homes.

Many who move to Detroit bring their jobs or businesses with them. Sneed and MacKinnon are among them.

"We just couldn't get ahead" in Los Angeles, Sneed said. Now after nearly a year in Detroit, they operate their Yankee Peddler animation company from a loft, own a huge home with oversize gardens, and have made new friends who clue them into culture, festivals, dog parks and more.

"We know we're taking a gamble ... But there's a passion here," Sneed said. They have turned into Detroit boosters and are eager to celebrate their home's 100th birthday in seven years. Said MacKinnon: "I can't believe I live on this street. It blows me away how beautiful these streets are."