NEW YORK (MainStreet) By almost any measure the Rust Belt is doing badly: the population's declining, people are earning less and Detroit became the largest city ever to file for bankruptcy protection.
But if you're thinking those are good reasons to stay away from real estate in the region, think again. Seven of the ten most undervalued housing markets are located in Michigan, Ohio, Illinois or Indiana, according to MainStreet analysis of 168 metropolises.
"We're seeing ridiculous pessimism" in the rust belt, comparable to the "ridiculous optimism" that drove the nationwide housing bubble before the last recession, said Dean Baker, co-director of the Center for Economic and Policy Research.
That "ridiculous pessimism" causes home prices to fall but doesn't have a similar impact on rents, which measure the real value of living in a city. When cities become less desirable places to live, people won't pay as much for housing, so rents drop; when they become more desirable, people spend more, so rent increases. Home prices should rise and fall too, unless fear of the future or speculative optimism distorts their value.
The Motor City may be a shadow of its former self, but the rental prices indicate that it's not going to disappear altogether. The auto industry is again profitable and the city benefits from being within spitting distance of the University of Michigan. And that's not reflected in housing prices.