A friend of D's who resides in Michigan visited us over the the weekend. He (Canadian) told us how frustrated they were with the housing market over there. His girlfriend bought her house at the height of the market and now is "underwater". So she is short selling her house and they have been trying hard to find a new house together.
It is difficult for her to go that route as she has never missed a payment, has a good job, is educated but realized she will never get her money back for the house. Because of the various government programs available, the bank would get mostly compensated for the shortfall in sale price. She has gotten and accepted an offer and is just waiting for the bank to do their thing.
For the last 6 months they have been searching for a suitable house. First thing is that they cannot find a smaller (2000 sq ft) house to buy in an area they would consider nice and safe. Apparently you can buy houses in Detroit for 25K! But you and your stuff wouldn't last 24 hrs there... So the going rate is minimum 450K for something decent.
The other issue in their search has to do with quality of construction and building codes. Shockingly what we consider "proper insulation" and "R values" isn't done there, just felt paper?! Northern Michigan gets pretty cold so I immediately asked how much must heating cost? The answer was high. And we are talking about homes in a reasonable area, minimum 3000 sq ft, 500+K.
To top it off, he was shocked at how many new subdivisions were still built with well and septic but because of location (desirable school districts), property taxes were 9+K/yr. What is the government doing with all those tax dollars when they aren't providing many services? Houses in those areas don't come up for sale often. And when they do, they sell within a day.
Building lots in a good area are selling for 175+K with water and sewer at the street. So if you were to go and build yourself a custom house, with proper insulation etc, even a small house would end up in the 500K range easily, assuming you can find a good builder.
They have recently put a cash offer on a home (foreclosure) and am playing the waiting game. No guarantees and it could and does take months. Plus any house they get, they will eventually be spending a lot of money to upgrade stuff like insulation, windows etc (lucky our friend has construction knowledge). They are prepared to rent should the timing of the buy and sell not match (not likely).