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Jenkins

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There was something on the news this morning (I was half paying attention to it) about Boston and Providence being the two riskiest residential markets in the country.

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I thought I heard that too, only Providence was ranked the ninth riskiest I think. Then they talked to some dope in Cranston who said something stupid trying to relate a crash of the housing market to the stock market, or something.

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You just repeated my point exactly.  The problem, in my mind, isn't that market forces per se are broken, it's the fact that there has been pent up demand for downtown living for a while and absolutely no supply has existed.  This lets the granite countertop "slapping" happen, and people will still pay for it, because they want to live downtown, on the East Side, etc. and there aren't any alternatives. 

...Once the market has some definition and boundries, that's when we'll see affordable housing.  It'll be harder for something like the People's Bank building conversion or that silly little house conversion next to the PP parking garage to happen and them be sold as "luxury" when you've got these truly high-end, gleaming new towers down the street.

The affordable housing revolution won't be the inability to sell the new housing downtown (it'll sell), it'll be in the price adjustments and reality setting in all over the rest of the city.

- Garris

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I see what you're saying here, but even if this scenario comes true, the market will respond only by moderating prices for condos to say, the $200-$250k range., or around what it costs to produce a low level unit. Even that is "affordable" to a pretty narrow band of buyers. There is no hope for the vast majority of people that have long called Providence home (with the median income being around $24,000 for over half of the city).

If you want a truly vibrant, diverse community down there (or anywhere in the city right now, for that matter), the city is going to have to step up and force some changes.

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I thought I heard that too, only Providence was ranked the ninth riskiest I think.  Then they talked to some dope in Cranston who said something stupid trying to relate a crash of the housing market to the stock market, or something.

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Its hard to place any weight on any of these reports, bubble or no. The media has decided that its the topic du jour and seems to be running "bubble" stories all over the place with absolutely zero substance. Guess its an easy soundbite (ie. the Cranston mook).

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Its hard to place any weight on any of these reports, bubble or no. The media has decided that its the topic du jour and seems to be running "bubble" stories all over the place with absolutely zero substance. Guess its an easy soundbite (ie. the Cranston mook).

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The 'media' is just upset that for some reason they couldn't see the dotcom bubble preparing to burst.

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I see what you're saying here, but even if this scenario comes true, the market will respond only by moderating prices for condos to say, the $200-$250k range., or around what it costs to produce a low level unit. Even that is "affordable" to a pretty narrow band of buyers. There is no hope for the vast majority of people that have long called Providence home (with the median income being around $24,000 for over half of the city).

If you want a truly vibrant, diverse community down there (or anywhere in the city right now, for that matter), the city is going to have to step up and force some changes.

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Now I think we may disagree a bit... When you say that it will "only" correct to condos for 200-250K, frankly, that's the sweet spot of the housing market in the entire region right now, and one that is underserved as it is. And I don't think that's only affordable to a "narrow band" right now.

The average household income of RI residents is, if I recall, a sliver under $50,000 a year. With current lending, that household would be able to afford housing in that price range. I recall reading somewhere that the average household income of the "middle class" in RI was 60-75K, which would certainly be able to afford those units, and even the entry level of what's being built right now.

I understand that there is certainly a large swath of the community that is economically disadvantaged, and those individuals need affordable housing. But where is the expectation that those individuals have an entitlement to be able to live on Westminster or Memorial Blvd or Francis St? I mean, downtown is only like 5 streets wide. How diverse could it/should it be?

There's lots of Providence outside of downcity that can and should be more affordable than it is... Working there for affordable housing would be far higher yield for policymakers, for example, than trying to cram it next to the Westin, for example...

- Garris

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My biggest fear in the housing market is the fact that ARMs and zero down loans have created false levels of pricing.. They also have removed the 20% down barrier to housing..

The main problem that worries me is that by removing this 20% obstacle, people are leveraged to the hilt, and have no equity or vested interest in the property..

It sort of created value out of thin air..

I guess the most logical and reasonable way to link the housing market right now to the stock market would not be the tech boom, but rather the Great Depression..

Now, I'm a stock broker so if I am speaking broker gibberish I'll try my best to clarify if need be... The main reason I think that housing market is like the GD is margin requirements..

Back in the 20s, you could borrow on margin (meaning loan the stocks you own to buy more) up to 95% of your portfolio.. So, basically, you could have 10,000 in stock, and buy 950,000 in stock on borker credit.. Sounds insane huh..

Well, it is.. Because when the panick hit, people rushed to sell and realized that they were in horrific trouble, because they owned nothing, and in fact were in ridiculous debt..

As a result, the Secy Acts of 33 and 34 curbed this borrowing, among other things and set margin requirements on stocks.. For example, if you own Ford, you can now only borrow up to 50% against those Ford shares, etc..

So, the 20% down the banks used to require was, in effect, the curb on ballistic over extention by people.. It mitigated the risks that occured with the 5% margin req debacle in the GD...

So what you have now, in my opinion, is a repeat occurance of the orgy of easy credit that led to the crash of the market in '29.. Only, this time it is in housing..

Will the fact that housing is very different than stocks matter? Does the fact that people need shelter matter? Yes and no, I think..

For the people who have a nice vested interest (equity, fixed rates) in their homes, a crash matters very little.. They simply ride it out..

But for the people with ARMs and interest only loans.. They could easily foreclose..

I think of it as this.. If the market drops, and an ARM homeowner actually owes more money on the house than it is worth.. They will simply walk away.. If it costs $800 to rent a 2 bed apartment, and you are paying $1500 a month to live in your 2 bed house.. Why do it? You can't sell for a profit, and if you sell you actually owe money.. You get out of the debt the house will cause you, and you save $700 a month.. Its the rationale thing to do..

Unfortunately, the banks end up with that loss.. And that is the reason the Gov is finally curbing Freddie And Fannie... They are worried...

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I know this isn't popular opinion here, but I'm all for gentrification... I think that free markets act according to demand..

The city depresses from lack of demand, and improves due to increased demand..

The residents who get displaced due to gentrification displaced the residents before them...

Gentrification is only one part of the constantly changing social structure of cities and burbs.. Its not fair to look at it and single it out as the only movement..

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I know this isn't popular opinion here, but I'm all for gentrification... I think that free markets act according to demand..

The city depresses from lack of demand, and improves due to increased demand..

The residents who get displaced due to gentrification displaced the residents before them...

Gentrification is only one part of the constantly changing social structure of cities and burbs.. Its not fair to look at it and single it out as the only movement..

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I vote to combine this thread with the Housing Costs thread, as all of the issues discussed in the article and here are being discussed in that thread...

Just for housekeeping and keeping this important discussion lively and ongoing...

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I vote to combine this thread with the Housing Costs thread, as all of the issues discussed in the article and here are being discussed in that thread...

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What do you think this place is, some sort of democracy? Luckily Im a benevolent dictator. :P

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I know this isn't popular opinion here, but I'm all for gentrification... I think that free markets act according to demand..

The city depresses from lack of demand, and improves due to increased demand..

The residents who get displaced due to gentrification displaced the residents before them...

Gentrification is only one part of the constantly changing social structure of cities and burbs.. Its not fair to look at it and single it out as the only movement..

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I think I often end up being half-way between you and eltron on these issues, which is good, I can keep you off each others throats. ;)

I do tire quickly though of the hysteria regarding costs of living when it comes to artists. Myself, I went to art school and quickly dropped out when I realized that a BA in ceramics would make me little more than a really qualified dishwasher. Spending $13K a year to go to art school (15 years ago), for me, was lunacy, esp. as it would take me decades to pay that off with the money I would bring in with my degree. However, I was perfectly free to decide to persue art as a vocation, and I was perfectly free to incur the economic consequences of such a decision, I decided I would like to be slightly more comfortable. Those who don't choose that path should not be crying to me, the taxpayer, when the rent's due.

I know the value of the arts to Providence and Rhode Island's economy, and I actually am happy to foster that industry, however, it seems like every article about affordable housing out of the Pheonix or Providence Monthly (and often even ProJo) is heavily slanted to the plight of artists. What about single mothers, and immigrants, the handiapped, the elderly..? Artists, who often originally come from families solidly within the middle-class, who often have the gifts of American birth, white race, and a penis, that all make life so easy in this country, should not be crying to me about their descision to eschew the American Dream.

And I agree, gentrification is not all bad, it's not in and of itself, a boogeyman to be feared. Should we allow South Providence to remain an economic backwater forever? Of course not, the fear however is that gentrification will move too fast for people to keep up. And that is a real concern in Providence where we have a housing boom, but little economic activity in the form of jobs to allow people to keep up with it. Stopping development is not the answer though, done right, a lot of this residential development can help to foster economic development in the form of jobs. The very construction of these buildings themselves are putting hundreds of trades people to work. Once built the residents will demand services, expanding the service sector job pool. And eventually, having good housing stock that is attractive to skilled workers will (hopefully) attract larger employers to the area to expand the white collar job market.

There's a lot of balls to juggle to expand the city and make it happen in a way that helps as many people as possible, and hurts as few as possible. I think it's unfair to suggest that Ciccilline is just after development at any cost, cram as much money into the city's tax rolls as possible and screw the consiquences. I give him far more credit than that. Will people be squeezed by economic expansion in Providence? Unfortunately, yes. Will the city be better off in the long run? Let's hope so, hand wringing isn't going to make it happen though.

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Hmm, I'm confused by this new-fangled "forum" technology, so I hope I'm not posting to a dead thread...

Also, I'm just catching up, so I'm hitting a random assortment of earlier posts without the decency to quote them. :blush:

Anyhow, one interesting thing I've noticed regarding the supposedly overvalued, dangerous housing market here in Providence.. On the East Side, there are TONS of houses for sale. Mostly large, one-family houses in the $1m range (give or take a few 100k). I've been trying to figure out what caused the trend - people wanting to cash in on the huge appreciation of their property investment? Empty nesters moving to either smaller houses or warmer climes? Something else? I haven't come up with a decent theory yet, but now I notice quite a few have been sitting and sitting to the point where they now have a new, lower asking price.

So, anyway, that's my long-winded way of saying I think the market DOES make for some correction of itself. And, also, that these hysterical proclimations about our local housing bubble that's just waiting to burst are probably quite exaggerated.

That said, I think it's important for city governments to create zoning/development/tax laws that encourage affordable housing, housing for families, and pretty much take into account that their population ought to follow a natural distribution of ages and incomes.

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Great article..

I have a question for you long time RI'ers.. What was real estate like back in 88-89? Someone told me the current conditions are very similar to what happened back then..

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I can remember a friend buying a nice 3bd ranch house off Silver Spring St for $99k. I can remember triple deckers going for about 40-60k. Rents were $400/mo. In East Providence houses were going for $115-137. Now, $289.

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I have a question for you long time RI'ers.. What was real estate like back in 88-89? Someone told me the current conditions are very similar to what happened back then..

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Not a long-time RI'er (plus I was about 13), but looking at the data, RI was producing units at 300% the current rate in the late 80's. Plus net population growth in the state was nil or negative. Now it is positive. Both very big factors in the current equation...

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I have a question for you long time RI'ers.. What was real estate like back in 88-89? Someone told me the current conditions are very similar to what happened back then..

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I got this one. I moved to New England in 1989. At the time, the housing and office market were hot and Bank of New England (my new employer at the time) was running high! Then someone pulled the plug overnight. Having just started in the mortgage business, I worked with the FDIC on many foreclosure matters. The basic fundamentals of the housing market today are nothing like they were back then. Speculation was rampant. People specifically bought homes for the investment value alone. Flipping was all the craze. While there are some flippers out there today, it's absolutely nothing like back then. Also, the majority of home buyers today fall into the "primary" home owner category. It's proven that primary homewoners are the last on the list to default on their loan. In addition, since the late 80's supply has not kept up with demand. We actually have a house shortage in this region.

I know the market has really turned up the heat lately. However, by and large the market is on the money. I do think some of the upper end homes will suffer. Let's face it, $1M for a house is simply too much to ask. What's worse is that those homes were in the affordable range just a few years ago. However, as for the average home price, it's right on par. In fact, Rhode Island has really only recently caught up with the rest of the region. I know, I know. If you don't already own, that's certainly no comfort.

Rhode Island, and New England as a whole, have the lowest rate of "interest only" mortgages in the country. Those loans are much more risky and people in good old conservative New England just don't go for that sort of thing. That means that the majority of home mortgage payments are building equity. That's a very good sign. In addition, the average age of a mortgage in New England is higher than any other region outside of a few spots in the Midwest. That means that people here stay in their homes longer and move less. Again, that's good for the stablity of the market. It may not keep things red hot, but it keeps it stable.

Bottom line, while I do think the upper end of the market (and this is nationwide mind you, not just here) will suffer some; the majority of home values are actually quite stable. If any "correction" were to come, I really don't think the average homeowner will notice much of a difference. Sure, some of those houses on the East Side have been there for a while, but did you try to get one of the condos going in over at the Strand? Homes will still sell at the right price. That's how the market appears to be correcting itself. I really don't see a big crash coming.

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Interesting article. A bit of the usual whiny rhetoric from the building community, but the figures point out there will be no housing bubble blowing up in RI.

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I really wish their was a bubble preparing to burst in RI. All the pundits who say there is a bubble predict it bursting right around the time that I would be in a financial situation to finally buy. At this point I feel like I'll forever be sliding down the side of the bubble, just out of reach. :(

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