More of the young and hip fight urban urge

By Haya El Nasser, USA TODAY
Young, single people usually love the excitement of big cities, from the vibrant nightlife to the noisiness and frenzied pace of urban existence. They love it so much they're willing to pay a stiff price for cramped quarters and communal living.

For some, the price is getting too steep. The draw of the bright lights and big cities is dimming now that housing costs have hit exorbitant heights. Some who grew up fantasizing about life in the "big city" are settling in less glamorous cities and even suburbs.

"For a lot of young people, especially growing up in the Northeast, there are two cities: New York and Boston," says Nick Lentino, 31, a native of western Massachusetts.

So where is Lentino living? Hartford, Conn.

It's a far cry from the cosmopolitan, fast-paced ambience of New York and Boston — but far cheaper. Lentino just bought a one-bedroom, 750-square-foot condominium in a converted 1950s apartment building a half-mile from downtown. Price: $95,000.

"I have to be honest. There were certain times I would've loved to have been in Boston or New York," says Lentino, assistant to the director of enrollment at Goodwin College in Hartford. Even so, whenever he has pangs of regret, he goes to New York for a weekend and visits friends who are spending twice what he spends on his mortgage to rent a place half the size of his.

"I can't imagine how people are able to a) save money or b) live paycheck to paycheck all year," Lentino says. "It's the same thing in Boston. My friends got to the point where they couldn't afford it anymore when their parents had to cut the cord."

Research is starting to document the housing squeeze for young people in New York and other high-octane metro areas. The Center for an Urban Future, a New York policy research group, and Mt. Auburn Associates, an economic development consulting firm, released a report recently that concluded: "The high cost of work space and housing in New York has prompted increasing numbers of artists and creative workers to decide it's simply not worth it to stay here — especially as other cities offer enticements to relocate."

The report cites New York Mayor Michael Bloomberg's push for 65,000 units of new housing across the city and support for the creation of space for cultural organizations.

Robin Keegan, co-author of the report, says New York may still attract young, creative types right out of college, but the question is whether they'll stay. "They get to a juncture where the cost of living is really crucial," she says.

Philadelphia, sometimes the butt of jokes for its lack of cachet compared with nearby New York, is being marketed by some former residents of the Big Apple as the "next borough." It is attracting small numbers of artsy young people from expensive neighborhoods in Manhattan and Brooklyn.

Cities get hip, costly

The young haven't stopped flocking to urban jewels such as San Francisco, Chicago, Boston and New York. A recent study by CEOs for Cities, a Chicago-based organization of urban leaders, shows that young people ages 25 to 34 in the 50 largest metropolitan areas are three times more likely than they were in the 1980s to live within 3 miles of the city's center. The research is based on 2000 Census data, taken before real estate prices soared.

"They're very economically important to cities," says Joe Cortright, a Portland, Ore., economist who did the research for the CEO group. "They're the dream demographics of HR (human resources) departments of fast-growing companies."

Even the most deeply rooted older suburbanites are rediscovering the joys of cities. Developers are converting old factories and offices into expensive lofts, and aging baby boomers with fat retirement funds and empty nests are snapping them up. Working-class city neighborhoods are being redeveloped and turning upscale.

The resurgence of cities' popularity among people of all ages is making urban living less affordable for the young and less affluent.

"Let's face it, bright lights aren't as bright as they used to be downtown," says William Frey, a demographer at the Brookings Institution, a think tank. "The high priority is to have an affordable house."

Several factors are pulling the young in other directions.

•The cost of housing. The U.S. median price of a single-family home was $218,000 in October, according to the National Association of Realtors. It's more than three times that in the San Francisco area ($721,900), more than twice that in New York ($461,100, and that's not including Manhattan), and about double in Boston ($430,900). Rental prices are climbing, too.

People earning the median income can afford only 2% of the homes in the Los Angeles area and 24% in Boston.

"The worst enemy of a true urban renaissance has been an overhyping and overspeculation in the central city market," says Joel Kotkin, senior fellow for the New America Foundation, a think tank, and author of The City: A Global History. "They build these condos, and they're so overpriced. ... A lot of these places are not being built for young people."

Laris Kreslins, publisher of Arthur, an arts, culture and political magazine, says he got into debt living in New York. He moved back home, into the basement of his parents' house in Gaithersburg, Md., a suburb of Washington, D.C.

"It was a way to get back on my feet," he says. He worked part time at a private school and ran the magazine. Then he and his girlfriend, Kendra Gaeta, discovered Philadelphia. They bought a four-bedroom home near the Philadelphia Museum of Art earlier this year. Now they run a website — movetophilly.com — that links viewers to housing bargains and hip districts there.

"In my age group and demographics, what I'm hearing is that most people work a lot, but they haven't amassed a lot of savings because most of the time they're renting and living in places like L.A. and New York," says Kreslins, 30. "They're asking, 'Why am I renting when I could be putting that same amount of money in a mortgage?' "

•Work flexibility. Employers in expensive housing markets are responding. Bill Trenchard, chief executive of LiveOps, a teleservices company based in Palo Alto, Calif., in the San Francisco Bay Area, says the company now is willing to have employees work from just about anywhere in the USA.

"Wherever the brains are, wherever the talent is," he says. "That's a real change in attitude from five years ago, even two years ago when we thought there were huge advantages to having people in the building."

LiveOps has workers based as far away as Ohio. The company's employees tend to be young, many of them in their 20s and 30s.

"You've got these housing markets that are completely out of whack," says Richard Florida, professor at George Mason University in Fairfax, Va., and author of The Rise of the Creative Class. "There's no point of entry for young people anymore."

Florida has argued that creativity plays such a big role in the 21st-century economy that cities must adapt to the needs of creative thinkers — whether they're artists or engineers. Letting people work where they can afford to live is one way.

Seattle native Elizabeth Howie, 27, was determined to live the city life. What better place than San Francisco? A science major and graduate of UCLA, she found work with a biotech company in South San Francisco. "It was very important to live in the city, to just being young in the city ... to live in an area that had lots of restaurants and bars," she says.

She was willing to pay the price: $4,200 a month rent for a three-bedroom apartment she shared with two roommates. She commuted 30 minutes to work.

"It was insane, but we knew we would be paying for living in the city," Howie says.

Leaving San Francisco

The rental market softened when the high-tech bubble popped in 2000, but she was still paying $1,100 a month and sharing a place with two others.

"I saw a lot of my friends who were not living in San Francisco buying homes," she says. "I couldn't do it in San Francisco," even though her salary is in the $60,000s. "If I continued to live in the city, I don't know when I'd be able to buy a house."

Howie quit as an account manager for LiveOps and moved 90 miles away to Sacramento, the state capital that's not known as an exciting hub. She bought a three-bedroom house with a yard for $390,000. The house appreciated $50,000 in six months. She lives with her boyfriend, who opened a restaurant that appeals to the discriminating palates of Sacramento residents who fled the high cost of living in coastal California.

And LiveOps gave her her job back. She works from home in Sacramento and goes to the Palo Alto office every other week.

•Urban suburbs. Most jobs now are more than 3 miles away from city centers, in suburbs and exurbs. When more people work where they live, bedroom communities take on the feel of 24-hour cities. "If your job is in the outer beltway of Houston, living downtown becomes less appealing," Kotkin says.

In the far suburbs of Washington, D.C., near Dulles International Airport, high-tech companies such as America Online, Oracle and others have created thousands of jobs for young professionals.

"You now have options in suburbia that never existed before," Kotkin says. "If you're nomadic in the tech world, you're really moving from one suburb to another."

Condos, apartments and town houses are going up around town centers on the far edges of suburbs around Washington; in Naperville, Ill., west of Chicago; and in Long Beach, the California port city south of Los Angeles. Bars, restaurants, coffeehouses and movie theaters — the ubiquitous mainstays of bohemians and techies alike — are sprouting in suburbia. Some of the funkiest vintage stores and boutiques are in old suburban strip malls where rents are still cheap.

"You can find a little slice of bohemia everywhere — not just in suburbs, but in second-tier and third-tier cities such as Utica (N.Y.)," says Robert Lang, director of the Metropolitan Institute at Virginia Tech.

•Desire to leave home. Jill Markward, 25, grew up on Long Island, in the shadow of Manhattan. After college, she worked in marketing, but "I had to live at home because it was too expensive."

Markward loves New York's museums and arts scene, but she knew that she would have to live at home if she stayed in the area. When she got a job as a flight attendant for JetBlue Airways, she was offered two options for a home base: John F. Kennedy International Airport, 20 minutes from her parents' house, or Fort Lauderdale-Hollywood International Airport.

Markward chose Florida. She shares a two-bedroom apartment with a couple in a complex near the airport that has a swimming pool, hot tub and gym. Her share: $400 a month.

"If I were on Long Island, I might find a two-bedroom apartment for $1,200, but it would be in someone's basement in a suburban neighborhood," Markward says. "It would just be a room. No washer or dryer."

A survey by researchers at Stony Brook University in New York, found that 70% of Long Island residents aged 18 to 34 are considering leaving, up from 62% last year. The reasons include expensive rents because of a shortage of apartments and homes so pricey that they can't hope to buy a first home.

The percentage living with family went from 31% last year to 45% now.

"It's not New York City," Markward says of her new home in Hollywood, Fla. "But I can drive to Miami in 30 minutes. ... There's less traffic. The weather is nice."

Portland, Ore.-Area Home Prices Defy Season, Gravity

2005-12-15
The Oregonian

Dylan Rivera, The Oregonian, Portland, Ore.

Dec. 15--Portland-area median home prices in November jumped 19.1 percent from the same month a year ago, adding fuel to an increasingly fiery debate about whether the housing market is slowing or remaining white hot.

The median home price reached $252,500, slightly higher than the October figure of $249,000, according to monthly figures released Wednesday by the Regional Multiple Listing Service. Coming after two consecutive months of a declining median price, it seemed to defy even a seasonal slowdown.

The bucking of that pattern means some home buyers, observing a recent uptick in mortgage interest rates, have jumped into the market before the historically low rates vanish, state economist Tom Potiowski said. It also shows that speculators and investors may still be scooping up area houses, propping up prices.

"Speculators don't recognize seasons," Potiowski said.

Portland area prices have shown year-over-year appreciation even as other markets from San Diego to Boston slowed down in recent months and analysts increasingly came to agree that the nation's housing boom has peaked.

But just because the boom may have already peaked doesn't mean home prices will fall -- especially in a market such as Portland's, which came late to the party and didn't see prices rise as much or as high as many other areas.

The question for Portland, analysts said, is not so much whether prices will decline but whether appreciation will slow into the single digits in the next year, as it has in previously hot California and Colorado markets.

"The markets that have really had some giant increases for longer periods of time are pretty much . . . come to an end," Potiowski said. "I think we're going to follow in those footsteps."

The Portland-area figures are for Clackamas, Columbia, Multnomah, Washington and Yamhill counties.

There's is a small chance Portland-area home prices could decline 10 percent to 15 percent, Potiowski said. But that would be a less-likely scenario and would be spread over several years, he said.

"There's always the possibility of a decline, but I don't foresee a major correction," Potiowski said.

More likely, home price appreciation will continue at a much slower pace, somewhere between the rate of inflation and the rate of income growth, he said.

The National Association of Realtors, the trade association that represents real estate agents, also predicts a slowdown in home price appreciation nationally over the next year. Prices will grow by about 6 percent in 2006, the NAR has forecast, less than half of what it has been this year.

But the NAR rejects the talk of a "housing bubble" that will end in a quick, severe decline in home sales prices, said association spokesman Walter Molony. Rather, the association, which publishes Existing Home Sales data and other closely followed national housing reports, predicts a return to more historically normal housing price growth, which he said is slightly above the rate of inflation.

"Returning to normal is not bad," Molony said. "It's necessary for longer-term health of the market."

Molony said the association predicts interest rates for 30-year mortgages to rise to 6.6 percent by next summer through the second half of 2006, up from about 6.3 percent currently.

"The yellow flag is what is the effect of federal budget deficits on interest rates?" Molony said.

Another yellow flag for a local market would be the extent of speculator activity and use of interest-only and other non-conventional mortgages, he said.

Even with some of those elements in Portland, Molony said the area's economic fundamentals will keep demand strong even as interest rates rise.

"Unless you're in an area where you expect a lot of layoffs and there's been an increase in houses on the market, then you're fine," Molony said.

Portland's more moderate appreciation bodes well going into 2006, said John Karevoll, an analyst with DataQuick Information Systems Inc., a real estate information service based in San Diego.

"Portland prices have not doubled in the last four years, which they have in California," Karevoll said. "When you have measured incremental growth there, as well as a good economic picture, you're much less at risk."

In other news from Wednesday's RMLS report:

--Inventory held at 2.2 months' supply, the same as October. At the rate of sales in November -- 2,623 closed sales, up 8 percent from a year ago -- it would take about 2.2 months to sell all homes on the market. The inventory figure remains near record lows.

--The median home price in Southwest Washington's Clark and Cowlitz counties reached $239,000, 22.5 percent higher than November 2004. Prices in that area tend to be more volatile, in part because the information is based on a smaller number of sales. There were 650 sales in November.

To see more of The Oregonian, or to subscribe the newspaper, go to http://www.oregonian.com.

Copyright (c) 2005, The Oregonian, Portland, Ore.

Distributed by Knight Ridder/Tribune Business News.

Housing prices may ease up next year

Real estate - Two economists don't foresee a bursting bubble in the Portland area's hot market

Saturday, December 03, 2005
DYLAN RIVERA
The Oregonian

The Portland area's red-hot housing market will cool in 2006 but not freeze, two economists told the local Home Builders Association on Friday.

Jerry Johnson, of the Johnson Gardner firm in Portland, predicted a slow decrease in housing price growth rather than the quick drop in sales prices of a bubble bursting, which some analysts fear.

"There isn't a bubble, at least locally," Johnson said. Some "little bubbles" in other cities may burst in the next year or so, he said, but nationwide housing prices will resemble "a latte when it settles a bit."

State Economist Tom Potiowsky told the builders group that housing starts -- a key measure of builder activity and confidence in the market -- will decline 5.4 percent in Oregon in 2006, coming down off a record high this year.

"That is not a major decline when you're up in the stratosphere," Potiowsky said.

The ramifications of a potential housing downturn go far beyond home construction businesses because housing and related activities have accounted for 30 percent of economic growth since 2001.

The economists presented precise figures on the recent housing boom, and broad outlines of predictions for next year to the breakfast gathering at the Oregon Convention Center. The predictions generally were in line with recent national indications of cooling of home prices and home construction. However, the persistently robust housing market has baffled economists in recent years, so it's hard to tell whether the housing run-up has ended.

According to the state Office of Economic Analysis, which Potiowsky heads, Oregon home prices are likely to rise 5.5 percent next year, down from the 12.5 percent in 2005.

Recent history suggests it's far from certain the prediction will come to pass.

A year ago, the department predicted a 6.0 percent rise in Oregon home prices for 2005 and a 5.3 percent increase in U.S. sales prices for existing homes. Oregon home prices grew at more than twice the predicted pace, and the national figure is likely to reach 8.8 percent.

What happened?

"Economic growth has been better than we expected and mortgage rates have been stubborn," Potiowsky said after the meeting.

For the most part, investments in housing have been rational in recent years, Potiowsky said. Mortgage rates hovered at record lows, making housing more affordable. And the poor-performing stock market delivered weak returns, making housing a logical place to invest.

More recently, home owners and housing speculators have taken on high debt loads to get into houses at high prices, he said.

"It's the speculators and the people financing that activity that will be hurt the most," Potiowsky said.

The apartment market is headed for a recovery in 2006, further undercutting the demand for houses next year, Johnson said.

In the past decade, 50,000 households in the Portland area moved from rental housing to home ownership.

"For the rental market, this has been disastrous, but for ownership housing, it's been strong," Johnson said.

Next year, he said, the apartment market should work through excess units built in the 1990s heyday. Then, apartment developers thought they observed a fundamental shift toward rental housing, and they overbuilt with that in mind.

"It was a good story at the time, and the banks bought it," Johnson said. "But it's not true."