As home prices soar in unlikely places, the most vulnerable residents pay the price

·14 min read

KINGSTON, N.Y. - Inside a Victorian house flecked with chipping white paint, 65 group home residents must suddenly find a new place to live, an unintended consequence of a Federal Reserve policy meant to save an economy in crisis.

A refuge for people with mental illness, disabilities and substance dependence, the group home is closing after its owners agreed to sell the property this spring. Now, Mary Chisholm, who runs the home, is struggling to relocate the most vulnerable. It's particularly challenging because the area is unexpectedly experiencing the second-fastest growth in housing prices in the nation.

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"Hopefully I can get everybody out," Chisholm said. "I can only hope that what I'm trying to put into place for everybody is going to be ok for them."

Since the coronavirus pandemic began, low mortgage rates and high infection rates have fueled a housing boom that has become one of the most unequal features of the economic recovery. The repercussions are playing out nationwide, as home prices rise in 95% of the country, but the pain is sharpest in unexpected pockets like Kingston, where the boom hit without warning.

In this haven near the Hudson River, New York City transplants are snatching the few listings available, further complicating a housing search for the group home's residents who were hard-pressed to find jobs and a place to live even in a normal real estate market.

The line between the Fed's role and the situation in the Hudson Valley twists like the nearby Rondout Creek. To keep the coronavirus crisis from sparking a generational depression, the Fed slashed interest rates and injected hundreds of billions of dollars into the markets. This massive intervention worked. But in the process, it appears to have inflated prices and distorted the housing market. Central bankers are talking more openly about the out-of-whack housing dynamic, with the Fed chief saying he's "watching it very carefully."

Yet there are new questions about whether the Fed's crisis response - even indirectly - exacerbated the housing inequality in places such as Kingston. Fed leaders say they aren't seeing the kinds of risky lending practices that burst the last housing bubble and ignited the global financial crisis. That's partly because of their role in making the financial system safer, rewriting banking rules that made it much more difficult for people without jobs, wealth or good credit to purchase homes, and preventing those without resources from benefiting from record-low mortgage rates.

The Fed's tools are powerful but blunt. The central bank must help the entire economy, without much opportunity for fine-tuning. Fed leaders say that while they are monitoring the housing market, they don't plan to raise interest rates until they see major progress in the labor market.

As of Friday's jobs report, that seems a long way off. At its current pace, the labor market won't recover its pandemic losses until the summer of 2022.

On one side of the housing boom, a fierce appetite for new homes benefits sellers, real estate agents and parts of the local economy. Buyers clash in extremely competitive bidding wars that often hinge on all-cash offers, well above asking price. Alfred Peavy, a local real estate agent, called it "insanity."

"It reminds me of being in a concert hall and somebody yells 'fire,' and they're all running for the exists, and they don't have any idea why," he said.

Yet on the other end of the recovery, the cost of rent is squeezing people still struggling to pay their bills. Advocates fear a surge in homelessness as federal and state eviction moratoria expire. Longtime residents wonder what will become of this quiet exurb two hours north of New York City, where the average home value in the county rose 30% during the pandemic, from $238,917 in February 2020 to $311,786 in April 2021, according to Zillow.

Home values in Ulster County have appreciated faster than anywhere else in the state. At a time when more than 97% of the metro areas tracked by Zillow are showing home-value increases, the Kingston metro area (Ulster County) is ranked second in the nation in home-price growth during the pandemic, behind only Boise, Idaho.

The surge is especially impressive compared to Kingston's weak price growth in the years before the pandemic. In the nine years leading up to the coronavirus pandemic, the Boise metro area already had the third-fastest home-price growth in the country - while Kingston ranked near the bottom during that same period.

Look in any direction from the Kingston group home, Chiz's Heart Street, and it's easy to see why the housing boom has gripped the Fed's attention.

In March, a building nearby on Front Street sold for $865,000, more than three times what it sold for in late 2015, according to Zillow. A house on nearby Emerson Street sold in April for $540,000, close to double the price it sold for last July.

This pattern repeats across the market and, economists say, lifts the value of even the most unusual properties. That includes the 17,000-square-foot group home - which could be divided, refurbished and sold in the hot residential market, real estate economists said. The group home's owners declined an interview, but their broker said the housing boom was not the reason they sold. Experts say the boom significantly increased the value of the property.

It's not clear how long home prices will skyrocket before buyers shy away, or how many people will be displaced if they can't afford rent. But already, the pandemic-era housing boom has divided those who can afford to stay and those who cannot.

"It's like your whole world collapses," said Jay Riffenberry, 47, who got sober when he moved into Chiz's group home and doesn't know where he's going next. "You think you know what's going on. You think you found a safe place. . . . There's nothing. It's all expensive. It's outrageous."

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Over time, Kingston and surrounding Ulster County have been lifted by the region's economic expansions - and suffered its downturns.

Kingston was the first capital of New York state, and the surrounding waterways and railroads helped boost trade throughout the 19th century. An IBM plant that opened in the 1950s supported thousands of jobs. But the local economy sputtered after the company left town about 40 years later, leaving behind a sprawling campus of empty buildings.

Ulster County struggled to recover from the housing crisis that triggered the Great Recession. In 2016, for example, the county recorded some of the slowest home-value growth in the nation as its population decreased. Even in early 2020, home prices in Kingston and almost every other city in the county remained well below the peaks they hit during the hot housing markets of 2006 and 2007.

Now, almost every city in the area, from Ulster (up 56.1% during the pandemic) to Woodstock (up 37.5%) to Saugerties (up 30.4%) has set a new home-price record.

Ryan Basten, a local real estate agent whose family has been in the area since 1690, is conflicted about what has transpired. When it comes to business, people have bought more homes than ever. Basten's own house sold for 35% more than what it would have before the pandemic.

Basten sold one plot of land for $173,000 in 2020. The buyer later decided it was too expensive to build on and relisted it several months later. It sold for $250,000 in just a few hours.

At the same time, Basten knows that many people who grew up in the county can't afford to buy homes. He wants more affordable housing in the area, especially to encourage young people to stay.

"I don't want it to turn into the next Westchester, and I don't think it will," he said, referring to the wealthy county near New York City. "But it is transforming, in terms of real estate values. I think we are on a new jumping-off point."

Madison Strong and her fiance, Joseph Ferrante, worked with Basten to buy their first home last year. Strong, 24, said she would refresh Zillow every 15 minutes to catch listings as soon as they posted. If she and Ferrante liked what they saw, they'd make an offer immediately.

"I would see a house come up, and I would text [Basten] and he would get back to me 30 minutes later and be like, 'They already have an accepted offer,' " she said.

Strong said she and Ferrante made offers on four or five homes. But they couldn't compete. Finally, the couple found a Cape Cod-style three-bedroom house in Hyde Park, N.Y., located one county east of Ulster. The listing price was $239,000, and the couple paid $250,000. After the seller accepted the offer, he received another bid - this time for $260,000. Fortunately for Strong and Ferrante, it arrived too late.

There are a few reasons for the surge, experts say. For starters, few homes are available. Builders are struggling to keep up with demand.

In this part of the Hudson Valley, people rushed to leave New York City and live in more spacious houses during the pandemic. Many of those transplants work from home and have decided to stay. Basten said his clients seek areas that are "close but far" - commutable to Manhattan or Kingston's shops and restaurants, but distant enough to enjoy a quieter and more scenic home base.

Economists are keeping a close eye on whether this clash of meager home supply and out-of-control demand could threaten the broader economy. Prices for lumber and other goods used to build and remodel houses soared over the past few months, feeding the run-up in home prices and stoking debates about inflation.

The damage of the last housing crisis has the Fed paying particular attention. Back then, people got risky loans that helped them buy houses they couldn't afford. When those mortgages went bad, the housing bubble popped and took the financial system down with it.

The damage eventually spurred new mortgage rules to strengthen lending standards. Yet those rules also contribute to housing inequality. People without solid credit or a job are hard-pressed to get a mortgage. The richest Americans don't tend to worry as much about stringent regulations, especially if they can buy a house with cash.

Fed leaders say the boom in home prices this time around doesn't threaten financial stability. And they aren't rushing to slow the economy down. The Fed says it won't raise interest rates until there has been substantial progress in the labor market, even in the face of temporary price increases.

But there's a lower litmus test for when the Fed pulls back its other economic supports. Each month, the Fed buys up $120 billion of bonds, including $40 billion in agency mortgage-backed securities. As the recovery continues, the Fed will have to reassess whether this kind of support is necessary.

"We'll certainly be looking at it as we consider our asset purchase policy generally," said the Fed's Randal Quarles, when recently asked about the mortgage-backed securities. "We put the policy in place during the crisis last year, when it was pretty obviously useful."

Daryl Fairweather, chief economist for real estate broker Redfin, said the people who are buying homes now can rely on wealth or good credit, making them more secure if the housing market were to slow down.

But it's a delicate balance. If people's fundamental expectations of the market warp and they start buying homes to flip rather than use, the consequences may not be far behind.

"If we see price growth of 18% for two, three, four years, then people are just going to start to get in this mind-set where they think that that's normal and they're going to buy a home expecting to make that much in equity after just owning it for one year, which is not a realistic expectation," Fairweather said. "If that happens, then we're in trouble when it comes to a bubble."

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Rosa and her two daughters have a hard time sleeping in their apartment in Kingston. Roaches crawl through the bedsheets. They can't run their air conditioning without blowing the fusebox.

Rosa, 51, lost her job at the start of the pandemic. Then last summer, she got a new job washing dishes at a restaurant for $12.50 an hour. There often isn't enough money to cover $1,050 a month in rent. Rosa, who asked to be identified only by her first name, said her landlord won't fix a clogged drain or address the bug infestation, stretching her budget even further.

Rosa received help from local organizations when she fell behind on bills in 2020. Now she owes April and May rent. She said she fears what will happen to her family when the eviction moratoria lift and thinks that her only option may be to return to Mexico, where most of her family lives.

"If I'm going to suffer like I'm suffering right now, I'll suffer in my country, because at least every day, we have vegetables, we can eat without worrying about rent," Rosa said, speaking through an interpreter.

At Hudson River Housing, a local nonprofit organization, Tina Calcutti fields nonstop phone calls from tenants behind on rent and landlords strapped for income. Many people seeking help don't have Internet access, so Calcutti and her small team handle paperwork on their behalf.

Hudson River Housing is administering a specific pandemic rental assistance program, using $1.1 million in funding from Ulster County's neighboring Dutchess County and the city of Poughkeepsie. During the one-month application window, 889 tenants applied for help, along with 219 landlords.

There isn't nearly enough money to go around, Calcutti said. People who are awarded help can receive only up to six consecutive months of rent - far less than what many people owe.

A nationwide eviction moratorium imposed by the Centers for Disease Control and Prevention was extended through June 30, although legal challenges continue to work their way through the courts. In New York state, evictions are on pause until the end of August.

Calcutti said she can hardly consider what will happen when those restrictions lift.

"There's going to be a lot of homeless people," she said.

On a rainy afternoon in May, spaghetti was served for lunch at Chiz's Heart Street. Chisholm said the dining room felt emptier than ever. Of the dozens of residents she has matched with new homes, some have been moved into other boardinghouses or assisted-living centers.

Nan Potter, the broker for the previous property owners, said that the group home had been far from self-supporting. She said that after 17 years, the owners, the Stockade Group, "felt it was time for them to step away and sell." Potter said that Chisholm told the owners she was also ready to retire. Chisholm told The Washington Post that she informed the owners in 2018 that she would retire in a year, but that she ultimately stayed in the job and did not have immediate plans to leave, particularly during the pandemic.

Potter said local officials and organizations were notified of the pending sale so that residents could find new homes. The previous owners declined an interview but said in a statement that "they are taking active steps to help residents relocate."

Potter said the local housing market "is exceptional." But she said the boardinghouse was not a typical property. She noted that at one point, the list price was reduced. An offer was accepted in March, and a closing date is set for early summer. All residents will have to move out before the property transfers hands.

As lunchtime wound down, Robert Hatcher, 77, navigated his electric scooter through the dining room. A Kingston native and veteran, Hatcher said he has been at the group home on and off for seven years.

He said he'd like an apartment of his own. If push came to shove, he could probably stay with his sister or get housing help from veterans' groups.

"I'll be out there looking," Hatcher said, shaking his head, "like everybody else."

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