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This is a brief report on what the data for the housing market in Massachusetts looks like in real terms. Market data is typically reported in nominal terms which can be misleading because it combines changes in housing values with changes in the value of the dollar. Correcting for inflation removes changes in the dollar as a factor and gives a more accurate picture of how housing values have changed. This report is based on the published data of the Massachusetts Association of Realtors, though it should be noted that the S&P/Case-Shiller index is a superior data source.

The Massachusetts Association of Realtors released their data for February 2008 on Tuesday, March 25th. While the raw prices were provided in nominal terms, for this report they have been adjusted for inflation using the CPI Northeast Urban numbers available at http://www.bls.gov/cpi/ Adjusting for inflation produced the data represented by the graphs below. Prices for January 2003 and earlier have been estimated by applying the earliest reported median from The MAR, February 2003, against the S&P/Case-Shiller Index for the Boston area. Suggestions for improving this estimate are welcome.

Full Price History



Change in Median Price From One Year Earlier, February 2004 - February 2008

Seasonal variations are removed by comparing prices from the same month in the prior year.



Some observations:

• Current prices are once again lower than the same month in any other year in the time period covered by The MAR.
  
• The inflation adjusted median is again at the lowest point on record - the present price represents a loss relative to any time since the record began.
  
• The cumulative price decline from the beginning (Feb 2003) is 5.76%, which is an annualized decline of 1.18%.
  
• The real decline from February 2007 to February 2008 was 8.24%.
  
• Prices are now 24.06% below the peak set in June 2005. This is the result of a 17.06% decline in nominal housing prices and a 9.22% overall increase in prices for typical goods (i.e., inflation).
  
• The year over year decline was below the bottom of the normal range in February for the fourth month in a row. This likely signals that declines have been in the process of deepening.
  

One important thing to note which is not reflected in the above data is that the number of homes sold fell a dramatic 22.9% compared to one year earlier. Last month, a similar plunge in sales was partially attributable to sales in January 2007 being up 13% over January 2006. However, no such anomaly existed this month - the steep decline from February 2007 to February 2008 comes on the back of a relatively flat change the year before (a 1.2% increase from February 2006 to February 2007).

The S&P/Case-Shiller Index for Boston is likely superior to the data above as it corrects for many flaws that are inherent when only using the median price. The S&P/Case-Shiller Index also has the advantage that futures contracts can be traded against it, thereby offering an unbiased insight into where housing prices are expected to be in the future. It also has more extensive historical data available. The MAR data was used for this report mainly out of inertia and might be replaced with the S&P/Case-Shiller Index in future reports.

As usual, please do try this at home. Double checking of the math used to construct the above graphs and analysis is strongly encouraged in order to help ferret out any errors. The data was derived from the following sources:

• http://www.bls.gov/cpi/
  
• http://www.marealtor.com/content/monthly_reports.htm
  
• http://www2.standardandpoors.com/ ...truncated...
  

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The latest version of this report can be found at http://www.bostonbubble.com/latest.php?id=ma_inflation

- admin

[StillRenting]

It will be interesting if the March '08 prices continue down the same slope to $300k. If so, the month-over-month numbers will be a 14% drop in average home prices in the month of March!!!

That will make for some great headlines!

[Brian C]

My quick estimates for March 2008 has sales down 12% from last year. This information was based on sales collected from 5 towns in the Metrowest area.

Median prices I believe will be lower but maybe down 2-3% YOY.

[SoldAtTheTop]

The towns I have been watching closely look as though March yielded essentially the same number of sales as February.

If this is a statewide trend then the result will be nothing short of shocking.

Even if you add 10% more sales than February you would still be down over 40% on a year-over-year basis.

It will be interesting to see how it works out but I think it is very possible that the March results could be alarming.

Another notable change is that the overwhelming majority of homes appear to be selling under list... in Arlington all but one March home sold under list and even that one sold just at-list.

At the town level I think the median will continue to jump all over the place because of the low sales volume but for the state as whole I think we will see continued declines.

I think its worth noting though that April is the real key month...

The S&P/Case-Shiller is all but guaranteed to follow its typical seasonal pattern and be down again for the February results and it appears that it may even be down again for the March results (somewhat defying its typical pattern) but the first crucial month for this year is April.

If sales continue to be this poor in April we may actually be entering a period where prices fall hard enough to defy the typical seasonality pattern right on through the spring and summer.

This actually happened during the second half (or two thirds) of the 90s bust... home prices fell for 21 consecutive months completely erasing all seasonality.

So this may very well happen... there are some startling similarities.

[Brian C]

Well the month is over, lets look at the numbers for March 2008.
Here are the communities I have been monitoring:

FRAMINGHAM, NATICK, NEEDHAM, WALTHAM, WATERTOWN
Single Family Homes priced up to $475k

Numbers for SFH:
2007 - 75 sales
2008 - 53 sales

30% drop YOY in sales.

[JCK]

Brian,

I'd be a little concerned about putting a price maximum as a filter, because it can lead to anomalous results.

For example, what if 10 houses sold in those towns at $485k (either in March 2007 or March 2008)? Either way would significantly skew your results.

You might want play around with your filter (e.g., vary it by $50k increments around your target max) to see if changes your results in a meaningful way.

I acknowledge that it's unlikely to make much difference, but when you're dealing with a sample of only a few dozen homes, it's not that hard to throw the results one way or another.

[Brian C]

[Jason]

Adjusting the filter isn't intended to make the numbers look better or worse; it is to provide a more meaningful data set for people.

Take this example.
2007 sales up to $450 = 75
2007 sales between $450 - $500 = 10 (hypothetical)

In this environment of declining prices those 10 sales that were out of your range a year ago may drop in range this year. This would sku the results and make the 2008 numbers look even better than they are.

[steverino]

If you're looking for something cool to chart--

The Freddie Mac economist linked on the front page noted that time on market has risen more in Boston--by 61 days since 2005--than anyplace else in America except Miami!

Where is this data? And wouldn't it make a pretty graphic?

[admin]