bostonbubble.com Forum Index bostonbubble.com
Boston Bubble - Boston Real Estate Analysis
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

SPONSORED LINKS

Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com

YOUR AD HERE

 
Go to: Boston real estate bubble fact list with references
More Boston Bubble News...
DISCLAIMER: The information provided on this website and in the associated forums comes with ABSOLUTELY NO WARRANTY, expressed or implied. You assume all risk for your own use of the information provided as the accuracy of the information is in no way guaranteed. As always, cross check information that you would deem useful against multiple, reliable, independent resources. The opinions expressed belong to the individual authors and not necessarily to other parties.

Boston Bubble Brief: The Real Story for MA - Feb 2007

 
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond
View previous topic :: View next topic  
Author Message
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Fri Mar 23, 2007 1:05 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Feb 2007 Reply with quote

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. Reports are based on the published data of the Massachusetts Association of Realtors.

The Massachusetts Association of Realtors released their data for February 2007 on Thursday, March 22nd, one day ahead of schedule. 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:

Full Price History




Change in Median Price From One Year Earlier, February 2004 - February 2007

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




Some observations:

  • The real decline from February 2006 to February 2007 was 6.36%.
  • Prices are now 17.24% below the peak set in June 2005.
  • The moving average for year over year declines has grown from two to three standard deviations below 0, strongly indicating that declines are the norm.
  • Year over year declines in recent months have all been relatively close to the moving average, suggesting that the market may be settling into a steady rate of decline.

Yet again, The Warren Group reported greater declines than The Massachusetts Association of Realtors. The Warren Group reported nominal declines on equivalent transactions of 4.6%, with the median price falling from $314,500 in February 2006 to $300,000 in February 2007. This translates to a real decline of 6.83%. The Warren Group's data is more comprehensive than the Massachusetts Association of Realtors' data as it includes all sales rather than just Realtor affiliated MLS sales.

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

The text of this post and the associated graphs are Copyright 2007 by bostonbubble.com with all rights reserved, except as stated here. You may reproduce each graph individually or the text of the entire post as a whole (including graphs) under the Creative Commons Attribution-NoDerivs 2.5 License. You may additionally scale the graphs to fit your work. Alternatively, if you remove the bostonbubble.com signature from the bottom left hand corner of the two images within this post, those modified images (and only those modified images) can then be distributed under the Creative Commons Attribution 2.5 License. In all cases, attribution should be made via a hyperlink to http://www.bostonbubble.com/forums/viewtopic.php?t=207 or http://www.bostonbubble.com/ Quoting excerpts of the text is also allowed provided that the quotes would normally fall under fair use. To request other terms for reproduction, please post your request in the original thread at http://www.bostonbubble.com/forums/viewtopic.php?t=207

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Fri Mar 23, 2007 2:36 pm GMT    Post subject: Reply with quote

So much for my earlier statement that prices had been stable since September 2006!

Thanks for these posts. I look forward to them.
Back to top
View user's profile Send private message
Paul Math
Guest





PostPosted: Sat Apr 07, 2007 5:20 pm GMT    Post subject: CPI v. Core Reply with quote

This is an excellent post. Thank you for making it. It shows just how good an 'investment' real estate can be.

But I have a question about your use of CPI v. Core inflation numbers. I think critics will say that you should be excluding volatile food and energy and therefore should have used the lower Core numbers. Did you use CPI because that is what people actually have to spend money on so CPI is the more accurate way of measuring the power of the dollar? Is that right or are there more reasons?

I want to state again that I'm not being critical, I just want to have a good answer if someone else tries to criticize the results.

Thanks again.
Back to top
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Sat Apr 07, 2007 7:45 pm GMT    Post subject: Reply with quote

Paul Math wrote:
Did you use CPI because that is what people actually have to spend money on so CPI is the more accurate way of measuring the power of the dollar? Is that right or are there more reasons?

Paul,

Thanks for your thoughts.

The CPI-NU was chosen because it seemed like the best fit from the prominently featured BLS data. Core inflation simply wasn't considered because it isn't referenced on the main BLS page on the CPI ( http://www.bls.gov/cpi/ ). Perhaps it would be a better measure - do you know where there is a reliably updated reference for it? Also, does that reference include regional numbers?

The benefits of the CPI-NU are:

  • It is easily accessible.
  • It is specific to the Northeastern US. The Boston MSA CPI-U data would be even better in this respect, but it is only updated bimonthly.
  • It is updated monthly.

If there is core inflation data which retains these benefits, then it may be worth discussing whether to switch to that metric for future reports.

However, shouldn't the difference between the CPI and core inflation be averaged out over the long run, if core inflation is indeed only filtering out short term volatility (as opposed to masking true inflation by saying that food and gas don't count)? Individual months may be more volatile, but over a longer period of time the results should look the same. Core inflation isn't always a lower number - I distinctly remember several months when the CPI-NU actually declined, so the volatility works both ways.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Apr 10, 2007 1:46 pm GMT    Post subject: Reply with quote

Is Mid-April the seasonal peak?

When I look at your chart and see the seasonal peak at the beginning of June, this is the date of the recorded closings right? I wonder when the purchase and sale was signed and when the offer was made.
So if it's June 1, that makes sense, the old owner pays through May and the new owner starts June. So if offer to purchase and sale takes a week to two weeks (home inspection in the middle) and the best normal range closing is 30 days, hmmm that means right about now in the season is the hottest period (early to mid April). Right?

I am seeing a flurry of price changes (drops) this past 10 days so I'm wondering if realtors are telling their clients to put their best foot forward when the market is prime.

I also wonder if people are trading up whether they think they ought to sell their smaller property first before buying bigger. I wonder if the lower price range stock of housing will forecast the higher ones in a month or two.
Back to top
View user's profile Send private message
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue Apr 10, 2007 2:38 pm GMT    Post subject: Reply with quote

john p wrote:

When I look at your chart and see the seasonal peak at the beginning of June, this is the date of the recorded closings right?

The MAR source data doesn't specify, but your guess would make sense. There are also troughs in February, which is two months after the holiday season.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Apr 10, 2007 5:51 pm GMT    Post subject: Reply with quote

I was thinking about my earlier post. I wonder if you have the normal starter condo to deluxe condo or starter home to larger home or super deluxe condo flow going on in addition to some of the baby boomers cresting over the top and now selling the big homes to downsize or get the deluxe condo?

I'm wondering if the baby boomers start to downsize will they be competing with a certain segment of the younger generation.

Today's conventional wisdom says "You ought to sell your place before buying a new one". Under most circumstances it means the young family sells their condo or starter home before buying the next one. Do you think that that means that the baby boomers selling the empty nest are the first step for them?

I'm looking at the inflection points in the vertical and horizontal dimensions. You have the normal locks on February and June which seem to go up and down but you have these horizontal shifts of the inflection points in the early autumn months.

My question is do you think that when the baby boomers retire and tend to downsize do you think it will create horizontal shifts of median price on the yearly trend?
Back to top
View user's profile Send private message
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Apr 17, 2007 9:52 pm GMT    Post subject: Reply with quote

I've just run some numbers to see the effect of interest rates on the median price. It helps me understand what percentage of the correction is just riding the bumps of interest rates. (it seems like most of it is)

I assume that the interest rate in April effects the price in June (because the offer usually occurs about a month and a half from the recorded sales figures. I also assume a 20% down payment, tax@ $10 per thousand and $90 per month for home insurance (for the payment)

April 2004
interest rate: 5.5
June 2004
median price: $384k
payment: $2,154

April 2005
interest rate: 5.75
June 2005
median price: $393k
payment: $2,252

April 2006
interest rate: 6.375
June 2006
median price: $370k
payment: $2,245

April 2007
interest rate: 6.22
June 2007 (forecast)
median price: $376k
payment: $2,250

from 2004 to 2005
interest rate goes up .25
price goes up 2.25%
monthly payment goes up $98

from 2005 to 2006
interest rate goes up .625
price goes down 6%
monthly payment goes down $7

from 2006 to 2007
interest rate goes down .152
price goes up 1.75% (projected)
monthly payment goes up $5 (projected)


Related Income:

Assume in 2004 family income to service mortgage, property tax and home insurance to be 28% of the gross. This salary would be $92,314.

In order to cover the payment increase from 2004 to 2007 ($96) per month) you would need to get a raise of 2.2% in 2005 and 2006. Not to mention even if you didn't get that raise, if you put the same down payment needed to get the 20% amount of 2005's - $78,600 on the lower house price this year the saving from the 20% plus down payment adds another $3,400; which if added to down payment would bring the mortgage amount down another $3,400 and net effect monthly payment down $45 from 2005 to 2007.

From my take on the CPI chart referenced in Admin's chart it seems that inflation averaged about 2.5% or so per year.

The price to income is coming in around 4 times.

References:

http://mortgage-x.com/trends.htm

Admin's Chaaaat above for prices

Notes:

1. Check out Admin's chart for prices in the Spring of 2004 and then look at the interest rate at the same time. Wild spring for interest rates, wild effect on prices.

2. Check out the montly payment increase between 2004 and 2005 ($9Cool, the yearly increase since then has been nominal ($7)

3. If prices go up 1.175% from June 2006 to June 2007 it is a wash from a payment standpoint due to interest rates. If you factor in inflation it would be a decline.

Questions:

1. How many households are there in Massachusetts?

2. What percentage own?

3. What percentage rent?

4. Do 30% of home owners in MA not have a mortgage?

5. If you take away the percentage that rent and the percentage that don't have a mortgage, what would the median salary be for the rest? Trick question...

6. What is the profile of the "median buyer" and "median seller"?

7. How much buying power has been lost and gained from this "median buyer" over the years.

8. What is the growth rate of "median buyers" and "median sellers"?

I still think the baby-boom effect is still hanging out there.
Back to top
View user's profile Send private message
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Apr 17, 2007 9:55 pm GMT    Post subject: Reply with quote

the Smile is a happy typo that is to read $98
Back to top
View user's profile Send private message
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Tue Apr 17, 2007 10:44 pm GMT    Post subject: Reply with quote

John P,

Great post, as usual. While I don't have time at the moment to dig up answers to your questions, maybe somebody else will (or maybe I'll get a chance in the future). I think that the Census Bureau website probably has data to answer the first three questions - I'm not sure where to look for the others yet.

I'm curious what you meant by this:

Quote:


I still think the baby-boom effect is still hanging out there.



What do you think the baby boom effect will be? I have heard many different groups lay claim to baby boomer migration, often plausibly so if you ignore the other groups making similar but contradictory claims. For instance, baby boomers migrating en masse to Florida and other warmer states versus baby boomers downsizing en masse into condos throughout their local metro area. Not only do the claims need to compete with each other, but I have to wonder whether the baby boomers are this massive swarm of wealthy locusts that they are made out to be. I remember reading a few months ago that the average savings for baby boomers is actually quite low for their age (I think under $10K, though I could be way off) and wholly inadequate for requirement. Of course, the average is by no means the whole story.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Wed Apr 18, 2007 3:14 am GMT    Post subject: Reply with quote

Baby-boomers... I'm not sure what to make of them. Where is Dennis Hopper when you need him?

My financial analysis approach is to isolate a force like the elasticity associated with price and interest rate similar to your study with the affect of price and inflation.

Then I see how much is contained with each force. It is interesting to observe seasonal milestones and offsets like the April to June relationship of interest and price as well as the relationship of interest rate to price. I was curious to see the impact of interest rate to inflation to reverse engineer what I would think the FED's weight of inflation on setting the interest rate; so I was going back and forth with your chart and the historical interest rate chart.

This exercise has given me four thoughts:

First, could the baby-boomers create a coupling effect i.e. equal opposite force at equal distance creating no reaction? Could it be happening as white noise? Will the retirement activity create a bulge that will move horizontally so that instead of it being at equal distance from the median it builds up force as it levers and migrates away from the median? I need more data at different price points to detect this potential movement.

Second, the median monthly payment seems to remain pretty constant. Is this because the profile of households around the median has very stable earning and spending lifestyles? As one household moves past the average median income, is there another one that comes in to replace it as a steady stream of inventory migrating through with the other more stable camped out around it?

Third, numbers are numbers. What the steadiness of the monthly payment has unveiled to me is that sure, people get a 2.5 percent salary increase on average so it shouldn't surprise me that this is the steady net effect rate of appreciation. WHAT IT DOES POINT TO BE IT ISN'T THE NUMBERS; IT'S WHAT YOU GET FOR THOSE NUMBERS THAT MOST ECONOMISTS AREN'T LOOKING AT!!!! BEFORE YOU MIGHT HAVE JUST GOT THE EGG ROLL AND NOW YOU'RE GETTING THE WHOLE PU-PU PLATTER BABY!!!!!!! WHOOOO HOOO!!!!! You need to look at what the Median price actually buys to assess if prices have gone up or down. You have to look at the specimen not just the price. Prices may in fact adjust 30% but the numbers might seem constant. Before you got a crappy condo for a certain amount of money, now you can get a starter home...

Fourth, the wife's away, I'm eating food that is bad for me, drinking a beer, and it's time to put on some Lynard Skynard and sit back and enjoy it with my cat and bulldog.
Back to top
View user's profile Send private message
admin
Site Admin


Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Wed Apr 18, 2007 1:54 pm GMT    Post subject: Reply with quote

Quote:


You need to look at what the Median price actually buys to assess if prices have gone up or down. You have to look at the specimen not just the price. Prices may in fact adjust 30% but the numbers might seem constant. Before you got a crappy condo for a certain amount of money, now you can get a starter home...



Yes, that's a good point. The S&P/Case-Shiller Index methodology actually takes the specimen into account, as well as some other things which might distort the interpretation of the data. Come to think of it, the S&P/Case-Shiller Index would probably be a much better source of data for these reports or perhaps separate reports. I may look into that if I get the chance to wade through the licensing issues. In the meantime, the Paper Money CSI charting tool is very nice (though not inflation adjusted), particularly because you can include future prices on the chart based on the price of the associated futures contracts.

It occurs to me that the number of transactions for a single neighborhood is low enough that it might be practical to construct your own mini CSI for that neighborhood. I believe that is what JCK suggested in the condo thread. That would filter out the change in specimen and also address some of your other points (not the one about beer, though). Building your own index would certainly let you look beyond the median and see how the full distribution changes.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Wed Apr 18, 2007 3:45 pm GMT    Post subject: Reply with quote

Hell, let's get these guys and blow everyone out of the water...

http://www.mirametrics.com./

I'm trying to understand the affects of evaluating the median versus the average in all of this.

http://www.maths.murdoch.edu.au/units/statsnotes/samplestats/medianmore.html

note on the second chart there are two red dots way out on the end; these are like the high end units that recently went on the market, notice how the mean moves. The median is the 50%

As far as the mathematics of the linear coupling affect check these links out for the diagrams:

www.fao.org/docrep/S1250E/S1250E0b.htm

http://www.engin.brown.edu/courses/en3/Notes/Statics/Forcecouple/Forcecouple.htm

I'd like to take that torque wrench and measure some points along the market cost structure from cheapest to most expensive. That's what I'm saying about needing more info... As the income distribution widens, rich get richer and poor get poorer, the numbers spread out further around the median. If the action/reaction on the low to high end occur, you won't hear much change in the median even though there is activity. Further, although the income changes, the dollars need to find a home in the available housing stock. Kind of like if you're Vince Neil after a concert

http://www.vinceneil.net/ you're going to have your pick of the litter. Same Vince Neil at a dive bar with a bad girl to guy ratio, he walks out of there with something that looks like a ZZ-top member.

http://www.zztop.com/wp/

So what I'm saying about the specimen, what you get for your dinero does matter. If the forces move outward due to rich getting richer and poor getting poorer this widened array still needs to park their cars in their available parking spaces (available homes on the market). The rich will get the spots closest to the entrance and pay 100 bucks for a spot. If the next adjacent spot is 80 bucks, even if you're rich wouldn't you park one space over? What if four spaces over was 10 bucks?

The forces widen equally and move further away from the median; the resultant moment but no resultant force (the silence is deafening)

The whole thing I was trying to say with the coupling thing is better articulated by this absolute mad-dog brilliant dude. Read his section of his rule 1 "couplings" This is a black art it's the fog that artist's go into. This guy seems to have a grasp of the mathematics underlying the qualitative comments like "tearing up the social fabric". It's kind of like how harmony has a mathematic fundamental basis and a sensory stirring.

http://www.acturban.org/biennial/doc_planners/complexity_urban_coherence.htm
Back to top
View user's profile Send private message
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Wed Apr 18, 2007 3:55 pm GMT    Post subject: Reply with quote

http://www.fao.org/docrep/S1250E/S1250E35.GIF

here is the simple couple link, sorry.
Back to top
View user's profile Send private message
Display posts from previous:   
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond All times are GMT
Page 1 of 1

 
Jump to:  
You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group