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

 
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PostPosted: Fri Apr 27, 2007 1:35 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Mar 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 March 2007 on Monday, April 23rd, 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 - March 2007

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




Some observations:

  • The real decline from March 2006 to March 2007 was 2.39%
  • Prices are now 13.08% below the peak set in June 2005.
  • The year over year change in March deviated significantly from the moving average - it was over one standard deviation above it. This is the first time since November 2004 that the year over year change has been significantly higher than the moving average.
  • The year over year change is nevertheless still solidly in negative territory as it is over one full standard deviation below zero.

The MAR data from this month raised some questions about problematic discrepancies. This was particularly important because this was the first month in a long time that the MAR reported a year over year increase in nominal prices, albeit a meager 0.1%. The problem is that they were only able to report an increase by changing the reported median price from March 2006. All previous reports from the MAR list the March 2006 median price for single family homes as $344,000 - that's how it is listed in the March 2006 report and the April 2006 report, both of which are still available on their website. However, this month they listed the March 2006 median as $343,500. Without this revision, the nominal median would have remained unchanged, but now they can claim an "increase", albeit meager and only nominal. There are also additional discrepancies brought to light by the Paper Money blog.

My suspicion is that the underlying number is the same as before and that they just changed the granularity of rounding based on what would look best. I've noticed similar changes in the past which could be explained by discretionary rounding. Similar occurrences were reported in the March 2006 report and the April 2006 report.

Nevertheless, the inflation adjusted change is still solidly negative, although the deviation from the moving average may given some hope that declines have begun to taper off. However, the S&P/Case-Shiller Index would suggest otherwise, which is important because the quality of the index is better than the MAR data. Furthermore, futures are traded for the Boston index and can therefore be used to predict where prices will be for up to one year into the future in an unbiased manner. See the fantastic S&P/CSI Graphing Tool for a graph combining historical data with price predictions based on index futures. Currently, the graph appears to indicate that nominal declines will continue to deepen until the end of the year before beginning to moderate, while remaining solidly negative for the foreseeable future.

Yet again, The Warren Group reported greater declines than The Massachusetts Association of Realtors. This is particularly important this month because while the MAR reported a nominal YOY increase, The Warren Group reported another noticeable decline. The Warren Group reported nominal declines on equivalent transactions of 1.6%, with the median price falling from $320,000 in March 2006 to $314,900 in March 2007. This translates to a real decline of 4.09%. 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:

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JCK



Joined: 15 Feb 2007
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PostPosted: Fri Apr 27, 2007 2:30 pm GMT    Post subject: Reply with quote

Thanks for the update. One methodology question: how are calculating the 12 month moving average (e.g., for the time points within one year of present)?

Thanks
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PostPosted: Fri Apr 27, 2007 2:54 pm GMT    Post subject: Reply with quote

JCK wrote:
Thanks for the update. One methodology question: how are calculating the 12 month moving average (e.g., for the time points within one year of present)?


JCK,

The 12 month moving average for a given month is the average of the values for that month and the 11 months which immediately preceded it. For the months at the very beginning before there is a full year's worth of data, the moving average for a given month is the average of the values for that month and all preceding months. The moving standard deviation is calculated using the same criteria.

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PostPosted: Fri Apr 27, 2007 3:19 pm GMT    Post subject: medians becoming unreliable Reply with quote

I suspect median prices are now less reliable a statistic because of the change in the distribution of sales prices (i.e. median drifts rightward as distribution of sales price skews leftward). Because of tightening lending standards and foreclosures, homes at the low end are not selling. Buyers at the high end have been successful in negotiating prices downward, but still above the median price.
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PostPosted: Fri Apr 27, 2007 4:32 pm GMT    Post subject: Re: medians becoming unreliable Reply with quote

waiting... wrote:
I suspect median prices are now less reliable a statistic because of the change in the distribution of sales prices (i.e. median drifts rightward as distribution of sales price skews leftward). Because of tightening lending standards and foreclosures, homes at the low end are not selling. Buyers at the high end have been successful in negotiating prices downward, but still above the median price.


Yes, that's one of many reasons why the S&P/Case-Shiller Index is superior to the MAR data. It chains resales of the same property together to remove the type of distortion you are referring to.

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PostPosted: Fri Apr 27, 2007 5:12 pm GMT    Post subject: more median Reply with quote

...that is not to say that seeing the historical medians graphed isn't helpful. It provides a nice picture of trends in the market that even the MAR can't hide. Thanks.
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