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This is the third report in what may become a series 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 first report was for February 2006 and the previous report was for March 2006.

The Massachusetts Association of Realtors released their data for April 2006 yesterday, May 25th. I adjusted the prices for inflation using the CPI Northeast Urban numbers available at http://www.bls.gov/cpi/ Based on the adjustment for inflation, prices rose 2.0% from the previous month and are now down 8.97% from the peak set in June 2005. The year over year change remained solidly in negative territory at a 3.33% decline in real prices from April 2005. April marks the eighth straight month of year over year declines with the declines growing progressively steeper in many months.

As with last month's report, this month's analysis turned up data from the Massachusetts Association of Realtors' report which is inconsistent with their previous reports and which may be the result of manipulation, although it could also be the result of revised sale data. The median sale price for April 2005 was originally reported as $353,000 in the last report that listed it (May 2005). Now it is listed as $352,900. It is possible that the numbers have not changed and that the MAR rounds the numbers with different precision in each report in order to make the percent changes look as good as possible. It looks like some numbers may have been rounded to the nearest hundred and others to the nearest thousand - if this is true of the April 2005 and April 2006 data, the percent change in nominal terms could have been as low as 0.17% as opposed to the 0.3% that they are reporting. At this point it bears repeating that it is uncertain whether this is opportunistic rounding or legitimate revision. Their report doesn't specify a methodology, so it is hard to tell whether the rounding precision is arbitrary or if the favorable changes in their last two reports were just coincidences.

Adjusting for inflation produced the data represented by the graphs below:

One Year Price History




Change in Median Price From One Year Earlier, February 2004 - April 2006

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




This marks the first time in five months that the year over year price change hasn't continued on an accelerated path downward. It is, however, still solidly in negative territory, indicating continued price declines. Will the year over year declines continue to deepen or will it flatten at its current level for awhile, leading to a protracted period of slow price declines like in Japan? It is definitely too early to tell. The Massachusetts Association of Realtors has no problem giving assurances of what the future holds based on this data: "it's clear that... price stability, rather than a major price correction is the likely scenario." This would seem to conflict with the reality of the numbers once inflation is accounted for. Starting at the peak in November 2004, year over year changes have been declining at a meandering pace ever since. While there have been several up-ticks along the way, the trend has been downward and it is not at all "clear" whether the downward trend is now leveling off or whether April was just a minor up-tick and the rate of decline will continue to increase.

As usual, please do try this at home - you are encouraged to double check the math of the above data 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.asp
  

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On Tuesday, June 27th the Massachusetts Association of Realtors released their data for May 2006. For an updated analysis with accompanying graphs which include this new data, see http://www.bostonbubble.com/forums/viewtopic.php?t=105

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