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This is the fourth 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 April 2006.

The Massachusetts Association of Realtors released their data for May 2006 on Tuesday, June 27th. 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/ Based on the adjustment for inflation, prices fell 0.55% from the previous month and are now down 9.73% from the peak set in June 2005. The year over year change continued the downward slide and broke existing records with a drop of 5.56% from May 2005. This was the ninth straight month of year over year declines with the declines continuing to grow steeper.

Once again, the declines while bad, would have been even worse had it not been for a downward revision of the data from previous months from the Massachusetts Association of Realtors. The median price for May 2005 was revised downward nearly $3,000 from the perviously reported data, falling from $359,900 to $357,000. If the originally reported number had been used, the year over year decline would have been an even greater 6.32%. The April 2006 median price was also revised downward by $1,000, which made the decline from the previous month appear smaller than it otherwise would have.

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 - May 2006

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




Judging from the trend exhibited by the year over year changes, it appears quite plausible that prices are headed for a steep correction rather than the so called "soft landing" that many in the industry are wishfully giving assurances of. Beginning with the peak in November 2004 and continuing to the most recent data point in May 2006, appreciation is clearly in a downward trend (turning into depreciation last September) and there is no indication that the rate isn't going to continue to decline further, extending the existing pattern. It is certainly possible that the declines could level off and bring a supposed "soft landing", but claims that a soft landing has already occurred are not substantiated by the actual data as demonstrated by the above graph, and for it to occur would require a departure from the current downward trend.

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:

• http://www.bls.gov/cpi/
  
• http://www.marealtor.com/content/monthly_reports.asp
  

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On Tuesday, July 25th the Massachusetts Association of Realtors released their data for June 2006. For an updated analysis with accompanying graphs which include this new data, see http://www.bostonbubble.com/forums/viewtopic.php?t=112

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