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Boston Bubble Brief: The Real Story for MA - Apr 2008

 
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admin
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PostPosted: Fri May 30, 2008 12:35 am GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Apr 2008 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. 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 April 2008 on Tuesday, May 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/ 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 - April 2008

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



Some observations:

  • The real decline from March 2007 to March 2008 was 12.18%, which is once again an all time record for year over year declines.
  • Current prices are once again lower than the same month in any other year in the time period covered by The MAR.
  • The cumulative price decline from the beginning (Feb 2003) is 5.50%, which is an annualized decline of 1.09%.
  • Prices are now 23.85% below the peak set in June 2005. This is the result of a 15.75% decline in nominal housing prices and a 10.64% overall increase in prices for typical goods (i.e., inflation).
  • The year over year decline was below the bottom of the normal range in April for the sixth month in a row. Declines have been in the process of deepening.


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:

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

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Teavo
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PostPosted: Fri May 30, 2008 2:47 pm GMT    Post subject: Thanks Reply with quote

Thank you for presenting this data every month. It's a tremendously enlightening and useful resource.
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balor123



Joined: 08 Mar 2008
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PostPosted: Fri May 30, 2008 3:14 pm GMT    Post subject: Reply with quote

I second that thank you.

I'd also like some other information, though I don't know if it's possible to get it. On other posts people have suggested that what a seller asks for a house and what they get are different. I'd like to see the ask/bid spread on houses that sold. It might also be interesting just to see the median ask price on houses over time.
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admin
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PostPosted: Fri May 30, 2008 3:21 pm GMT    Post subject: Reply with quote

balor123 wrote:
I second that thank you.

I'd also like some other information, though I don't know if it's possible to get it. On other posts people have suggested that what a seller asks for a house and what they get are different. I'd like to see the ask/bid spread on houses that sold. It might also be interesting just to see the median ask price on houses over time.


You're welcome everybody.

And here you go balor123:

http://www.housingtracker.net/askingprices/Massachusetts/Boston-Cambridge-Quincy/

Also, this tool tracks the inventory and gives a price distribution chart for the current time. I think that the author may have the past price data as well, and he is asking for feedback, so you could ask for something showing price trends too:

http://www.paperdinero.com/Inventory.aspx

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balor123



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PostPosted: Fri May 30, 2008 5:21 pm GMT    Post subject: Reply with quote

Very cool, though it doesn't show the bid/ask spread for sold houses.

I particularly like the affordability page:
http://www.housingtracker.net/affordability/massachusetts/boston

As you can see, despite dropping house prices since 2005 housing has actually become less affordable, though price/rent has dropped a bit. This data backs up what I said in another thread. Housing is becoming more affordable relative to rent, but housing is consuming a greater portion of income.

I don't understand how mortgage payments consume 33% of income. Banks aren't supposed to give loans over 36% for mortgage + insurance + HOA, and that's only if you have no other debt, which based on news is not the case. Are Bostoners just debt free?

It's also interesting to note that asking prices have risen this year, which makes sense due to the dropping inventory. I find it surprising, though, that the average sales prices has declined.

Admin - what do you make of these stats?
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admin
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PostPosted: Fri Jun 06, 2008 5:30 pm GMT    Post subject: Reply with quote

balor123 wrote:
Very cool, though it doesn't show the bid/ask spread for sold houses.

Sorry, you're right - I missed that part of your original question due to skimming. I unfortunately don't know of a resource that can show the spread.

balor123 wrote:

I don't understand how mortgage payments consume 33% of income. Banks aren't supposed to give loans over 36% for mortgage + insurance + HOA, and that's only if you have no other debt, which based on news is not the case. Are Bostoners just debt free?

That figure is based on a family with the median income purchasing a median priced home. Given current homeownership rates, around a third of families don't own. I imagine that if you instead used the median income of the two thirds of families who do own, the mortgage payment as a percentage of income would be a little lower.

Also, stated income ("liar loans") were notorious during the bubble. Incomes were frequently misrepresented and so could have appeared to adhere to the 36% limit on the mortgage applications when this was not the case in reality. I don't know how big of a factor this was on the specific stats you're referring to.

balor123 wrote:

It's also interesting to note that asking prices have risen this year, which makes sense due to the dropping inventory. I find it surprising, though, that the average sales prices has declined.

Admin - what do you make of these stats?

Asking prices have risen month-over-month but they have fallen year-over-year from 2007. I think the rise that you noticed is merely seasonal.

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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Thu Jun 26, 2008 7:02 pm GMT    Post subject: Reply with quote

I'd like to add another thank you. Great info and great analysis. I'm looking forward to the May charts.
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PostPosted: Thu Jun 26, 2008 11:03 pm GMT    Post subject: Reply with quote

Correction: I just realized that the original post incorrectly referred to the year over year change as being from March. It should have read:

Quote:

The real decline from April 2007 to April 2008 was 12.18%, which is once again an all time record for year over year declines.


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