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This is the sixth 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 June 2006.

The Massachusetts Association of Realtors released their data for July 2006 on Wednesday, August 23rd. 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, the year over year price change set yet another new, all time low with a decline of 7.79% from July 2005. Prices were 8.24% below the peak set in June 2005. Further bolstering the indication that price declines are due to more than seasonal changes, July 2006 also marks the eleventh straight month of year over year price declines with the declines continuing to rapidly grow steeper.

There was a pronounced discrepancy this month between the numbers provided by The Massachusetts Association of Realtors and the data reported by The Warren Group. The Warren Group reported a nominal year over year decline of 6.1%, much larger than the 3.5% nominal decline reported by The Massachusetts Association of Realtors. That's actually a 10.2% decline in real terms instead of 7.8%. The differences are most likely due to where the groups get their data - The Massachusetts Association of Realtors reports on sales in MLS only whereas The Warren Group counts all sales. The Massachusetts Association of Realtors reported on sales of 3,982 single family homes, whereas The Warren Group reported on 5,070 sales, or 27.3% more. The median sale price for July 2006 was also reported by The Warren Group as being 6.29% lower than the median price reported by The Massachusetts Association of Realtors. Given the substantially lower median price and the substantially higher decline, the inference is that the properties sold directly by owners went for significantly less than those sold through agents.

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 - July 2006

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



The analysis from the previous two reports of the accelerating depreciation is further bolstered by the July data. It appears progressively more likely that prices are headed for a steep correction rather than the so called "soft landing" that many in the industry were wishfully giving assurances of (though many have already recanted). Beginning with the peak in November 2004 and continuing to the most recent data point in July 2006, appreciation is clearly in a downward trend (turning into depreciation last September) and there is no indication that the rate is done declining or that the steep downward trend is waning. 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 or that the market is merely catching its breath before continuing its ascent 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 Monday, September 25th the Massachusetts Association of Realtors released their data for August 2006. For an updated analysis with accompanying graphs which include this new data, see http://www.bostonbubble.com/forums/viewtopic.php?t=135

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