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

 
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admin
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PostPosted: Thu Jul 31, 2008 6:55 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Jun 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 June 2008 on Monday, July 28th. 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 - June 2008

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



Some observations:

  • Prices are now 20.58% below the peak set in June 2005. This is the result of a 10.39% decline in nominal housing prices and an 11.37% decline in the purchasing power of the dollar. The decline from the peak this month is of even greater significance than usual because this was the same month of the year in which the peak was set. The decline from the peak is therefore not distorted by seasonal factors, as it is in other months.
  • The real decline from June 2007 to June 2008 was 12.37%, which was the first time since February that the decline did not set a new all time record, though it did come close. It was still the second steepest decline on record.
  • 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 1.45%, which is an annualized decline of 0.27%.
  • The year over year decline was below the bottom of the normal range in June for the eighth 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:

The text of this post and the associated graphs are Copyright 2008 by bostonbubble.com with all rights reserved, except as stated here. You may reproduce each graph individually or the text of the entire post as a whole (including graphs) under the Creative Commons Attribution-No Derivative Works 3.0 Unported License. You may additionally scale the graphs to fit your work. Alternatively, if you remove the bostonbubble.com signature from the bottom left hand corner of the images within this post, those modified images (and only those modified images) can then be distributed under the Creative Commons Attribution 3.0 Unported License. In all cases, attribution should be made via a hyperlink to http://www.bostonbubble.com/forums/viewtopic.php?t=1291 or http://www.bostonbubble.com/ Quoting excerpts of the text is also allowed provided that the quotes would normally fall under fair use. To request other terms for reproduction, please post your request in the original thread at http://www.bostonbubble.com/forums/viewtopic.php?t=1291

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

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john p



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PostPosted: Fri Aug 01, 2008 9:03 pm GMT    Post subject: Reply with quote

I would be curious to know what the sales velocity was for the peak and this period reported. I'm gathering that sales have slowed down. I'm thinking about when I used to jump into the quarries and remember going down and down and down, and then it would slow down and then I'd start to go back up.

I'm kind of in agreement with your "seasonal" lift point; this gripping of the market might slip once the surge of seasonal buyers dissipates. The slower months do offer better deals on paper, but you don't usually see the pick of the litter in selection.

Hold on to your hats though, because since this recorded period, interest rates really have shot up, so that adds to the affordability problem, and prices will have to drop to reach the available buyer's affordability reach. Sellers, the buyers aren't stubborn, they just can't afford the dam prices...

Hold on to your hats again though, because the moritorium of foreclosures will be over soon and that will dump on some more foreclosure stock.

You know, as more babyboomers retire, their heavier weighted higher salaries will drop household income levels which will give the appearance that houses will be getting more affordable.

I was looking forward to your report Admin; thank you again
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admin
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PostPosted: Sat Aug 02, 2008 3:58 pm GMT    Post subject: Reply with quote

john p wrote:
I would be curious to know what the sales velocity was for the peak and this period reported. I'm gathering that sales have slowed down. I'm thinking about when I used to jump into the quarries and remember going down and down and down, and then it would slow down and then I'd start to go back up.


The author of the Paper Economy blog usually graphs the MA SFH sales volume each month in his "Chrashachusetts" post. Here it is for June:

http://paper-money.blogspot.com/2008/07/crashachusetts-existing-home-sales-and.html?ref=bostonbubble.com

http://bp3.blogger.com/_ym8Q9yxUg34/SI_Nf4njy-I/AAAAAAAAEPI/lkhUHXRUTHc/s1600-h/ma0608year.JPG

It looks like June 2005 was also the peak in volume. Eyeballing the chart, it looks like sales in June 2008 were about 20% below June 2005.

john p wrote:

I was looking forward to your report Admin; thank you again


You're welcome.

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Phil O. Math
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PostPosted: Sat Aug 02, 2008 6:47 pm GMT    Post subject: Boomer salary declines giving appearance of higher affordab Reply with quote

John P, I was agreeing with everything you were saying until you got to this part: "You know, as more babyboomers retire, their heavier weighted higher salaries will drop household income levels which will give the appearance that houses will be getting more affordable. "

I must not be understanding you. I'm thinking that if boomers retire and average income levels fall then won't that make houses, at current price levels, that much more unaffordable relative to average incomes? Ie: same price with lower income means lower affordability.

What am I missing?

Thanks again, admin for this great post. I'm looking forward to an autumn like last year when credit markets seized up and home sales and prices really started to fall significantly. This year we may see some serious capitulation on the part of sellers when they realize the summer rebound never occurred and none of the measures in the housing bailout really amount to a hill of beans.
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john p



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PostPosted: Sun Aug 03, 2008 4:01 am GMT    Post subject: Reply with quote

yes, you're right, the price of a house to income ratio will appear higher (less affordable). I should have quit while I was ahead huh?
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