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Boston Bubble Report: The Real Story for MA - August 2006

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PostPosted: Fri Sep 29, 2006 1:17 pm GMT    Post subject: Boston Bubble Report: The Real Story for MA - August 2006 Reply with quote

This is the seventh 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 July 2006.

The Massachusetts Association of Realtors released their data for August 2006 on Monday, September 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

Based on the adjustment for inflation, the year over year price change set yet another new, all time low with a decline of 10.18% from August 2005. Prices were 10.96% below the peak set in June 2005. Further bolstering the indication that price declines are due to more than seasonal changes, August 2006 also marks the twelfth straight month of year over year price declines with the declines still rapidly growing steeper.

August 2006 also marks the first time that real prices have fallen below their 2003 levels. The August 2006 median sale price for single family homes was 1.54% below the median sale price from August 2003. Given that the data on The Massachusetts Association of Realtors' website only includes the median beginning in February 2003, this makes August 2006 the lowest August price on record using that data. It would be beneficial to use more extensive data sets for further analysis - recommendations are welcome.

Once again, there was a pronounced difference between the data reported by The Massachusetts Association of Realtors and the data reported by The Warren Group. The MAR reported a nominal YOY decline of 6.1% whereas The Warren Group reported a nominal decline of 8.0%. Corrected for inflation, this represents a 12.0% year over year decline. 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.

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

Full Price History

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

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

The analysis from the previous three reports of the accelerating depreciation is further bolstered by the August 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 since recanted and some have gone so far as to say they were predicting a decline all along (apparently despite their public advice). Beginning with the peak in November 2004 and continuing to the most recent data point in August 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.

Along those lines, there was an interesting point raised in The Massachusetts Housing Market Blog's August Market Wrap. The August report from The Massachusetts Association of Realtors contains the statement "With the economy still healthy though, double-digit price declines seem unlikely." First and foremost, double-digit price declines have already occurred once inflation is accounted for. Secondly, there would be no precedent from the graph above for a quick snap back into positive appreciation territory. Year over year price changes are now deep within negative territory and as long as they remain there, the decline from the peak will continue to accumulate. Thirdly, as The Massachusetts Housing Market Blog keenly pointed out, The MAR gave a similar assurance roughly a year ago saying "we don't anticipate any decline in prices in the foreseeable future, unless the economy slips into a recession.” In summary, they appear to be discounting the true magnitude of risk at present and have a history for doing so in the past.

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:

The text of this post and the associated graphs are Copyright 2006 by 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-NoDerivs 2.5 License. You may additionally scale the graphs to fit your work. Alternatively, if you remove the signature from the bottom left hand corner of the two images within this post, those modified images (and only those modified images) can then be distributed under the Create Commons Attribution 2.5 License. In all cases, attribution should be made via a hyperlink to or 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

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