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Boston Bubble Brief: The Real Story for MA - Sep 2008
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PostPosted: Fri Oct 31, 2008 1:47 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Sep 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 September 2008 on Monday, October 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 - September 2008

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



Some observations:

  • The real decline from September 2007 to September 2008 was 17.49%.
  • Real prices are now below the estimate for 2001 for the first time since the inception of these reports. Consequently, an estimate for 2000 has now been added to the chart.
  • The year over year decline was below the bottom of the normal range in September for the eleventh month in a row. Declines have been in the process of deepening. The September decline was particularly deep, requiring another expansion of the Y-axis relative to prior reports.
  • Current prices are once again lower than the same month in any other year in the time period covered by The MAR.
  • Prices are now 30.10% below the peak set in June 2005. This is the result of a 21.07% decline in nominal housing prices and a 11.44% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 13.26%, which is an annualized decline of 2.52%.
  • For the past two months, housing price declines have come amidst general price deflation. The dollar actually gained value in August and September, making house price declines less pronounced in real terms.


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 using only 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=1515 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=1515

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

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irishmaninboston
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PostPosted: Fri Oct 31, 2008 2:52 pm GMT    Post subject: your graph Reply with quote

As usual an excellent job with the data, thanks for all your hard work
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PostPosted: Fri Oct 31, 2008 3:06 pm GMT    Post subject: Reply with quote

You're the man! Thanks again.

I hope your Y axis-expanding skills are honed. You're going to be needing them. Twisted Evil
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PostPosted: Fri Oct 31, 2008 3:53 pm GMT    Post subject: Reply with quote

http://www.bls.gov/ro3/cpine.pdf

If "all items" CPI was a 5.2% increase from Sept. 2007, how do you see this affecting your graph?
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PostPosted: Fri Oct 31, 2008 7:32 pm GMT    Post subject: Reply with quote

Renting in Mass and irishmaninboston, thanks for encouragement - it's always good to hear.

john p wrote:
http://www.bls.gov/ro3/cpine.pdf

If "all items" CPI was a 5.2% increase from Sept. 2007, how do you see this affecting your graph?


The "all items" value is what I used for the adjustment. The year over year increase has been a bit higher than usual recently. Here's a graph:



You can see from the graph that it has been falling since July. That's due to the deflation that I mentioned earlier. I meant that deflation has been occurring on a month over month basis. Here's the same graph with the annualized month over month change added.



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Phil O. Math
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PostPosted: Sat Nov 01, 2008 3:04 pm GMT    Post subject: charts Reply with quote

You are a mean man with a graph. I'm embarrassed to say this but seeing your latest graph is one of the highlights of my month. Has been for over a year now.

Thanks again.
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john p



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PostPosted: Sun Nov 02, 2008 3:21 am GMT    Post subject: Reply with quote

I agree with Phil O Math.

I am confused with two pieces of information, your last bullet point said
Quote:
For the past two months, housing price declines have come amidst general price deflation. The dollar actually gained value in August and September, making house price declines less pronounced in real terms.


If the dollar gained value it gained relative to what, the Euro? I think consumers in Massachusetts in the past year felt inflation with gas prices, transportation costs so they actually have less buying power to afford on real estate lowering the affordability reach. Beyond that the affordability reach is lower because of stricter lending limiting overreaching abilities. Beyond that, I believe that the surcharge of properties on the market have been at the entry level and when you weigh the recording of recent sales that are gravitating towards the lower end, the median will appear lower without accurately depicting the actual quality to quality year over year sales measure.

If what I'm saying is true, I'd like to get your take on this month's Case Shiller?
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PostPosted: Sun Nov 02, 2008 3:30 am GMT    Post subject: Reply with quote

On paragraph 3 on page 2 on Standard and Poor's Case Shiller Report on October 28,2008 it says something like:

http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102831.pdf

of 20 regions only two had positive returns, Cleveland and Boston.
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PostPosted: Sun Nov 02, 2008 5:54 pm GMT    Post subject: Reply with quote

john p wrote:

If the dollar gained value it gained relative to what, the Euro?


It gained value relative to itself from the prior month. You could buy more goods for $1 in September than you could in August. You are absolutely right that prices are up a lot from last year. The deflation I referred to was merely relative to last month, not last year.

john p wrote:

On paragraph 3 on page 2 on Standard and Poor's Case Shiller Report on October 28,2008 it says something like:

http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102831.pdf

of 20 regions only two had positive returns, Cleveland and Boston.

The positive return was the month over month change - prices were still down year over year. There is a lot more seasonality to house prices than to the CPI-NU, and I would guess that's all the month over month increase signifies. I only used the month over month comparison for the CPI-NU because it doesn't have the same pronounced seasonality.

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PostPosted: Sun Nov 02, 2008 8:56 pm GMT    Post subject: Reply with quote

I am kind of simple so sometimes it takes a couple of attempts to get through to me, sorry.

My understanding is that the Case Shiller is about "matched pairs" so it compares apples to apples.

My concern is that the "median" could slide back and forth based on activities levels on the low or high end, but would veil the reality of what an apples to apples quality to quality comparison would be.

For example a 4 square colonial in say Kingston, MA on a builder's acre might cost the same as in 2006, while a 1,200 square foot condo on one of the wharfs in the North End might have changed over a few years etc.

I think it is reasonable to think that we are getting more activity on the lower end of the real estate price structure because we have more sales activity due to foreclosures. Don't you think this increased activity in the lower end would create the statistics that would result in a lower median and perhaps have homes in other price strata behaving differently?

Am I understanding the Case Shiller Report correctly, I mean if it is positive doesn't that mean that the matched pairs, apples to apples are going up by a hair? Does that relate to seasonality?
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PostPosted: Mon Nov 03, 2008 3:39 pm GMT    Post subject: Reply with quote

Again, like Phil O Math, IrishmaninBoston, and Renting in Mass I appreciate this diagnostic.

I trust it as I do Case Shiller. Both are telling us something and are looking at things from a different perspective because they are weighing different inputs and I think when this diagnostic says something quite different than Case Shiller it invites investigation as to the variables that constitute the diagnostics and see if they are going haywire and making an impression on the readings. Meaning, if "Transportation" skyrockets and changes inflation figures, it will leave an impression on your diagnostic. The way this would reasonably fish through the system might be in fact that places closer to the City would increase in value because of the premium in commuting, so these diagnostics are important to understand from a fundametal ingredient level because the result of things might have a range of outcomes that are seemingly inconsistent otherwise.

My inlaws are looking for a place near where I live and I have had my eye on a bunch of places. Three of them have come to terms recently; three that were great properties that were overpriced. I think that the last dip in interest rates might have been the catalyst to get them to move, and maybe some comperable sales that have been just the reality slap to get some of these stubborn sellers to see the light. Rates have gone up about a half a point in recent weeks so I don't think this will continue.

I just want people to be ahead of the curve on this site, so if we're sitting on the crows nest and spot land we need to let the others know. I'm hearing on one side "Boston was poised for an uptick so we'll head the way out of this recession", and of course the others who see doom and gloom for some time. It is possible that different income levels and industries might be affected differently and that would be imporant to note versus getting into a "Taste Great", "Less Filling" debate. "We only need one pin Rodney".... dating myself here...

What I am confident in is that it isn't clear what a "bubble" would take the form in, meaning when the Internet started there was a new universe to build, then came wireless, real estate. I suppose health care or gasoline engine alternatives could be the next wave, but I see a resettling and flattening for a period unless a catalyst like a major socio/politcal movement takes place or a war. I see international currency rebalancing and other assets going through some deeper wavelengths in valuation.
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PostPosted: Mon Nov 03, 2008 4:00 pm GMT    Post subject: Reply with quote

John P,

What you're saying does indeed sound very plausible. I do prefer the S&P/Case-Shiller numbers because it is an apples-to-apples comparison (among other reasons). A more pronounced decline in the median could indeed be a shift in the mix of what is selling toward lower priced properties. Do bear in mind, though, that the S&P/Case-Shiller index lags the data from The MAR and Warren Group by a month, so we don't have anything to compare the September drop to yet.

Yes, I think that the month-over-month increase you are referring to is probably seasonal. There have been similar bumps upward in the S&P/Case-Shiller index every year since the bubble started deflating. That's why I only pay attention to the year-over-year numbers. And the year-over-year numbers for the month that you're referring to, August 2008, indicate a 10.00% decline in the S&P/Case-Shiller index, once it is adjusted for inflation. For that same period, the real decline based on the data from The MAR was 13.73%. That's really not the glaring discrepancy that I think you might have in mind from comparing this month's 17.49% decline in the median with the S&P/Case-Shiller month-over-month numbers, though there is certainly a difference there.

What I think would be useful in "spotting land" would be when the price to income ratio is back to normal. We might be there - I don't know. I've been eager to update the numbers, but The MAR hasn't updated their sales data for it yet (and I don't know if they will).

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PostPosted: Mon Nov 03, 2008 4:15 pm GMT    Post subject: Reply with quote

Thanks; regarding that income diagnostic, I think that the cross section of "buyers" and "sellers" needs to be considered.

For instance, if the median salary for the babyboom, in their peak earning years thrust up the salary numbers it skews the reading on the probable cross section of "buyers". One of the challenges is that the younger people really need wage inflation to come into an affordability balance, but the babyboomers who might have mortgages on houses they bought in the early 80's carry a mortgage that is less than their cable bill. These people are more worried about inflation because their monthly nut might be more fixed. Younger people want wage inflation and older people don't want to get priced out with cost of living or property taxes. Interesting to monitor.

The other big deal is geography. I remember Kim Blanton's article that had quite different readings within the 495 Belt than outside on both income and house price movements.

Other influences are the debt that most younger people have that they are carrying from college which really slows down their ability to save for a down payment.

If rents went up 4 percent or so in the Boston area, that will eat into their savings. I think the down payment issue might be a big focus.

I'm worried about these national/macro policies that don't reflect regional realities i.e. remember the $417 limit that determined a "Jumbo" loan; well $417 in Iowa is quite different than $417 in New York City. Also, the tax brackets for Federal Income Taxes require certain regions to pay a greater portion of our Federal Taxes because the cost of living is greater and therefore, more of the people get hit with the higher tax brackets which siphon off more of your money. I think that we might see regional real estate changes if this "Spread the Wealth" happens.
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PostPosted: Sat Nov 08, 2008 12:32 pm GMT    Post subject: When to buy? Reply with quote

So when should I think of buying, any ideas? I have been waiting this out and now that prices are falling in good areas, I am more interested than ever. I do, however, get the impression that if I wait until 1Q 2010 prices will be much further down than now.
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PostPosted: Sat Nov 08, 2008 3:31 pm GMT    Post subject: Re: When to buy? Reply with quote

Guest wrote:
So when should I think of buying, any ideas? I have been waiting this out and now that prices are falling in good areas, I am more interested than ever. I do, however, get the impression that if I wait until 1Q 2010 prices will be much further down than now.


You can get an idea of where the market expects prices to be in 2010 from the S&P/Case-Shiller futures. I would personally wait at least until the price to income ratio is at (or below) the historical average, which may actually be the case now - I have to refresh the numbers at some point soon.

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