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Boston Bubble Brief: The Real Story for MA - Feb 2009
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admin
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PostPosted: Fri Mar 27, 2009 1:05 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Feb 2009 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 February 2009 on Tuesday, March 24th. 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 - February 2009

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



Some observations:

  • The real decline from February 2008 to February 2009 was 19.10%. This was yet another all time record for the period covered.
  • The year over year decline in February was once again to below the normal range, now solidly so. The rate of decline continues to deepen.
  • Real prices are once again lower than the same month in any other year in the time period covered by The MAR.
  • Prices are now 38.57% below the peak set in June 2005. This is the result of a 32.44% decline in nominal housing prices and a 9.06% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 23.76%, which is an annualized decline of 4.42%. This statistic is particularly pertinent this month given that the data both starts and ends on a February as this eliminates seasonal variation from the number.
  • Month over month inflation was positive again. The stretch of general price deflation occurring for several recent months was likely temporary.


Of potential additional interest, the Massachusetts Association of Realtors revised their median price for January 2009 downward in their latest report. The nominal price for January was originally reported as $263,500 and was changed to $263,000 in the latest report.

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 2009 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=1847 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=1847

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

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GenXer



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PostPosted: Fri Mar 27, 2009 2:36 pm GMT    Post subject: Reply with quote

Still I can't help but wonder: the median seems to be driven by a large number of homes in relatively 'cheap' neighborhoods as well as by expensive overpriced homes dropping their asking price, while the 'immune' towns still remain immune to big changes (prices appear quite stable in places like Newton and even Waltham). What will be the straw to break the camel's back? Anybody has any data from previous recession? When did Newton homes begin declining in value? Was it when interest rates hit 12% and unemployment hit 10%? Or was it earlier? What was the lowest price/median income reached? I know this recession will probably be different, but we need to know, at least in theory, what a possible 'bottom' may look like. Anybody have any idea?
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balor123



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PostPosted: Fri Mar 27, 2009 3:44 pm GMT    Post subject: Reply with quote

I thought someone put together data on Newton from the 90s and it looked like prices never really dropped back then, though they didn't have the same runup previously so hard to tell if that will apply now. Speaking of Waltham, though, I noticed last night that there are quite a few options in the $150 - $200/sq ft range for sale ranging in prices from $300k - $600k. They still aren't houses that I would want to buy but they're also not the houses I couldn't be paid to live in that we saw in that price range last year. Maybe sellers are starting to realize now that they won't get overly inflated values for their houses. Many of these probably still won't sell but if they had posted them last year at these prices they probably would have. Let's just hope the recession lasts long enough for the dominos to fall from the low end houses to the high end. Or maybe raising interest rates will fix the problem. There's hope!
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JCK



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PostPosted: Fri Mar 27, 2009 3:45 pm GMT    Post subject: Reply with quote

GenXer wrote:
Still I can't help but wonder: the median seems to be driven by a large number of homes in relatively 'cheap' neighborhoods as well as by expensive overpriced homes dropping their asking price, while the 'immune' towns still remain immune to big changes (prices appear quite stable in places like Newton and even Waltham). What will be the straw to break the camel's back? Anybody has any data from previous recession? When did Newton homes begin declining in value? Was it when interest rates hit 12% and unemployment hit 10%? Or was it earlier? What was the lowest price/median income reached? I know this recession will probably be different, but we need to know, at least in theory, what a possible 'bottom' may look like. Anybody have any idea?


I've been wondering the same thing. The prices declines in MA have been anything but even across towns, with cheaper neighborhoods collapsing (loss of 40-60% YOY) vs. the "immune" areas, which are down in the single digits.
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PostPosted: Fri Mar 27, 2009 3:50 pm GMT    Post subject: Reply with quote

balor123 wrote:
I thought someone put together data on Newton from the 90s and it looked like prices never really dropped back then, though they didn't have the same runup previously so hard to tell if that will apply now.


Do you mean this?:

http://www.bostonbubble.com/forums/viewtopic.php?t=1726



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PostPosted: Fri Mar 27, 2009 3:56 pm GMT    Post subject: price decline comment for GenXer Reply with quote

With regard to Waltham I've seem "luxury" condos decline from 2005 about 15-20% nominally (as of end of 2008). Condos seem hard hit in that town. Single families are harder to quantify because of the variation in condition, age, etc. Newton is a different matter but while still an expensive town the single families coming on the market seem more affordable. Identifying a bottom (and a top) is always a rearward looking exercise but a the median (not individual houses or condos which may still overpriced) seems to be approaching the historical norm of 1-2% per year above inflation. This is my criteria for the bottom: I figure out what the property sold for in the late 90s and then compound that number by 4.5% per year (2% plus an average 2.5% inflation over the period). In some cases properties are coming close to this number.
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BelmontRenter



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PostPosted: Fri Mar 27, 2009 7:02 pm GMT    Post subject: Reply with quote

Thanks admin for a really nice presentation.

Yes, the current data mirrors the old data -- prices are totally town-by-town. The "immune" towns have not changed much these past few months.

As to Waltham, there is not the same time of market pressure there because the schools are so undesirable. You get almost no (IMHO) highly-educated one or two-earner families wanting to buy there, as opposed to Newton, Belmont, Winchester, etc etc. Well-educated parents do not want to send their kids to public school in Waltham; it's a non-starter.
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StallionMang



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PostPosted: Fri Mar 27, 2009 7:55 pm GMT    Post subject: Reply with quote

The CyberHomes heatmaps are fun to poke around with--
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balor123



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PostPosted: Sat Mar 28, 2009 12:39 am GMT    Post subject: Re: price decline comment for GenXer Reply with quote

jj wrote:
With regard to Waltham I've seem "luxury" condos decline from 2005 about 15-20% nominally (as of end of 2008). Condos seem hard hit in that town.


It seems that 2br townhouses from 2000 - 2005 are seeing a lot of pressure but the newer projects seem to be doing ok.

Houses are a different story because people stay in them longer but they seem to be highly overvalued right now. Seriously - who would pay $400k - $600k for those junky houses on Totten Pond? You can actually find comparably priced and quality houses in Lexington, Newton, and Arlington now! I suppose these sellers are hoping to capture the trickle of poor house shoppers.

jj wrote:
Identifying a bottom (and a top) is always a rearward looking exercise but a the median (not individual houses or condos which may still overpriced) seems to be approaching the historical norm of 1-2% per year above inflation.


I say its not a bottom until sellers start asking near selling prices and in most homes they are still off by significant margins.
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balor123



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PostPosted: Sat Mar 28, 2009 12:43 am GMT    Post subject: Reply with quote

BelmontRenter wrote:

As to Waltham, there is not the same time of market pressure there because the schools are so undesirable. You get almost no (IMHO) highly-educated one or two-earner families wanting to buy there, as opposed to Newton, Belmont, Winchester, etc etc. Well-educated parents do not want to send their kids to public school in Waltham; it's a non-starter.


That's a bit harsh. Greatschools ranks many of them 6/10 and if that's "so undesirable" then I don't know what those 4's are in Watertown and Cambridge. Actually, the primary schools in Waltham aren't so bad. One of them was even highly ranked (top 10) by Boston magazine in 2005, not that I know what that magazine is. It's also an up and coming school district given all the state funding that has been flowing here and the rapidly growing business in the area. The well-educated parents tend to live in North Waltham and there are a lot more than you think (I know of a few) but there are still a lot of less educated people in the town. I get the impression that you have some bias against Waltham in particular.
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WestCoastXPlant
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PostPosted: Sat Mar 28, 2009 1:31 am GMT    Post subject: Reply with quote

balor123 wrote:
Greatschools ranks many of them 6/10 and if that's "so undesirable" then I don't know what those 4's are in Watertown and Cambridge. Actually, the primary schools in Waltham aren't so bad. One of them was even highly ranked (top 10) by Boston magazine in 2005, not that I know what that magazine is. It's also an up and coming school district given all the state funding that has been flowing here and the rapidly growing business in the area.


6/10 is not horrible but it's not good either -- I know we wouldn't pay a premium to be in that school district...Actually there are very few areas outside of BPS where the rating is this low. I know for us public schools are exactly the reason we would not buy in Cambridge. I don't understand where people living there send their kids. And money never does help here -- it's all about parental involvement and culture -- I grew up in a country where we often had no heat in the schools in the winter...about 40% of my class went on to first tier colleges on scholarships.
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balor123



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PostPosted: Sat Mar 28, 2009 4:00 am GMT    Post subject: Reply with quote

I think the term someone else used was "good but not great". The schools that I went to were only a 7 (which seems to be only a notch above "so undesirable" so maybe just "really bad") according to GreatSchools so I guess my standards are lower.
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soldatthetop
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PostPosted: Mon Mar 30, 2009 4:24 am GMT    Post subject: Public Schools Reply with quote

I hate to break it to you all... truly educated parents would not want to send their kids to any public school.

Arlington, Medford, Lexington, Concord or Belmont it makes no difference the public school system is abysmal.

Marketing all these towns around their school systems is just a scam and its really shameful behavior on the part of realtors trying to sell properties and buyers desperately trying to stay away from whatever "riff-raff" their borrowed money can afford.

Isn't it ironic how a "public" system is so heavily leveraged to create clear distinctions between the class and character of people of differing towns and even areas within towns?

One thing is true though... buyers will desperately use borrowed loot to buy there way into a perceived top-self town ... they deserve no less right? They are better then all those lowlifes in Medford and Waltham... that's why the bank will entrust them with all that green... So the Belmonts and Concords and Lexingtons will always get the attention from the truly reasonably wealthy and the aspirational phony baloney...

But someday who knows... if the economic situation gets bad enough maybe we will see that these areas are not so different.... a lot of Americans are living check to check.
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balor123



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PostPosted: Mon Mar 30, 2009 4:44 am GMT    Post subject: Reply with quote

I tend to agree. Public school systems here seem to perpetuate classicism, in addition to propping up real estate prices. Too bad school teachers themselves don't profit from it.
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GenXer



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PostPosted: Mon Mar 30, 2009 11:14 am GMT    Post subject: Reply with quote

It is true. Homeschooling your kids can save you what, a couple of hundred grand? Having gone through Newton and Waltham public schools, the quality is just not there. The old style teachers I've had in Newton HS are all gone by now, and the new 'cadre' is lacking. Up until high school there isn't a lot of learning going on in schools. And in high school, only the highly motivated kids are going to learn anything. Some kids learn nothing in high school, and can still get high tech work with their computer skills. In fact, public schools ruin kids by destroying their creativity. Yes, many of us went through public schools and turned out fine, most likely despite everything. So in fact, there is a school 'bubble', with parents overpaying for houses in towns with 'good' schools. I guess this leaves some less expensive towns more vulnerable and less 'bid-up', which I guess is a good thing. Oh, and of course, homeschooled kids will be much more motivated, and will probably save you another couple of hundred grand by getting into decent secondary school without you having to spend a dime...one thing nobody is talking about.
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