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Boston Bubble Brief: The Real Story for MA - May 2009

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PostPosted: Fri Jun 26, 2009 12:05 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - May 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 May 2009 on Wednesday, June 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 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 - May 2009

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

Some observations:

  • The real decline from May 2008 to May 2009 was 11.05%.
  • For the second month in a row, the year over year decline was above the normal range in May, with last month being the first time since August 2007 that the decline has been one standard deviation or more above the moving average. This continues the abrupt departure from ever deepening declines which began in April.
  • 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 31.32% below the peak set in June 2005. This is the result of a 24.01% decline in nominal housing prices and a 9.62% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 14.77%, which is an annualized decline of 2.52%.

This is the first year since 2004 in which there has been a visibly pronounced spring bounce. The local media has not seized on this and the substantially smaller than usual year over year decline with the same relentless vigor that they have previously used to trumpet the smallest of inconsequential upticks. This may be due to a lack of consideration for the larger context, as can be gained from the moving average, and lack of consideration for inflation.

Inflation has played a large part in this year's spring bounce. The year over year change in the CPI-NU was actually negative for the last two months, making the real decline in housing prices smaller than what has been reported by the media. This effect will be temporary, though, as the year over year decline in consumer prices is the result of a deflationary spike from last fall which has already run its course, as can be seen from the following graphs:

The change in April and May was substantial, but was it the start of a long term shift or a short lived event? It's obviously too early to draw any conclusions. One possibility that would suggest this is merely temporary is that the relative bump in prices coincides with The Fed's manipulation of the mortgage market which artificially pushed mortgage rates to historic lows. Signs are that this manipulation is unsustainable and is in the process of unravelling.

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 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 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 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

The latest version of this report can be found at

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