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CNN Money: Boston now a discount

 
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Thu Jan 28, 2010 7:30 am GMT    Post subject: CNN Money: Boston now a discount Reply with quote

America's most overvalued cities

Somehow CNN thinks Boston was only 18% overvalued in 2006 and now it is -16.30% undervalued! How do these stats come up with these really low numbers for average price? They came up with $316k. Do they just take the average of all MLS listings and for what area? There would be significant biases in that case, such as the stock that is selling. Does that go all the way out to eh 495 belt? Do they look at all cities in the same way?

Trulia puts median sales price in Boston at $532k. In fact, based on their history, the median sales is now actually higher than it was in 2006 with similar sales volume! I think they must be looking at monthly prices considering interest rates.
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admin
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Joined: 14 Jul 2005
Posts: 1794
Location: Greater Boston

PostPosted: Thu Jan 28, 2010 2:12 pm GMT    Post subject: Reply with quote

You're right, that is bizarre. The latest median for the entire state was $305K, according to The MAR. It seems highly unlikely that median for Metro Boston is a mere 2% higher. On the other hand, the tiered S&P/Case-Shiller Index for Boston puts the middle tier, which I believe contains the middle third of sales, at $267078 - $399539, and CNN's $316K is somewhat in the middle of that. Perhaps CNN is including foreclosures - the S&P/CS-I does while The MAR does not. Other possible explanations that occurred to me were a wide definition of Metro Boston and inclusion of condos, but it's close enough to the S&P/CS-I that inclusion of foreclosures may be the more likely explanation.

Based on the article at:

http://money.cnn.com/2010/01/27/real_estate/most_overvalued_metro_areas/index.htm

it looks like they are looking at monthly payments to determine what is "overvalued" and "undervalued." So I suspect that interest rate risk is not considered at all and the conclusion would only be valid if you are guaranteed to stay put for 30 years and don't have an above average down payment.

- admin
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CL
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PostPosted: Thu Jan 28, 2010 2:13 pm GMT    Post subject: Reply with quote

Sources - IHS Global Insight website. Where they did the research with National City bank.

http://www.ihsglobalinsight.com/gcpath/HousingValuationQ32009Report.pdf

They look at house price, interest rate, household incomes, population densities, and historical premium/discount over time. I dug around and they did call the housing market to be 25% overvalued in 06.
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balor123



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PostPosted: Thu Jan 28, 2010 7:05 pm GMT    Post subject: Reply with quote

I think they also assume that demographics haven't changed. That's like saying that cars have gotten cheaper because we replaced the factory working buyer with a hedge fund manager. Or that the factory worker now works 80 hours / week instead of 40. I think if you compare the purchase price of houses relative to a median individual then it still looks way overvalued.
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CL
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PostPosted: Fri Jan 29, 2010 2:07 pm GMT    Post subject: Reply with quote

balor123 - why do you assume they assume demographic doesn't change? Given they took household income and population densities into the model, I assume they accounted for the change.

admin - I checked the price with SP case shiller index for Boston. It match Case Shiller price not in terms of price but in terms of trend and pattern. I downloaded their data from 1987 and will send it to you via email.
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admin
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PostPosted: Fri Jan 29, 2010 2:25 pm GMT    Post subject: Reply with quote

CL wrote:

admin - I checked the price with SP case shiller index for Boston. It match Case Shiller price not in terms of price but in terms of trend and pattern. I downloaded their data from 1987 and will send it to you via email.


Thanks.

Does S&P publish medians for the Case-Shilller indexes?

I noticed in the spreadsheet that you sent that the Global Insight valuation of the Boston-Quincy Metro area fell 14.37% from 2007Q1 to 2009Q3 (a big factor in its current classification as undervalued) but their median price for the same area only fell 7.17%. I think this supports the guess that I made earlier about interest rates (aka, monthly payments) being the underlying cause.

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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Jan 29, 2010 3:32 pm GMT    Post subject: Reply with quote

Where do these people get current income data.

What has frustrated me most about this subject matter is that getting current data on income is hard to come by. I mean Price/Earnings ratios are a critical diagnostic but the Earnings variable is always an unknown.

Any of you guys have a source to give income levels of cities and towns?
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admin
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PostPosted: Fri Jan 29, 2010 3:48 pm GMT    Post subject: Reply with quote

john p wrote:

Any of you guys have a source to give income levels of cities and towns?


This site has histograms of income distribution by town:

http://www.city-data.com/

It's not historic and it's only graphical, though. It looks like a lot of their information comes from public records, so perhaps their source(s) would have historic data.

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CL
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PostPosted: Fri Jan 29, 2010 3:53 pm GMT    Post subject: Reply with quote

Admin - yes, I believe the more than proportion drop in valuation compared to price is interest rate induced. Just like the drop in valuation from 20% overvalued to around 10% undervalued from 89-93, when Fed fund rate dropped from 10% to 3%.
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balor123



Joined: 08 Mar 2008
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PostPosted: Fri Jan 29, 2010 4:41 pm GMT    Post subject: Reply with quote

CL wrote:
balor123 - why do you assume they assume demographic doesn't change? Given they took household income and population densities into the model, I assume they accounted for the change.


For starters, they explicitly state "household income" and that has been rising because there's more 2-income families then there used to be. I haven't heard or seen of anyone who examined the changes in the composition of the residents. I think it is a hard problem to account for but I'm sure it makes a difference and a lot of blue collar workers have been displaced as a result. What would the affordability look like today to a household snapped up from 1980? Probably not very good.
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balor123



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PostPosted: Fri Jan 29, 2010 4:46 pm GMT    Post subject: Reply with quote

admin wrote:

http://www.city-data.com/


That's where I've gone in the past but I don't think the data is up to date. I would also like to drill down more, like the current income of the current first time home buyers. There are some players who could provide this information, like Quicken for example, but I don't think they do.
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