bostonbubble.com

[admin]

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 January 2010 on Tuesday, February 23rd. 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 - January 2010

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



Some observations:

• The real increase from January 2009 to January 2010 was 10.70%.
  
• This was the largest year over year increase on record, even exceeding the bubble era increases that are included.
  
• This was the second real year over year increase since August 2005, with the first increase being last month.
  
• Real prices are still lower than the same month in every year in the time period covered by The MAR, with the exception of 2008.
  
• Prices are now 28.75% below the peak set in June 2005. This is the result of a 19.73% decline in nominal housing prices and a 11.23% decline in the purchasing power of the dollar.
  
• The cumulative price decline from the beginning (Feb 2003) is 11.58%, which is an annualized decline of 1.76%.
  

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:

• http://www.bls.gov/cpi/
  
• http://www.marealtor.com/content/housing_data.htm
  
• http://www.standardandpoors.com/ ...truncated...
  

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

- admin

[JAP]

As always, great data and information. The biggest problems I have with stats/information like the one above is people (sellers) see and hear this data and run wild on their asking price for thier homes no matter what price range they are selling in. I would imagine that the 10% increase was mainly driven from lower to lower middle end homes while the higher end homes ($700K+) have seen a drop in value or been stagnet. Obviously this difference would be form the 8K tax credit.

Does anyone know where I can get the data like this broken down by each price segment of the market to determine if that price segment has increased or decreased? I am mainly interested in seeng how home have performed YOY in the 700K+ range. Thanks.

[admin]

[JAP]

Here is a link to the Boston Housing Market over 20 years. If you do the rough math it comes out to about an 7.75% increase per year on a 150K investment. Once you take out taxes, maintenance, interest paid on the 150K, cost to eventually sell the house I would image this investment would be well below 5% a year. Not so good compared to the stock market/mutial funds averages over those 30 years from what I remember is about 8%. My takeaway is housing is not a good long term investment like some people claim it to be but it is a safe one genernally speaking. Thoughts?

http://mysite.verizon.net/vzeqrguz/housingbubble/boston.html

[john p]

Ok, this diagnostical tool is telling us something here.

As many have pointed out, we're comparing January to January which means recorded sales of prior agreements that were made a month and a half or so before (mid November).

When you look at it in reflection from period to period, November 08 was a disaster. We had a credit markets meltdown and most people were out of the market to see how the election was going to shake out. Most of the sellers were highly motivated. This current November, you had people motivated to buy to catch the $8k first time buyer stimulus, you had pretty low rates, and more activity on the higher tiered markets.

By having more sales on the higher end it increases the median price. There is a scenario where prices may be declining across the board but, again, because there is more activity on the higher end because the upper middle class are now starting to feel the pinch this diagnostic will show an increase in the median.

[admin]

[admin]

[JAP]

JAP - your data only look at capital appreciation which is only part of the picture. If the house is primary residence, you need to add rent expense that you would otherwise be paying. If the house is income property, you need to add rental income.

[CL]

Sorry somehow I use JAP as username in previous post.

[john p]

This diagnostic is excellent. The fact that you have given us an understanding of what percentages relate to price drops were and what the erosion of the dollar is huge.

This diagnostic isolates and provides a constant for certain important aspects and helps direct us to what the next questions ought to be. I think you are right to always overlay this information with Case Shiller.

I hope the Globe's Kimberly Blanton gives us a nice colored chart showing the sales activity in the different price strata to see if in fact there is a heavier weight on the higher end than in January 08.

[admin]

[john p]

What should the headline be?

Median of sales mix weighs towards higher end in market

[admin]

I'd phrase it along the lines of "Low End Sales No Longer Dominate" since I think that this particular distortion has more to do with the previous tax credit mostly benefiting the low end.

- admin

[john p]

Wait, I screwed that up....

how about:

January YOY Median House Price increases with sales in higher end homes

[john p]

I like yours better... Have a great weekend...