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[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 June 2010 on Tuesday, July 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 - June 2010

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



Some observations:

• The real increase from June 2009 to June 2010 was 6.41%.
  
• This was the seventh real year over year increase since August 2005, with all such increases occurring consecutively and after the most recent renewal and expansion of the home buyer tax credit.
  
• Real prices are still lower than the same month in every year in the time period covered by The MAR, with the exception of 2009.
  
• Prices are now 21.87% below the peak set in June 2005. This is the result of a 11.40% decline in nominal housing prices and a 11.82% decline in the purchasing power of the dollar. The decline from the peak would normally be especially pertinent for June prices because the peak occurred in June, and so comparing the most recent prices to the peak prices would not be skewed by seasonality, as in other months. However, the validity of recent price data in assessing market demand is highly suspect due to the temporary home buyer tax credit.
  
• The cumulative price decline from the beginning (Feb 2003) is 3.04%, which is an annualized decline of 0.42%.
  

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

[Teavo]

Is it reasonable to assume that this is the last month that will be skewed upward by the buyer tax credit that existed through the end of April?

I suppose next month's data might be skewed downward by the sudden absence of the credit if it drew buyers forward into April from following months.

[admin]

[mpr]

I agree that the data will be skewed by the housing credit for a few months,
but I think its probably wrong to think that it will necessarily be skewed up.
I suspect that the effect of the few remaining sales from that period which
have yet to close will be swamped by the fact that there was a lot of
demand pulled forward by the credit.

Thus, I suspect the figure for next month will like be a (short term)
floor rather than a ceiling.

[admin]

[Mary1020]

I have read that the sales data from auctions is being used in overall sales data, so when a bank buys back property at auction for a price no one in their right mind would pay, these figures are being used in sales data which really taints the data. It is not a reflection of market prices but it's being peddled as such. Does anyone know anything about this. I looked at sales data this year and it was higher than last which makes no sense to me until I started thinking about the number of foreclosures being higher and banks having to buy back more property. I would like to see the sales data minus the auction data.

[admin]

[john p]

Have you ever seen the Case Shiller adjusted for inflation?

[admin]

[balor123]

How about adjusted for wages?

[admin]

[balor123]

Yeah that's a good one. Would love to see it updated. But looking at that chart you can see the frustration that I and many others share - housing remains expensive using price/income, which only matters of course if this is a factor that you consider when purchasing a home. Well, we've all placed our bets. Let's see where housing reform takes us over the next decade. I think if prudence turns out to win then those on my side will come out way ahead. If not, then we'll come out a little behind.

[admin]