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Boston Bubble Wrap: The Real Story for MA - Aug 2010

 
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PostPosted: Thu Sep 30, 2010 2:43 pm GMT    Post subject: Boston Bubble Wrap: The Real Story for MA - Aug 2010 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 August 2010 on Tuesday, September 28th. 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 - August 2010

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



Some observations:

  • The real increase from August 2009 to August 2010 was 3.30%.
  • This was the ninth 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 2008 and 2009.
  • July and August were the first months that the median has been above the real median for the same month in 2008 since falling below it. The difference was slight in both cases, however.
  • Prices are now 22.25% below the peak set in June 2005. This is the result of a 11.71% decline in nominal housing prices and a 11.94% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 3.51%, which is an annualized decline of 0.48%.

Of note in this month's Massachusetts Association of Realtors report, sales volume for single family homes plunged 18.4% from one year earlier. No doubt this had much to do with the original closing deadline for the most recent home buyer tax credit expansion. While the closing deadline has since been extended to the end of September, it had originally been the end of June, and that extension came late enough to have already stolen sales from future months which are now covered by the extension. On the other hand, the credit will likely also add some sales to what otherwise would have occurred through the end of September as The MAR reported that 47% of members reported that they had at least one client who benefited from the extension, and 18% had at least three clients who benefited. Consequently, the tax credit will probably be distorting the volume data in both directions for the next several months, though it would seem from the precipitous drop that the net effect is downward.

Similarly, price is still being distorted by the credit. It is pushed up by the stragglers taking advantage of the credit, but it is also pushed down by the lower demand resulting from the void left by the time shifted sales. More importantly, the volume was so dramatically lower this month that the median price is probably not a particularly reliable gage at present. The increase in the median could very well be due to fewer low-end homes being sold even while the price on high-end homes stays flat or even declines.

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:

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

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PostPosted: Thu Sep 30, 2010 5:36 pm GMT    Post subject: Reply with quote

Another excellent analysis!

Do you expect the coming september drop to be as dramatic as 2008 and 2009?
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PostPosted: Fri Oct 01, 2010 1:02 pm GMT    Post subject: Reply with quote

FreedomCM wrote:
Another excellent analysis!

Do you expect the coming september drop to be as dramatic as 2008 and 2009?


Thanks. I have no idea. There are a lot of forces pulling in opposite directions on this. I do expect sales volume to be down a lot again, but that could affect the median either way simply by changing the mix of what is selling.

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PostPosted: Fri Oct 01, 2010 9:31 pm GMT    Post subject: Reply with quote

admin wrote:
FreedomCM wrote:
Another excellent analysis!

Do you expect the coming september drop to be as dramatic as 2008 and 2009?


Thanks. I have no idea. There are a lot of forces pulling in opposite directions on this. I do expect sales volume to be down a lot again, but that could affect the median either way simply by changing the mix of what is selling.

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It's official, sales volume was down a lot again in September, at least in Middlesex County:

http://lowelldeeds.blogspot.com/2010/10/september-recording-statistics.html

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