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Boston Bubble Wrap: The Real Story for MA - Jan 2011
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PostPosted: Thu Feb 24, 2011 11:11 pm GMT    Post subject: Boston Bubble Wrap: The Real Story for MA - Jan 2011 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 January 2011 on Tuesday, February 22nd. 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 2011

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



Some observations:

  • The real decrease from January 2010 to January 2011 was 6.64%.
  • Prices have potentially resumed their downward trend after a period of twelve consecutive year over year increases. Those were the only year over year increases since August 2005 and they all occurred consecutively and after the most recent renewal and expansion of the home buyer tax credit. The moving average is still positive, so it is premature to declare that declines are the norm once again, but the evidence of the tax credit's distorting impact over the applicable time period also indicates that the moving average is not a very good indicator of the norm, at present.
  • Real prices are once again lower than the same month in every year in the time period covered by The MAR, with the exception of 2009. Additionally, the real median has plummeted back below the estimates for prior years and is now the lowest it has been since the estimate for 2000.
  • Prices are now 33.48% below the peak set in June 2005. This is the result of a 23.88% decline in nominal housing prices and a 12.62% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 17.45%, which is an annualized decline of 2.39%.


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 2011 by bostonbubble.com 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 bostonbubble.com 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 http://www.bostonbubble.com/forums/viewtopic.php?t=3318 or http://www.bostonbubble.com/ 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 http://www.bostonbubble.com/forums/viewtopic.php?t=3318

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

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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Mon Feb 28, 2011 2:23 pm GMT    Post subject: Reply with quote

Oh hello 1999 estimate. Fancy meeting you here.
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PostPosted: Tue Mar 01, 2011 6:59 pm GMT    Post subject: Reply with quote

I remember some people were telling me that they could correctly time the bottom of a housing market. So much for that theory - they've never considered the double dip.
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PostPosted: Wed Mar 02, 2011 4:02 am GMT    Post subject: Reply with quote

I think it's still too expensive in greater Boston.
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PostPosted: Wed Mar 02, 2011 12:55 pm GMT    Post subject: Reply with quote

I think looking at town data maybe a better way to gauge the market.

Median Price for Single Family Home, by Warren. Boston Magazine has recently published complete list of towns. These are the towns I research and follow (just personal preference). I don't see too big a drop (3-5% from peak).

Town 2010 2005
Arlington 496175 501000
Belmont 695000 720000
Brookline 1113000 1120000
Hingham 631000 665000
Lexington 694250 705000
Needham 630000 663750
Newton 735000 760000
Winchester 715000 735500
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PostPosted: Wed Mar 02, 2011 2:22 pm GMT    Post subject: Reply with quote

CL wrote:

Median Price for Single Family Home, by Warren. Boston Magazine has recently published complete list of towns. These are the towns I research and follow (just personal preference). I don't see too big a drop (3-5% from peak).


Well, that's still the median, which is one of the main problems with The MAR data to begin with. I wouldn't rely on the town medians either. Perhaps applying the Case-Shiller methodology to town sales gathered from the Registry of Deeds would be tractable.

Also, don't forget about the 12.62% decline in purchasing power of the dollar due to inflation. That applies to those towns too.

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PostPosted: Wed Mar 02, 2011 3:20 pm GMT    Post subject: Reply with quote

Median is not perfect and yes it will be ideal if we can get CS methodology for town level data. But I think the noise introduced by the flawed methodolgy (ie looking at median) is less than including a whole bunch of towns that you are not interested.
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PostPosted: Wed Mar 02, 2011 4:16 pm GMT    Post subject: Reply with quote

CL wrote:
Median is not perfect and yes it will be ideal if we can get CS methodology for town level data. But I think the noise introduced by the flawed methodolgy (ie looking at median) is less than including a whole bunch of towns that you are not interested.


Perhaps normally, but sales volumes have been changing dramatically lately, which is something that will especially affect the median. You also have the option of looking at just the S&P/Case-Shiller high tier, which probably comes closer to tracking the towns you're interested in and which also shows meager price declines thus far. From eyeballing a chart of the nominal index, it looks like it's pretty close to the numbers you posted.

Stepping back for a moment, even if you built a per-town equivalent of the S&P/C-SI data, I think there's more work that would need to be done for it to be useful. For starters, it would need to go back a lot further than 2005. The low tier spiked far more than the high tier during the peak bubble years, so the fact that the low tier has borne the brunt of the declines thus far makes sense. If the market was just burning off the peak bubble years, then the relative price drop between the tiers thus far won't be much of a guide to what is to come since the peak has been burnt off now. Older data is needed for that reason alone, and for many reasons beyond that. Also, price data by itself isn't especially useful in gauging market strength and would definitely benefit from a comparison to income and rent.

Below are charts of the nominal and real tiered indexes. They are a few months old but close enough to illustrate the point.

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mpr



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PostPosted: Thu Mar 03, 2011 1:53 pm GMT    Post subject: Reply with quote

What was the change from Dec '10 to Jan '11 ? It looks roughyl flat
on the chart, but its hard to tell.

This doesn't look like an obvious double dip to me. You have the drop
off following the expiration of the credit, but then it looks roughly flat.
Very hard to tell given seasonal factors.
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PostPosted: Thu Mar 03, 2011 2:04 pm GMT    Post subject: Reply with quote

mpr wrote:
What was the change from Dec '10 to Jan '11 ? It looks roughyl flat
on the chart, but its hard to tell.


It is very close. The inflation adjusted median fell 0.86% from December to January.

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PostPosted: Fri Mar 04, 2011 1:06 am GMT    Post subject: Reply with quote

Exactly right about the median - simply avoid making any conclusions on it (precisely because of the pitifully low volume). Always look at the volume AND at the distribution of prices. The skewness of this distribution will tell you much. We know that a small number of very expensive houses sold will contribute a lot especially if there is a very low volume. This would be more so in rich towns vs. towns like Lynn, so that data is even more useless to make statistical generalizations.

The 'double dip' may or may not happen - that is exactly my point - it is not obvious what will happen, hence, impossible to decide whether we are on the way up or on the way down. The only way we'll tell is in another couple of years (and only after the fact).
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PostPosted: Wed Mar 23, 2011 5:52 pm GMT    Post subject: Reply with quote

I went to Zillow to briefly check sale price per sq ft from 2005 to 2010. It's Median, so if you don't like it, ignore it. It does adjust the size effect (i.e. people pay the same median price for a bigger house)

So a drop of 5-10% in these areas from peak, with the exception of Lexington (-13%) and incredible Brookline (0.72%). On average the drop is 7%

2005 2010 % Change
Arlington 314 283 -9.87%
Belmont 338 306 -9.47%
Brookline 415 418 0.72%
Hingham 310 290 -6.45%
Lexington 365 316 -13.42%
Needham 333 308 -7.51%
Newton 345 328 -4.93%
Winchester288 273 -5.21%

I also look at Change in % sold in previous year to gauge volume changes.

2005 2010
Arlington 6.80% 5.90%
Belmont 5.85% 5.75%
Brookline 7.73% 6.61%
Hingham 6.65% 6.51%
Lexington 5.21% 6.32%
Needham 5.22% 6.46%
Newton 7.76% 6.03%
Winchester 6.40% 6.14%

Some down, some up. Average drop in volume is less than 4%. The volume should be healthy enough to avoid some numbers of outliers skewing the distribution.
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PostPosted: Wed Mar 23, 2011 9:38 pm GMT    Post subject: Reply with quote

CL wrote:

So a drop of 5-10% in these areas from peak, with the exception of Lexington (-13%) and incredible Brookline (0.72%). On average the drop is 7%


And the S&P/Case-Shiller Boston High Tier was down 7.90% (nominally) from January 2005 to January 2010, so I think that reinforces my point that it is a pretty good source to look at for an explanation of why prices in those towns haven't fallen as dramatically as elsewhere and to what extent they may be insulated from further declines. For comparison sake, here are the nominal declines from January 2005 to January 2010, for the Boston S&P/Case-Shiller indexes:


  • Low: 19.61%
  • Middle: 13.64%
  • High: 7.90%
  • Aggregate: 11.77%


Given that your data was for the full year, I'll include the declines from December 2005 to December 2010 too:


  • Low: 26.01%
  • Middle: 16.66%
  • High: 9.91%
  • Aggregate: 14.99%


CL wrote:

I also look at Change in % sold in previous year to gauge volume changes... Some down, some up. Average drop in volume is less than 4%. The volume should be healthy enough to avoid some numbers of outliers skewing the distribution.

But the price comparison was between 2005 and 2010. Comparing the change in volume from the previous year won't speak to whether the change in median from 2005 to 2010 may have been influenced by a change in the mix of what's selling. I spot-checked Arlington, just because it was first alphabetically, and the volume was down 11.29% from 2005 to 2010. Whether that is large enough to on its own suggest a change in the mix of what is selling, I don't know.

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PostPosted: Thu Mar 24, 2011 12:02 pm GMT    Post subject: Reply with quote

I should explain the volume data is not change in sold home to previous year. it's the % of sold home of all home in the area in previous year. So 2005 is 2004 sold home/all home, 2010 is 2009 sold home/all home.

The data series fluctuate and it has 20+% up and down (Arlington down but Lexington up). My main interest is mainly to see if the volume has been thinned to a point where price data can be rendered useless. In this case I don't think so.
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PostPosted: Thu May 05, 2011 8:26 pm GMT    Post subject: tp tier vs Jumbo and super jumbo Reply with quote

I live in Brookline and get a bit sick of hearing realtors tell me that prices dont ever go down. If you look at houses priced at $1M or above (which is the median!) the volume has dropped precipitously from around 70 per year in my zip code to 10. The problem me and my neighbors have is the amount of down payment which is 25%-40% for condos.

When a market goes illiquid, pricing signals cannot be trusted.

I also noticed from walking around and checking on ziprealty.com that the same homes go on and off the market. The question I have is how big is the pool of buyers who have over $250,000 in cash for down payments? This MUST be a small percentage of the population.

So as to volume, how do the super jumbos compare to conforming?
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