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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 February 2011 on Tuesday, March 29th. 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 - February 2011

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

Some observations:

The real decrease from February 2010 to February 2011 was 2.68%.
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 37.18% below the peak set in June 2005. This is the result of a 27.76% decline in nominal housing prices and a 13.04% decline in the purchasing power of the dollar.
The cumulative price decline from the beginning (Feb 2003) is 22.04%, which is an annualized decline of 3.06%. This comparison is particularly pertinent this month as the starting month and most recent month were both Februaries, and so there is no seasonal distortion.

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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