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Boston Bubble Wrap: The Real Story for MA - May 2011

 
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admin
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PostPosted: Thu Jun 30, 2011 6:09 pm GMT    Post subject: Boston Bubble Wrap: The Real Story for MA - May 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 May 2011 on Tuesday, June 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 - May 2011

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



Some observations:

  • The real decrease from May 2010 to May 2011 was 2.63%. The MAR reported a meager increase of 0.5% in nominal prices, but inflation completely negated that, and then some.
  • Prices have 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 turned negative in April for the first time since the end of the tax credit. Price declines are once again the norm after being briefly interrupted by buyers being misled into mistaking one of many backdoor bank bailouts for a good buying opportunity.
  • Real prices are once again lower than the same month in every year in the time period covered by The MAR. 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 31.40% below the peak set in June 2005. This is the result of a 19.63% decline in nominal housing prices and a 14.64% decline in the purchasing power of the dollar.
  • The cumulative price decline from the beginning (Feb 2003) is 14.87%, which is an annualized decline of 1.93%.


Once again this month, the volume of single family home sales fell dramatically from one year earlier. Sales were down 16.9% compared with one year earlier. This makes the median even less reliable than usual given that the mix of what is selling is almost certainly changing, and that necessarily distorts the median as a consequence of how it is calculated.

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: Fri Jul 01, 2011 1:03 pm GMT    Post subject: Reply with quote

Ever considered plotting median price vs median family income?
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PostPosted: Fri Jul 01, 2011 1:07 pm GMT    Post subject: Reply with quote

guest type wrote:
Ever considered plotting median price vs median family income?


But of course: http://www.bostonbubble.com/latest.php?id=ma_price_to_income Technically, that's not the median price since it uses the S&P/Case-Shiller Index for Boston, which is better.

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PostPosted: Fri Jul 01, 2011 3:11 pm GMT    Post subject: Reply with quote

Thanks...I guess I missed it when you originally posted.
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mpr



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PostPosted: Fri Jul 08, 2011 3:07 pm GMT    Post subject: Reply with quote

admin, do you plan any coverage of the recent CS numbers ?
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Rental Lease



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PostPosted: Fri Jul 08, 2011 10:16 pm GMT    Post subject: Reply with quote

Those statistics are for all of Massachusetts, not just for Boston, right?

Do you have any similar real estate statistics for the greater Boston metropolitan area?

Great stats, by the way!

Cheers,

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PostPosted: Sat Jul 09, 2011 3:01 pm GMT    Post subject: Reply with quote

mpr wrote:
admin, do you plan any coverage of the recent CS numbers ?


I generally update the S&P/Case-Shiller snapshot for Boston quarterly. The next potential update will be once 2011 Q2 prices are available, which will be around the end of August. That is, if time permits - I have some personal time commitments coming up around that same time which might prevent it.

In the meantime, it has been awhile since I posted charts of the tiered indexes, so I'm including some updated charts below. There are a few really interesting things that jump out at me. First, the impact of the home buyer tax credits is visually evident and did not provide enduring stability. Second, the low and middle tiers are now below their inflation adjusted, historical average. "History" in this case isn't particularly comprehensive since the data only goes back to 1987, which doesn't even cover a single 30 year mortgage cycle when we would ideally want multiple, non-overlapping 30 year cycles. The historical averages are consequently heavily influenced by the bubble years. However, it's a start. The low and mid tiers are finally a better than usual deal in at least this limited sense.

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PS - Yes Rental Lease, the stats at the start of this thread were for all of Massachusetts. The S&P/Case-Shiller Boston Index covers just the Boston MSA.


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PostPosted: Mon Jul 11, 2011 1:19 am GMT    Post subject: Reply with quote

are you sure that graph is right ?

The mid-tier is ticking up, while all the others are declining sharply.
Plus it doesn't seem consistent with the MAR data.
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PostPosted: Mon Jul 11, 2011 1:33 am GMT    Post subject: Reply with quote

mpr wrote:
are you sure that graph is right ?

The mid-tier is ticking up, while all the others are declining sharply.
Plus it doesn't seem consistent with the MAR data.


I think it's right, but it would be great if somebody else could check the result. Here's the tiered indexes and here's inflation.

Yes, even before adjusting for inflation all of the tiers are declining month over month, except for the middle tier.

As for any inconsistency with The MAR, that's not jumping out at me. However, I would trust the S&P/Case-Shiller indexes over The MAR for many reasons, especially now that the sales volume has changed so much. Do also keep in mind that the S&P/Case-Shiller Index lags The MAR by one month, so May is not on the tiered graphs.

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john p



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PostPosted: Mon Jul 11, 2011 1:32 pm GMT    Post subject: Reply with quote

I guess I think the whole "matched pair" system might be targeting a higher concentration of distressed homes selling on the low end.

Take away the first time homebuyer tax credit and add in the tighter lending practices, it is no surprise that you have fewer buyers on the low end. Then, add in that people aren't as interested in buying up these properties as investments so you're losing the surcharge of buyers in that regard.

Looking at the long term graph, where do you think the tier's are at their normal state?

Keep in mind before we had the "Bubble" we had the "Dimple".
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PostPosted: Mon Jul 11, 2011 2:27 pm GMT    Post subject: Reply with quote

john p wrote:

Looking at the long term graph, where do you think the tier's are at their normal state?


I don't think that graph can be used to divine a long term normal state because the time period covered is dominated by a secular trend not conveyed in the graph. That is, interest rates and inflation have both been steadily declining for the time period covered by the graph. You could talk about what is normal for a given level of interest rates, and I think the tiers are near that now for current rates, but rates are by no means static. In fact, they are exceptionally low right now and what would be normal for the tiers would be very different with historically average rates.

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PostPosted: Mon Jul 11, 2011 3:43 pm GMT    Post subject: Reply with quote

I like that answer.

The three big things to consider now are:

1. Will we have a double dip Recession?

2. Will mortgage rates go up or down?

3. Will future Federal, State, and Local Taxes take a bigger bite out of household income?

Then ask yourself, what might be the source be for any potential uptick in the Economy?

New Products:

I guess I'm kind of excited about the whole Apple and Cloud thing; that seems like a big deal. Anyone see anything else that sounds exciting?

When I ask this question I hear "BioTech". I know there is big money in this, but it doesn't seem like a big employer.

New Legislation:

I think the new Financial Regulations might add some oversight government jobs, but may in fact create compression in the Financial Industry and lower wages, which would certainly impact house prices in metro Boston.

I think that the new Health Care Legislation will create a lot more jobs, but because it aims at "efficiency" that often means shrinking an Industry, which may mean providing relief in other Industries costs.

The First Time Homebuyer stuff has expired. I'm not sure about the Home Remodification Stuff; I am pretty sure the HARP Program is still active.

I know they were trying to get the Property Plant and Equipment stimulated by focusing on tax breaks for equipment purchases; I am not sure if that is active in 2011 or how it will affect Massachusetts as we don't really manufacture very much.

I guess I'd like to see more Community Development Block Grants for poor people who invest in insulating/ weatherproofing their properties; this would give some work to the trades and help reduce energy costs for the poor who typically live in the older, less efficient homes. Take away some of the Oil Companies tax breaks to pay for it.

Given the regional bubble aspect of the national housing market, you have to wonder if it doesn't make sense to try to train the growth to where capacity is versus trying to maintain price levels in inflated areas. I mean why not let some of these areas with Price to Income levels still over 4 to remain? Why not incentivize people to move to cheaper parts of the country so that we don't have to use tax money to subsidize inflated cost of living areas?
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PostPosted: Mon Jul 11, 2011 3:55 pm GMT    Post subject: Reply with quote

john p wrote:
I mean why not let some of these areas with Price to Income levels still over 4 to remain? Why not incentivize people to move to cheaper parts of the country so that we don't have to use tax money to subsidize inflated cost of living areas?


But how would that help the banks and the rest of the FIRE industries? That's what the government policies are for, after all (perhaps unwittingly in some cases).

As for new products that might boost the economy, I'm keeping an eye on 3D printing. However, that might just be because I want to play with one of the printers and haven't thought of a good enough excuse to do so yet.

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balor123



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PostPosted: Tue Jul 12, 2011 5:21 am GMT    Post subject: Reply with quote

Yeah I've been following those for a while too. The price point is almost there but the features are still lacking. I'm guessing 5-10 years for them to become affordable with interesting features, another 5 years for the applications to develop and for it to become popular.
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john p



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PostPosted: Tue Jul 12, 2011 6:28 pm GMT    Post subject: Reply with quote

Is there a way to do digital chemistry?

I mean can you create a Periodic Table of data and create a controlled space and then introduce elements and watch their behavior?

What is the current limitation to doing this?

I think this would be kind of wild and they could do some serious biotech; then with your whole 3D printing we could make Kelly LeBrock like in the movie "Weird Science".

http://www.imdb.com/title/tt0090305/
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