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Boston Bubble Wrap: The Real Story for MA - May 2012

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PostPosted: Sun Jul 15, 2012 5:15 pm GMT    Post subject: Boston Bubble Wrap: The Real Story for MA - May 2012 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 for Boston is a superior data source.

The Massachusetts Association of Realtors released their data for May 2012 on Tuesday, June 26th. 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 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 2012

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

Some observations:

  • The real decrease from May 2011 to May 2012 was 2.68%.
  • The year over year price change fell back within one standard deviation of its moving average. Price declines are still the norm, with the moving average remaining over one standard deviation below zero. This is not to say that price declines will continue, merely that short term price increases are not a reliable expectation yet.
  • There has been only one natural price increase since August 2005, that occurring in April 2012. There was a one year period earlier where most months saw year over year increases, but those increases were the result of buyers being misled into mistaking one of many backdoor bank bailouts (the latest homebuyer tax credit) for a good buying opportunity. However, it should be noted that the expired tax credit may still be responsible for the April 2012 and near term increases / smaller decreases via secondary effects. The year over years numbers now are comparing prices now with 2011, and 2011 sales were likely depressed by the tax credit pulling sales which would have otherwise occurred in 2011 earlier into 2010.
  • Prices are now 33.76% below the peak set in June 2005. This is the result of a 21.07% decline in nominal housing prices and a 16.08% decline in the purchasing power of the dollar. Note that this ignores seasonality.
  • The cumulative price decline from the beginning of the MAR's data (Feb 2003) is 17.80%, which is an annualized decline of 2.10%, again ignoring seasonality.

It should be noted that The MAR used a different, lower median price for May 2011 than what was reported last year, presumably due to an intentional revision. They had previously reported the May 2011 median as $300,375, but in their more recent comparison to May 2012 they lowered it to $298,000. Had the 2011 price not been revised, the real year over year decline would have been a steeper 3.45%.

As in other recent months, sales volume was way up over the previous year. Some of that is probably due to the expired home buyer tax credit stealing sales from 2011 to puff up 2010. However, extraordinarily low and continually falling interest rates have brought the monthly mortgage payment to income ratio down to the low end of what has been typical, and enough people misuse that measurement, treating it as equivalent to "affordability," that it can move the market. This, combined with the increase in volume beyond what is attributable to the secondary effects of the tax credit, would suggest that the Massachusetts market as a whole may be at or near a nominal price bottom, until the local economy worsens, mortgage rates rise, or the government begins to curtail its FIRE industry welfare. Rising interest rates do present a major downside risk to prices. It is a risk and not a near term certainty, though.

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 2012 by 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 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 or 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

The latest version of this report can be found at

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