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Boston housing inventory trends Apr 2007 - Nov 2015

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Joined: 14 Jul 2005
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Location: Greater Boston

PostPosted: Tue Jan 05, 2016 11:11 am GMT    Post subject: Boston housing inventory trends Apr 2007 - Nov 2015 Reply with quote

Currently, anemic inventory is one of the two main factors dominating the Boston real estate market, skewing it heavily toward sellers. (The other factor essential to sustaining current real prices is historically low mortgage rates.) Prospective buyers would benefit from knowing when inventory will improve. That may not be any more predictable than when mortgage rates will change, but perhaps a simpler question whose answer would also provide value is whether inventory is currently improving.

Answering whether inventory is currently improving is tractable, but the answer won't be obvious from the numbers typically reported. There is a high degree of seasonality to inventory availability, and so a decline in inventory this month compared to last month might actually be an improvement if the decline is less than normal. Comparing inventory for a given month to the same month a year earlier would be one way factor out seasonality, and that is sometimes done in news articles. However, that doesn't provide insight into what level of inventory is normal and is also susceptible to noise from the anomalies for a particular year, such as Boston's mini ice age at the beginning of 2015.

As an attempt at working out a way to better monitor inventory so that a change in the trend can be spotted more easily, I've converted Zillow's inventory data for the Boston MSA into a seasonally adjusted series. The conversion is simplistic, and if there are suggestions for improvements, please post them. For each month, I adjusted the raw inventory number by the percentage of inventory that the same month represented in all prior years. I extended the data series back beyond the beginning of Zillow's data by using the older Boston inventory data from The Department of Numbers. Below is a graph of the results from April 2007 - November 2015.

The graph above would suggest that inventory is terrible and not improving. Unlike in the first report on inventory, current inventory is over a standard deviation below average. It was only within a standard deviation of average in the first report because the time span covered was much shorter as only Zillow's data was used. The one immediate silver lining is that inventory has at least stopped declining.

One looming question this raises is: where is the inventory from baby boomers? Eventually, their exit will likely create a boom on the supply side as they retire, downsize, and move on. Previously, this was projected to begin in 2015 and to easily take two decades to play out. This is a major risk factor for current buyers because the inventory hasn't materialized yet, may not materialize soon enough to help buying in a practical sense, and yet when they want/need to resell their home, they could very well be competing with much higher inventory.

Past editions of this report include:

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