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Boston Bubble Brief: The Real Story for MA - Oct 2007

 
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admin
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PostPosted: Fri Nov 30, 2007 4:31 pm GMT    Post subject: Boston Bubble Brief: The Real Story for MA - Oct 2007 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 October 2007 on Tuesday, November 27th, one day ahead of schedule. 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:

Full Price History




Change in Median Price From One Year Earlier, February 2004 - October 2007

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



Some observations:

  • Current prices are once again lower than in any other year in the time period covered, by the largest margin yet.
  • The real decline from October 2006 to October 2007 was 6.17%.
  • Prices are now 17.97% below the peak set in June 2005.
  • The year over year decline swung to the bottom of the normal range in October. As bad the decline may look on the graph of all prices, it wasn't particularly abnormal.

As as been the case for at least several months now, The Warren Group reported greater declines than The Massachusetts Association of Realtors. The Warren Group reported a decline of 6.5% in the median price for single family homes with nominal prices falling from $310,000 in October 2006 to $290,000 in October 2007. Adjusted for inflation, that represents a real decline of 9.38%. Given that The MAR reported the October 2007 median as the much higher $330,000, the cumulative discrepancy puts The MAR reported price at a glaring 13.79% above The Warren Group's. A major factor in the discrepancy is that The Warren Group includes foreclosure sales and sales directly by the owner, which The MAR does not cover.

The S&P/Case-Shiller Index for Boston is likely superior to the data from both The Massachusetts Association of Realtors and The Warren Group as it corrects for many flaws that are inherent when only using 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. 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 charts 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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Phil O. Math
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PostPosted: Fri Nov 30, 2007 6:49 pm GMT    Post subject: Thanks Reply with quote

I think I say this every month but hey, it's worth saying again: thanks for doing this. It's one of the highlights of my month.
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Dec 03, 2007 3:32 pm GMT    Post subject: Reply with quote

some macro context for posterity:

http://www.patrick.net/wp/?p=487

Check out what happens to the percentage of GDP growth when you take out Mortgage Equity Withdrawl. (6th chart).


More observations:

When you look at the purple line (2007) in Admin's chart versus the yellow line (2005), they look like an offset (echo) of approx. $50k.

2006 and 2007 isn't as big of a drop as 2006 was from 2005.

The Sept to Oct. period has always been a downward seasonal slope except for 2206. Check both of admin's charts.

Thoughts:

I think that whenever the price trend behaves beyond the normal seasonal tides it is a reason for concern. I first check any unusual behavior on the interest rate front and from what I see we are still dealing with the high spike in interest a few months ago because deals recorded which created these statistics had prices agreed to relative to the interest rate spike back then. This period during 2005 was similar.

I'm confused here because on Admin's first chart you'll see that the purple line is lower than it has been since 2003, yet the lowest point on the second chart (black line) is August 2006. My guess is that the second chart relates to the rate of acceleration or deceleration. Anytime you see a sharp drop you wonder if the collapse will be more progressive and pancake downward.

I wonder if Paulson's plan is more related to political pressures or financial pressures.

http://www.bostonherald.com/business/general/view.bg?articleid=1048135

This is an unprecedented move. I think with higher rates you get less equity withdrawal, so you remove that from the GDP and then have the weight of the ARM's and commercial paper, that could really be a live load that the factor of safety will have to work for. I'm hearing that they have written off $50B out of $500B of commercial paper (junk bonds bought which are bad failing loans sold at a discount). One person felt that the mortgages wouldn't be paid so they sold them to someone who thought they would be paid, or a certain percentage would. The people betting on the commercial paper who don't want to see that $500B grow as well as the people in the ARMS are hoping for lower interest rates. I think the FED is acting like an air traffic controller and trying to layer the drop to help the overall financial system.

Make no mistake, for all those lassez faire, libertarian Republicans, our Government is taking active steps to fix this mess. People who played by the rules are again, hurt by this. The rich Alfred E. Newmans and greedy want-a-bees are getting away with it again. If we want to moderate our financial system, we need to moderate behavior. We don't do that by creating moral hazards. Great term Admin presented...

This confusion is like the English language. We learn to construct words with a combination of phonics and English morphology and a series of rules that are broken along the way that we all have to know to understand. The immigrants that come here and learn our language often misspeak and almost remind us of our own ridiculous rules. The question is, do we look at them and laugh to ourselves, or should it make us be more disciplined about our own inherent mistakes; the fact that our own language often doesn’t make sense. The reason why it is like the housing market is because people who play by the rules are like the immigrants who follow phonics and basic grammar. They are getting slammed because they expect that professionals make sense and that there is no bizarre rule like “I” before “e” except after “c” rules. They expect that a great Nation like the US has it’s financial house in order and there would be no way possible for them to get a mortgage if they didn’t qualify. When we see immigrants in financial trouble due to the subprime mess; it is in part reflective of their lack of knowledge, but also, that our system does have some nonsense that wasn’t on their radar.

If our financial system falls like a house of cards it is only because they have built it as such. There is nothing worse than someone that plays by the rules being thrown overboard. That is a lack of loyalty, honor that will kill dreams. Every person who gets up early for a hard day’s work tries to impart to their children to do the same. If that honest hard working person gets thrown under the bus by a society, you’ll see that they will become a dying breed and it will be a mercenary culture with prison rules. The poorer people are fighting our wars, I think the rich can absorb the $450B. I think the extreme overreaching cases ought not to be protected, but the hard working honest people are like a natural resource that we need to preserve.
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john p



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PostPosted: Mon Dec 03, 2007 6:15 pm GMT    Post subject: Reply with quote

Two other points:

First, I think that there ought to be a checklist and performance factor associated with any case they try to bail out as well as a classification of discharge. Meaning, if someone refinances their home to buy Lexuses and travel the world or buy a house they had no business buying, they ought to get a "dishonorable discharge" from the loan so there is at least a sense of accountablity for poor behavior. For honest families, they ought to get an "honorable discharge", and a "general discharge" for those that are in the grey area.

Second, every day people have to take a bite out of the "turd sandwich". Some people never have to. Poor people are mostly the ones fighting the Iraq War. The rich don't have to bite out of that turd sandwich. Because they don't have to take a bite, they don't care as much on the whole. Look at how one office in Houston for Arthur Anderson made an entire Accounting industry take a big bite out of the turd sandwich. The mortgage industry is not held to any standard and they are negotiating despite the fact that they are making a large segment of our society take a bite. Our President has set such a low standard for personal accountability that everyone is following suit. Character does matter, and after our President's administration lied about weapons of mass destruction, instead of them taking a bite out of the turd sandwich, they got promoted and reelected. If there is no justice and good people have to eat the turd sandwich because of other's greed, there is going to be trouble.

In the end, we are fighting globally for political legitimacy and we need to be viewed as being just, honorable, hard working and intelligent. If we empower incomptence and aren't just or intelligent, it is no wonder why the US dollar is slipping. The majorit of US citizen are top tier, it is just that they don't have enough control of their Government when injustice, incompetence, and stupidity is tolerated. Once, Vladimir Putin commented that G.W. Bush wasn't truly elected and his father's Supreme Court gave him the Presidency. I don't go so far as bending to what Putin thinks, but I do think that if we allow our government to do the black operations and empower the wrong people, that everyone will think our allies are puppets. I think we need to trust the power of Democracy because the behind the scenes stuff is making it harder for democracy. It's like Deval Patrick taking money from Ameriquest. He might argue that it is better off to change something from the inside and you have to lose the battle to win the war, but he said nothing at the time about the abuses and if you behave like your enemy you end up becoming them.

A prime example, look this stuff up, is an Indian Tribe's rights to have casinos on newly acquired trust lands. Check out the rules, you'd think you were in a 2rd World Nation. How on earth did these rules get by the gatekeeper? There are even some rules about a "new" tribe circumventing local and State approval. Even though there was one Wampanoag tribe which was established (Wampanoag meaning "East People"), we already have a Wampanoag tribe based in I think Gay Head. This newly established tribe is called the Mashpee Wampanoag Tribe. What's next the SouthWest Mashpee Wampanoag Tribe? When Americans tell me that these things are coming and there is nothing you can do, I wonder what country I actually live in. This isn't a corrupt 2nd world nation. It will if we let it become one.

What is funny is that you would think that it would take something like Civil Rights or the Commerce Clause of the Consitutiton as grounds for the Federal Government to bypass the State. The Fed's are using Indian Tribes as a veil to allow their cronies to make money. It is disrespectful and unjust for the Indians and the States. You know, people who have their head up their ass often have to take a bite out of the turd sandwich.
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admin
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PostPosted: Thu Dec 06, 2007 11:31 pm GMT    Post subject: Reply with quote

Phil O. Math wrote:
I think I say this every month but hey, it's worth saying again: thanks for doing this. It's one of the highlights of my month.


Thanks, I'm really glad you like it.

john p wrote:
I'm confused here because on Admin's first chart you'll see that the purple line is lower than it has been since 2003, yet the lowest point on the second chart (black line) is August 2006. My guess is that the second chart relates to the rate of acceleration or deceleration.


That's exactly what it is. The second chart is analogous to the first derivative of the first chart.

john p wrote:
If our financial system falls like a house of cards it is only because they have built it as such. There is nothing worse than someone that plays by the rules being thrown overboard. That is a lack of loyalty, honor that will kill dreams. Every person who gets up early for a hard day’s work tries to impart to their children to do the same. If that honest hard working person gets thrown under the bus by a society, you’ll see that they will become a dying breed and it will be a mercenary culture with prison rules.


Has it ever been any different? I can't think of any time in history when being honest and hardworking has made you exempt from getting screwed over. That's not so say that it isn't something to strive for, just that this is a deficiency common to all societies.

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PostPosted: Sun Dec 23, 2007 10:12 pm GMT    Post subject: 2002? Reply with quote

Admin,

I think that you may have answered this question in the past, but is there any way to construct a 2002 or earlier time frame? Even if the data is not there, is there an estimate or some way to transform the data?

Even if you plotted it with a disclaimer or with error bars or something, it would be interesting.

I want to echo the comments of others also - I LOVE reading this and its the highlight of my month when your graph comes out.

Sam
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admin
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PostPosted: Thu Dec 27, 2007 5:15 am GMT    Post subject: Re: 2002? Reply with quote

SamChady wrote:
Admin,

I think that you may have answered this question in the past, but is there any way to construct a 2002 or earlier time frame? Even if the data is not there, is there an estimate or some way to transform the data?

Even if you plotted it with a disclaimer or with error bars or something, it would be interesting.

I want to echo the comments of others also - I LOVE reading this and its the highlight of my month when your graph comes out.

Sam


Sam,

I'm glad you like the graphs.

The 2002 median prices are not in the MAR reports, unfortunately. They have average prices for that time period, but I cannot think of a satisfactory way to transform averages into medians.

One option might be to use the median from the Warren Group for 2002. If somebody can confirm that this data is available for all of Massachusetts on a month by month basis, I'll certainly consider this. The MAR and the Warren Group have had wildly diverging numbers lately, but I think that has been due in large part to foreclosures, which would not have been as large of a factor in 2002.

Another option could be to use the S&P/Case-Shiller index to adjust the MAR price(s) to prices for the individual months from 2002. My main hesitation here is that the index is for the Boston MSA whereas The MAR's data is for Massachusetts. Also, I'm not sure what would be best to use for the base price - February 2003 or some sort of average?

Thoughts?

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hackamada
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PostPosted: Thu Jan 03, 2008 9:59 pm GMT    Post subject: funny approximation :-) Reply with quote

I've put all the data on one chart and approximated it using the least square method and following equation:

f(x)=a1*sin(a2*x+a3)+a4*sin(a5*x+a6)+a7*x+a8

where one sinus suppose to mean seasonal trends and another one global trends:




It looks like we are at the bottom now :-)
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SamChady
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PostPosted: Tue Jan 08, 2008 5:46 pm GMT    Post subject: your equation Reply with quote

I have done this type of stuff too, but it never works out. If you go to a high enough ordered equation, it will track any data set, but it will not predict the new data.

Ask yourself this - why would it follow this equation? Just because you can fit the data does not mean its valid. You can do this with the stock market too, and it does not work.

Of course, if you were jesting, then sorry
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JCK



Joined: 15 Feb 2007
Posts: 559

PostPosted: Tue Jan 08, 2008 6:36 pm GMT    Post subject: Reply with quote

Just add my 2 cents.

I'll buy that the sine wave tracking seasonal variation may be a reasonable approximation.

But there's absolutely no reason to believe that real estate prices would follow the longer sine curve over a period of years.

Unless you have some meaningful argument as to why this fit should be predictive, then it's just meaningless number/equation manipulation.

(with same caveat that, if you're joking, then ha ha.)
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PostPosted: Tue Jan 08, 2008 6:40 pm GMT    Post subject: Reply with quote

I think he (she?) was joking. Check out the subject for the original message. I thought it was amusing.

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hackamada_the
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PostPosted: Tue Jan 08, 2008 8:53 pm GMT    Post subject: We can manipulate numbers to predict anything we want Reply with quote

Of course I was not serious. We can easily manipulate numbers and predict anything we want.

But actually I have some arguments to think that prices might go up in 2008 in Massachusetts. May be not for a long term though. I'll need some time to formulate all my thoughts and can post it here or in a separate topic if you are not against. May be you guys can convince me that I am wrong :-)

I also want to finish my registration here but it looks like my e-mail was banned and I cannot receive a confirmation link. And I cannot even use my old user name "hackamada" because it has "been taken" already :-)
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admin
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PostPosted: Tue Jan 08, 2008 8:59 pm GMT    Post subject: Re: We can manipulate numbers to predict anything we want Reply with quote

hackamada_the wrote:
Of course I was not serious. We can easily manipulate numbers and predict anything we want.

But actually I have some arguments to think that prices might go up in 2008 in Massachusetts. May be not for a long term though. I'll need some time to formulate all my thoughts and can post it here or in a separate topic if you are not against. May be you guys can convince me that I am wrong Smile

Sure, post away. You might want to start a new thread, though, since this one is for an older report.

hackamada_the wrote:

I also want to finish my registration here but it looks like my e-mail was banned and I cannot receive a confirmation link. And I cannot even use my old user name "hackamada" because it has "been taken" already Smile

There are no banned email addresses at present. Maybe your spam filter is eating the confirmation link. Try checking your spam/bulk/junk folder. As for the name already being taken, that's probably because you had used it as a guest alias.

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JCK



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PostPosted: Fri Jan 11, 2008 3:42 pm GMT    Post subject: Reply with quote

admin wrote:
I think he (she?) was joking. Check out the subject for the original message. I thought it was amusing.

- admin


Missed that.

Please ignore rant!
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