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Boston Bubble Report: The Real Story for MA - Mar 2006

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PostPosted: Fri Apr 28, 2006 1:04 pm GMT    Post subject: Boston Bubble Report: The Real Story for MA - Mar 2006 Reply with quote

This is the second report in what may become a series 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 the change 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. The first report was based on the Massachusetts Association of Reators' data for February 2006 and is available at

The Massachusetts Association of Realtors released their data for March 2006 this past Tuesday, April 25th. I adjusted the prices for inflation using the CPI Northeast Urban numbers available at Based on the adjustment for inflation, prices rose a modest 0.90% from the previous month and are now down 10.75% from the peak set in June 2005. The year over year change deepened to a 4.85% decline in real prices from March 2005. March marks the seventh straight month of year over year declines with the declines growing steadily steeper - the declines are even noticeable in nominal terms now.

Also of note, the figures for February 2006 in the current March 2006 report are different from what they were in the previous month's report. The median nominal sale price originally reported for February 2006 was $339,450 whereas the March report lists it as $339,000. It is unclear whether the change was due to a downward revision from additional sale data or from massaging the numbers to make them look better. Possibly not coincidentally, a change in the rounding precision would have produced said change and artificially increased the most recent month to month change in both the February and March reports. If the originally stated number had been used in the most recent report, the increase from February to March would have only been 0.77% instead of 0.90%. Furthermore, if the change was due solely to a change in rounding precision, the increase could have been as low as 0.62% depending on what the March number would have been if rounded in the same manner as the data in the February report. Hopefully they are not just adjusting their methodology to cast the present in the best light.

Adjusting for inflation produced the data represented by the graphs below:

One Year Price History

Change in Median Price From One Year Earlier, February 2004 - March 2006

One point of interest is that the year over year declines appear to be accelerating. There appears to be a steep and meandering drop in the year over year rate starting after the peak rate in November 2004 and continuing through the present. There was a short lived upward spike in the rate during February and March 2005 with the downturn resuming in April of that year. That should make the next month's data from the Massachusetts Association of Realtors particularly interesting because April 2005 was also when record lows started being set for the period of time during which they publish median price data. Over the subsequent year, the rate continued to decline and repeatedly set new lows, breaking through to negative real rates in September 2005 and continuing downward to the 4.85% record decline we saw in the most recent month's data. The question going into next month and beyond is whether new lows will continue to be set or whether the market will settle into a somewhat constant year over year depreciation rate now that the year over year data will for the first time be calculated against the months in which new lows began to be set. Bear in mind that the rate represents the change in prices, so a flat negative rate means falling prices and a declining negative rate means accelerated falling prices. A leveling off in the rate would mean that Massachusetts may be in for a protracted bleeding like Japan has experienced, while a continuing decline may indicate a mercifully swift crash has begun.

As usual, please do try this at home - you are encouraged to double check the math of the above data in order to help ferret out any errors. The data was derived from the following sources:

Thanks to whoever added the year over year graph from last month's report to the Wikipedia article on the United States housing bubble. Feel free to do the same with this month's graph(s). I will explicitly spell out the reproduction guidelines this time to hopefully make it even simpler.

The text of this post and the associated graphs are Copyright 2006 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-NoDerivs 2.5 License. You may additionally scale the graphs to fit your work. 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

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Rush for the exits!

PostPosted: Mon May 01, 2006 2:48 am GMT    Post subject: March data thoughts Reply with quote

Thanks for the excellent research.

Did anyone else find it interesting/surprising that the difference between Warren Group data and MAR data suggests there were 976 FSBO sales in March out of a total 4416 sales or 22%, which seems quite high. I started thinking about this because I saw an awful lot of FSBO open house signs today. Any thoughts on the significance? Maybe people simply don't want to pay $30k to sell a $600k house.

Importantly, if MAR data doesn't include FSBO houses, current inventory is much higher than MAR estimates. Did Warren Group publish a total inventory including FSBOs?

I couldn't find a copy of the Warren Group report but I highly recommend checking out their website:, where you can find town specific median selling prices eg. Brookline 2006YTD MSP is $964k vs. $1,090k in 2005, a 12% drop!

One other tidbit on the MA real estate market. I have heard Boston has one of the oldest populations, which I suspect will tend to lead to more turnover in the next few years vs. other hot markets such as San Francisco. Anyone have any demographic data to support this? I think this may be an important distinction between the relative strength of the two markets in the next few years. However, I don't recall seeing this statistic in the "risky market" analyses in various publications.

My advice for potential buyers: wait until the last minute. Sellers are hoping for a turn around this spring/summer. If it doesn't come, there will be a panic in the fall at the prospect of sitting on the property for another year. The real estate market reminds me of the common Wall Street expression, "rush for the exits." Realtors like to say that house prices can't go down because sellers just won't sell.... maybe, however, I have been seeing lots of empty houses. No one wants to pay taxes, utitilies and mortgages on an empty house in a declining market.

There is another expression that comes to mind regarding those of us hoping to be able to afford a house one of these days, "catching a falling knife." Ultimately, I think buyers' fear of buying into a falling market and consequent paralysis is the reason realtors can't stand the idea of a bursting bubble. No sales = no commissions!
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PostPosted: Fri May 26, 2006 2:20 pm GMT    Post subject: April 2006 report available Reply with quote

On Thursday, May 25th the Massachusetts Association of Realtors released their data for April 2006. For an updated analysis with accompanying graphs which include this new data, see

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PostPosted: Sat Jun 24, 2006 7:38 pm GMT    Post subject: slow decay Reply with quote

Homes in suburban Boston seem to be experiencing a slow decay in prices. Sellers are stubbornly holding out but reality is beginning to sink in. I saw prices in the Chelmsford, Billerica, Westford area double and then go beyond that since 98. I think we are starting to see the slide back to normal. The slide could become a crash if the job market worsens. Some clowns on TV are talking about a new normal. LOL. Reminds me of the pundits hawking tech stocks in 2000. Happy hunting.
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PostPosted: Tue Jun 27, 2006 8:52 pm GMT    Post subject: FSBOs Reply with quote

I suspect that many real estate agents are telling sellers to "be realistic" in their asking prices if they want their home to sell within a realistic time frame. The time when you could price your property at "last year plus 20%" is over. It's not 2005 any more. I can easily picture sellers not wanting to hear this bit of reality, firing their real estate agent, and striking out on their own to try to get their desired asking price, regardless of whether that price jibes with the new reality.
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