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Boston Bubble Brief: The Real Story for MA - May 2008

 
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Location: Greater Boston

PostPosted: Fri Jun 27, 2008 1:51 am GMT    Post subject: Boston Bubble Brief: The Real Story for MA - May 2008 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 2008 on Monday, June 23rd. 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 2008

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



Some observations:

  • The real decline from May 2007 to May 2008 was 12.90%, which was once again an all time record for year over year declines.
  • Current prices are once again lower than the same month in any other year in the time period covered by The MAR.
  • The cumulative price decline from the beginning (Feb 2003) is 4.04%, which is an annualized decline of 0.78%.
  • Prices are now 22.67% below the peak set in June 2005. This is the result of a 13.71% decline in nominal housing prices and a 10.38% decline in the purchasing power of the dollar.
  • The year over year decline was below the bottom of the normal range in May for the seventh month in a row. Declines have been in the process of deepening.


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 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. 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.

During the past few months, there was a minor oversight in the Boston Bubble Briefs. On the Full Price History chart the prices listed were expressed in January 2008 dollars rather than dollars from the month of the most recent price data. The reported percentages and year over year changes were still correct.

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 2008 by bostonbubble.com 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 bostonbubble.com 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 http://www.bostonbubble.com/forums/viewtopic.php?t=1212 or http://www.bostonbubble.com/ 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 http://www.bostonbubble.com/forums/viewtopic.php?t=1212

The latest version of this report can be found at http://www.bostonbubble.com/latest.php?id=ma_inflation

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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Fri Jun 27, 2008 3:02 pm GMT    Post subject: Reply with quote

Thanks again!
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stil renting
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PostPosted: Fri Jun 27, 2008 7:56 pm GMT    Post subject: when to buy? Reply with quote

So given the extreme price declines that we are now witnessing, when does anyone here think that this market may bottom about? I moved here in 2006, and thanks to this and other websites decided not to buy. But at some point my wife will start getting sick of renting. When should people such as me, who do want to settle down for the foreseeable future, think of buying? I am guessing 2010-2011.
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Former Owner
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PostPosted: Fri Jun 27, 2008 10:00 pm GMT    Post subject: When to Buy Reply with quote

Guessing when this market will turn around is hard to predict.

My wife was very anxious to buy a home we could be proud of and settle down. During this past Fall she finally came to appreciate that trusting her husband was a wise move.

The most important thing is to have you saving invested in things that will increase with the coming inflation. As you can see we are experiencing tremendous amount of inflation and deflation of home values.

I think the opportunity to buy may be as late as 2012. I would want to see flat to upward trend in the Sales Price of existing homes for at least one year. I'm OK not trying to catch a falling knife.

Remember, we have one heck of a Banking mess to get through before housing starts to recovery.

Find a Financial Advisor or Mutual Fund Manager who foresaw this Housing /Banking crisis. You'll soon find that your saving/nest egg will grow while housing defaltes/
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Fri Jun 27, 2008 11:42 pm GMT    Post subject: Reply with quote

Right the only mutual fund managers making money are those buying into the commodity bubble. Unless those guys can predit when it will pop, you don't want to invest with them either. If you are planning to buy in the next 2 - 3 years, then the best thing I think that you can do is get a high yield checking account and pay attention to the rules (I use Dedham Savings which is paying 5%). Even then, after tax you are at best matching inflation but if you earmark that money for a house that you will do well.
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PostPosted: Sat Jun 28, 2008 4:44 am GMT    Post subject: Re: when to buy? Reply with quote

stil renting wrote:
, when does anyone here think that this market may bottom about?


"In the year 2525, If man is still alive, If woman can survive, They may find...".
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Mon Jun 30, 2008 4:58 pm GMT    Post subject: Reply with quote

Gotta love the Zager & Evans reference, though I prefer the Strauss & Roggenbuck cover.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Mon Jun 30, 2008 8:15 pm GMT    Post subject: Reply with quote

http://www.boston.com/realestate/news/articles/2008/06/24/state_home_sales_decline_in_may/

from article above:

Quote:
Meanwhile, communities closer to Boston continued to suffer less than outlying areas. The median price for single-family homes within the Route 495 belt dropped just 3.2 percent over the past year, to $460,000, while condo prices in the metropolitan area were unchanged at $360,000, the Greater Boston Association of Realtors said yesterday.


I think you guys are right on the basis of your arguments, but read this quote; this is hardly a nosedive. I do think you can get an awesome deal and waiting is a safe strategy. Keep in mind that if someone isn't upside down, they need to get a relative deal on the other end whether it be trading up, trading down or relocating. The number of mortgages are slowing down due to the spike in mortgage rates in the past couple of months.

This rate spike is significant because not only does the mortgage rates eat into affordability, it lessens the incentive for someone to leave their current house because they'd be trading for a higher cost of capital. The ones that are selling are most likely those in trouble or properties that are desireable, bought and sold by those that aren't feeling the weight of the current down cycle.

I honestly thought that due to affordability and the much lower rates in February and the negative press pressing downward on people's psyches that it would be a good time to buy this year. I didn't see the oil bubble. Fundamentally, based on the US Dollar shrinking in value, oil should have only dropped 15%, the surcharge is due to speculation. This speculation has put more pressure on inflation. The FED is now taking the position that a temporal price bubble is not enough reason to respond in rate cuts or hikes. I am starting to feel a bit guilty for offering my perspective, but balls and strikes, this is what I believed, swear to God. Best of luck to all of you.
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PostPosted: Tue Jul 01, 2008 12:40 am GMT    Post subject: Is it Really a Bubble?? Reply with quote

Are these Oil prices Really a BuBBLE?

The most obvious way to prove a bubble is to demonstrate that there is a building of inventory and that the Supply in the future will be greater than it was in the Past.

For Example,

In 1999 there was a Dot Com Bubble - there were more new Internet related companies and many were un-necessary.

In 2006, it finally became obvious to the World that we might be building new homes faster than they could be sold! You could clearly demonstrate that there are a lot more homes than may be needed. More and more folks owned multiple homes as investments.

Do you know of lots of new sources of Oil and Gas? Do you know large numbers of families that have taken one car off the road to save money?

We do know that China, India, and other emerging countries are hading lots of people to there Urban Middle classes. One of the first things these people buy is a New CAR that runs on gasoline or diesel.
The Politicians are all blaming the speculators. Well, some of those speculators are Airlines who are hedging their fuel cost. Southwest was one of the best hedgers - they buy oil futures in an attempt to flatten out the price spike in Aircraft fuel. If these Airlines hadn't been hedging then there would be even more Airlines tettering on the edge of bankruptcy.

Sure Oil may or Will pull back - but, the days of $1.50 or $2.50 gas may forever be distant memories.

I'm curious what others think. One thing is for sure the future always has surprises in store for us!
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Jul 01, 2008 2:45 am GMT    Post subject: Reply with quote

http://money.cnn.com/2008/06/25/news/newsmakers/buffett_bernanke.fortune/index.htm

This was the story that I read, it was pretty good and may have what you're looking for.
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john p



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PostPosted: Tue Jul 01, 2008 4:20 am GMT    Post subject: Reply with quote

Most people talk and talk but have no idea the depth, scale and proportion of certain demands. I mean do we really think the demand for oil has doubled in the past year?

In a declining market, the ownership rich, the concentrated wealth tries to find a place to park their money. If they find a place that will decline less they will park their money there. Take Gold, it is a sanctuary for that concentrated wealth. Real estate was the sanctuary after the dot com bust, and sometimes as we know, the sanctuary gets crowded and overvalued. Today, people say that certain towns are sanctuary towns that will never drop. Well if a 2,000 square foot colonial is 3 times the price as a neighboring town, you have to wonder if it is worth it.

The irrational exhuberance that we've learned about with real estate happens for many assets. We need housing more than we need gas, so I wonder if it makes sense to not respond to common asset classes's behavior when it reaches surcharge levels based on irrational exhuberance. If the FED did wouldn't it just amplify the irrationality? I mean if he's done the homework and can articulate the case, he could actually help dampen the magnitude of the stupidity in our world.
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PostPosted: Tue Jul 01, 2008 4:40 pm GMT    Post subject: Gas vs Housing Reply with quote

John,

WE need Gas more than we need Housing - youi are kidding right? It reminds me of the Democratic rallying cry about Iraq being about Oil - of , course Iraq War is all about Oil - we (the USA and the World) need a steady supply of Petro to maintain life as we know it.

Can you imagine the impact to our transportation and logistic networks if our Gas/Oil supply was disrupted for an extended period of time? Imagine going to the store and finding the shelves empty because there was a shortage of Diesel fuel. Imagine the rioting that would erupt if people heard that Diesel shortages were leading to food shortages.

Gas and diesel - is the primary delivery mechanism for food, clothing, medical supplies, everything we need to maintain civilization as we know it.

There is nothing that you consume that doesn't rely on Gasoline or Diesel to deliver it to your local store or your home.

Please excuse my dramatic presentation - but, it appears few get how vital Oil and Gas is to the way we live. Todays large population of the earth wopuld not be possible with out fossil fuels.

Try delivering the food supplies that New York City needs for 24 hours with Solar or Electric transportation. Even an Electric power train would require Diesel or Gas Trucks to deliver the food from the Train Depot to the boroughs of New York.

Don't underesitmate the need for petro product to maintain life as we know it.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Tue Jul 01, 2008 9:57 pm GMT    Post subject: Reply with quote

No, you're projecting stuff. I can see by what I specifically wrote why it might have set you off though. I say drill, drill, drill baby. Further, I say who do the Saudi's think they are? They better smarten up. We wouldn't care about that region if it weren't for the oil, and they are getting protection from our Military being there and the thanks we get are high prices? That doesn't add up. We don't question them because they've bought off lots of politicians.

What I was thinking was that the surcharge in gas prices can be dialed back due to behavior, getting a better more efficient car, using the public transportation, living in the City, etc. You need a roof over your head, but you can make choices to reduce the impact of gas consumption.
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PostPosted: Wed Jul 02, 2008 7:48 pm GMT    Post subject: Reply with quote

"My wife was very anxious to buy a home we could be proud of and settle down. During this past Fall she finally came to appreciate that trusting her husband was a wise move."

That sounds familiar! We should start a support group Wink I'm glad my wife's coworkers and friends finally stopped telling her it was crazy not to buy.
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Teavo
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PostPosted: Thu Jul 03, 2008 1:49 pm GMT    Post subject: Reply with quote

Anonymous wrote:
I'm glad my wife's coworkers and friends finally stopped telling her it was crazy not to buy.


Me too! My wife is pretty smart and she was willing to avoid buying a house during the peak of the bubble, but the steady drumbeat of "buy... buy... you're a loser if you don't buy" from her friends and acquaintances was almost too much to bear.

Fortunately she's married to a person who doesn't give much credence to the herd mentality. Very Happy

But it was tough to remain sane during the bubble times. My wife had only one person (me) telling her that houses are absurdly overpriced and buying one would be a bad idea, and basically the entire rest of the world telling her to "buy, buy, buy".

It's sure changed in the last six months or so. It used to be that everyone would tell us how great an investment real estate is, yadda yadda yadda, if you're renting you must be nuts, etc. Now I don't hear that any more, and my wife no longer thinks I'm crazy. Wink
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