Prices finally falling?

Excellent post.

Last year The Boston Globe reported that The Warren Group's median price for single family homes in January 2007 was $314,000. However, the recent figure of $325,000 for January 2008 is higher than that. Was there a typo in the 2008 figure or is there some other reason for the discrepancy (e.g., are they excluding foreclosures now)?

Here is your article from last year with the referenced data:

http://www.boston.com/business/ticker/2007/02/mass_home_sales_4.html

I don't understand the title of your post "Prices Finally Falling?" That would imply they haven't been falling, when they clearly have since the summer of 2005. The Case-Schiller index is right on (prices back to April 2004) based on my eye on the market. Most properties last purchased in 2003-2004 are selling for a similar price to their previous purchase price (barring any significant renovations).

We have knocked off the "peak" of the bubble, but if you look at the graph for the Case-Schiller index for Boston, you will see there is a very long way to go.

Welcome all to a deflationary environment. Hop on board! Our two-generation stay at "Inflation Only World" is over, and we are now entering a long overdue stop at "Deflationista". Wages are stagnant, or going down. Stocks have been down over the past year. Credit is contracting. Birth rates are down. Brazilians are moving back home. And, of course, home prices are going down. A contraction of the money supply, both in real tearms and when considering credit, is going to make a lot of things much cheaper over the next few years. The US government sponsored "War against savers" is also ending. Your best investment will be US dollars. Just go to the homepage of any US bank - they used to be splattered with mortgage programs and HELOC ads, but now its all "save the change" and "saving account planners". Oh, and just because the US dollar is sitll in the toilet and thus driving up the cost of gas, that isnt inflation - that is a sign of the horrific outlook the rest of the world has in market shares (US dollars) of the USA. So is cashing in your retirement to buy a home still a good idea if home values decline 2-4% a year for 10 years? We'll see. All the old math is about to be turned on its head. Ironically, the US is going to come out stronger, I know it.

Boston Bubble,

You certainly win the award for paying attention, and you're correct about the reason for the disparity. The Warren Group has finally started excluding foreclosures and short sales from its data, and has corrected its older data. For instance, the median sales price for January 2007 has been corrected upward from $314,000 to $340,000.

Not encouraging news.

But, to clarify, both indices have serious weaknesses in their data collection.

Both only include single-family homes, not condos.

So, not a full picture, by any means.

Also, only including resales? Oy. Another weakness.

Yes, you can use the indices to watch trends, but not the complete picture.

Oh, and I might go a bit further in your quote ...

The worst problems are with subprime loans in big cities.

In fact:

The ONLY problems are with subprime loans in big cities.

Everyone else can just wait it out ... no reason to sell? They won't sell.

Our best hope is for some deflation the Fed can treat. No one wants the other alternative.

Some (myself included) would say that only using repeat sales is a major strength of the indexes. It forces an apples to apples comparison of what was sold. The median, on the other hand, masks changes in what you get for your dollar - for example, how do we know that $321,000 didn't buy you a shack last year and a mcmansion this year? S&P/Case-Shiller and OFHEO can account for this, which is a major advantage.

John K,

1) "Both only include single-family homes, not condos"

MAR includes condos and it ain't pretty...:

"The condominium market also experienced a significant decrease in the number of units sold this January, with a 34 percent drop compared to January of last year (from 1,271 units sold in 2007 to 843 units sold in 2008). On a month-to-month basis, condominium sales were down 24 percent compared to 1,107 units sold in December "

2) " The ONLY problems are with subprime loans in big cities"

Wrongo,

"About 12.4 percent of subprime, adjustable-rate mortgages were in foreclosure in Iowa at the end of last year, according to data from a private firm that tracks the lending industry, First American CoreLogic, LoanPerformance"

3)"Everyone else can just wait it out ... no reason to sell? They won't sell"

Wait for what?

Patrick, you start out OK, talking about inflation and deflation in terms of the money supply, but then you start confusing rising prices as inflation. Inflation is an increase in the money supply, which causes the value of the dollar to fall, which means you need more dollars to buy a given quantity of goods. Rising prices are the effect of inflation, but rising prices are not inflation. The fact is, the FED will do everything in it's power to prevent deflation. They will slash rates (they already have) and run the printing presses full bore. Sure, we'll have a drop in prices in housing and stocks, but that will be a result of too much supply and not enough demand, in the case of housing, and the fact that the majority of people will finally realize that the US stock market has been underperforming just about every other major foreign market as they begin investing overseas and in other asset classes
like commodities (think the surge in gold prices is a fluke?) All that money the FED is creating will go somewhere, it just will not be into US stocks or US real estate.

Hard Rain,

1.) You say the MAR's picture of the condo market "ain't pretty". Only you fail to mention that the median selling price actually increased 3.4% from January 2007 according to MAR, which is the source you chose to use. So yes, the drop in the number sold isn't so pretty, but the fact is, that number isn't all that important as selling price, which is more what people are concerned with.

2.) Ha, I don't even know where to start here. For one, that quote is for the state of Iowa, what on earth does that have to do with anything in MA? Exactly, nothing. John K's argument was, and I agree, that the data from this article shows IN THE MA MARKET, that the majority of the foreclosure problems are with the subprime mortgages in the major cities of MA.

3.) Not to put words in John K's mouth, but I'm assuming he's referring to waiting for the economy to stablize, which will be good for the real estate market among other things.

I apologize, I made a mistake in my previous post, the median selling price according to MAR for condos increased 3.5%, not 3.4%. In Jan. 2007 median selling price was $266,000 and in Jan. 2008 it was $277,500.

The difference is that OFHEO only includes home purchased with conventional mortgage loans

OFHEO includes only conforming loans. C-S includes nonconforming loans, and non-conforming does not equal subprime. Jumbo loans--currently in excess of $417,000--are also nonconforming, but they are still prime.

The Warren Group has finally started excluding foreclosures and short sales from its data, and has corrected its older data.

The word you are looking for is massaged. The Warren Group derives all its revenue from the real estate industry. There is no rational basis for excluding a short sale from an index except to arrive at a result one prefers.

The ONLY problems are with subprime loans in big cities.

No.

I disagree with Patrick. We are in a highly inflationary environment. This is driven by the price of oil. The demand in driven by overseas as well as US needs. Anyone who has been to the grocery store lately is aware of the rapidly rising price of food. The producer price index is rising. Whether we have reached the housing market "bottom" and when or whether buyers should enter the market will continue to be a topic of discussion for months to come. In the long term, inflation, not deflation, will be our greatest concern as we move forward. Although the price of housing may have recently dropped, it has a long way to go before the gains of the last few years are lost. We need to look beyond the short term. In fact, our only protection against inflation will ultimately be our fixed equities including our home values. Any further housing price drops that may occur in the next 6-12 months will be old history when the market prices start to dramatically increase with overall inflation in another 18-24 months. If the Fed needs to continue lowering interest rates to spur US economic growth, the dollar will fall, import prices will continue to rise and inflation will soar. This sounds contrarian now, but wait an see................................ One needs to look beyond all these short term numbers of "doom and gloom".

John - The fed cannot prevent deflation. 98% of all wealth in the US is based on debt, and credit is shinking. The Fed cannot print money faster than credit is destroyed. If it does, interest rates will explode and the US government will not be able to afford its debts, and municipal tax rates will explode as well. In fact the Fed would LOVE deflation and lower rates, as the US government could refinance its debts and maybe even afford national health care (not that I like the idea of national health care but many do).

GB - Remember beanie babies? There are less of them today, and they worth less. US dollar is the same. Less dollars, AND it is less desirable. Cost of fuel and food will go way up since dollars are undesirable, and since the world is starting to see the US and the clowns we have as leaders as completely irrelevant. We cant even control civil conduct in the small nation of Iraq. We look like losers, with no manufacturing base. So, price inflation.. YES.. for everything to do with oil and other imported good (like Chinese toys, imported clothing, etc) thanks to terrible US dollar. All internal assets.. ESPECIALLY RE.. is going to tank so fast you wont know what hit you.

Remember guys, massive trade deficits, stupid Toyotas, an addiction to oil, a fraudulent centralized banking system, Outsourcing, our stupid two party political scheme, and an education system more focused on human tenderness and less on excellence of the sciences led us to this mess. Dont get mad at me, Im just the messenger.

So, just out of curiosity - what do you make of this? http://www.thesobrangroup.com/

All of these listings sold within days of listing
All of these listings sold at asking or above

Sounds like the good old days?

Pockets of goodness in Boston perhaps? Or just good marketing?