May Market Wrap

Both the MAR and the Warren Group released Massachusetts sales and price data in the last couple days. Before plotting the MAR numbers with historical data, here's a summary of the numbers.

Warren Group data (reported here and here):
May SFH sales: 5,208 (down 5.1% YOY)
May SFH median price: $331,000 (down 4% YOY)
May Condo sales: 3,037 (down 7.8% YOY)
May Condo median price: $285,000 (up 1.8% YOY)

Massachusetts Association of Realtors data (reported here):
May SFH sales: 4,055 (down 2.9% YOY)
May SFH median price: $352,700 (down 1.2% YOY)
May Condo sales: 2,113 (down 1.2% YOY)
May Condo median price: $286,000 (up 2.5% YOY)

I'm not sure what to make of the conflicting data. The Warren Group has a more complete data set that includes FSBOs, estate sales, foreclosures, and other transactions that don't show up on the MLS. Can any reader clarify whether sales of new SFHs and Condos are reported in MLS? If not, that may account somewhat for the much lower sales volume from MAR. Also the weaker price trends in the Warren Group report might be a reflection of some discouting done by builders to clear new SFH and condo inventory.

Unfortunately I don't have the historical data series from the Warren Group, so I will continue to plot MAR data below. First up, historical median prices for SFHs:

SFH inventories continue to climb:

Condo median prices recovered in May to post a small gain:

Meanwhile, Condo inventories leveled off last month:

While inventories are up strongly from last year, the Warren Group reports that SFH sales are down 9.3% so far this year (relative to 2005), and Condo sales are off 5.5% relative to last year.

In my opinion, the fascinating number to watch next month wil be SFH median prices. If prices don't increase from May's $352,700 to greater than $360,000, we'll not only be well below 2005 levels, we'll be back to 2004 price levels.

Abandoned?

Recent posts from the Bubble Meter and Matrix blogs have chronicled the seeming abandonment of a few "bubble blogs." Based on the dearth of recent posts here, Bubble Meter speculated this blog might be heading toward the same fate. Well, thanks for the kick in the pants.

I certainly haven't added much analysis over the past three weeks to the often contradictory news coming out about the MA housing market. But I'm not one to spend my time repeating what readers can find elsewhere in the MSM and Blogosphere, especially when there are fine links right here on the page. There's no shortage of coverage of our local market, thanks to the efforts of Boston Bubble, Counter Intelligence, Boston Real Estate Blog and others. And if it's passionate discourse from local market observers you want, the Boston.com message board is often insightful, hilarious, and maddening in the span of a few messages.

But be assured, while posts may be infrequent during the summer months, I will continue to post observations, data, and links as time and inspiration permit. And nothing motivates like a fresh batch of market stats to plot, discuss, and de-spin. The Warren Group released May sales and price data today (here), and MAR releases their report tomorrow. So tune in then for a full breakdown of the numbers.

Inventory up + sales down = ?

A few months back I showed how the inventory of homes for sale relates to changes in median sale prices (orginal post here). I'd like to update that post with the most recent market numbers, and talk about how current trends may shape this dynamic relationship.

Below is a plot of the months inventory recorded in each month of the past 3+ years. I calculated this number by adding up the number of SFH and Condos on the market, and divided by the number of sales recorded that month by MAR. As you can see, there is a seasonal pattern to the numbers, with months inventory dropping to its lowest levels during the summer peak buying season. What is also clear is the decisive break that began last fall and continued into 2006. I've also included the average months inventory for each year (dashed lines), and a guesstimate I made back in February of what I think the 2006 average may look like based on past years behaviors.

Now going back further in time and using the average months inventory for each of the past 15 years, I've plotted the appreciation rates for SFHs (blue) and Condos (pick) as a function of the average inventory for each year. There is a clear inverse relationship between inventory and appreciation rates. To emphasize the shift in the market, I've included dashed lines showing the inventory levels for 2004, 2005, and the guesstimate for 2006. The yellow lines connect the 2004 and 2005 data points, showing the downward trajecory that began last year.

As some have commented, even as inventories have ballooned over the past year sales have remained historically robust in MA, especially for condos. To some this is a sign of a strong but more balanced market. To others this is an ominous trend, as any slip in sales could further shift the market balance, which is already adding inventory at a steep rate.

Last month may signal the beginning of the next phase of the market, as sales weakened in the heart of the spring selling season. Plotted here are the sales in each month for the past 6+ years, both for SFHs and Condos.Clearly the future is not something we can predict with 100% accuracy. But the data I've presented here, in the context of historical market behavior, indicate to me a high likelihood that prices will continue to drop. The RE market is incredibly complex and has a number of interrelated moving parts (population changes, income changes, mortgage rates, 2nd home and investor activity, rental prices, new construction, etc) but sometimes the message from supply and demand is all you need to know. This, I believe, is one of those times.

Rents going nowhere in Boston?

In an article at CNN/Money entitled "Rents heading up in '06" I found these numbers for the most expensive rental cities in the US:

City - Avg rent - % increase(12 mos. ending Mar 31)
1. New York* - 2,400 - NA
2. San Francisco - 1,669 - 10.3%
3. San Jose - 1,429 - 8.6%
4. Los Angeles - 1,422 - 6.8%
5. Orange County - 1,393 - 8.1%
6. Boston - 1,350 - 1.2%

Only one other city in the top 20 had a rental increase lower than Boston's. Keep in mind inflation was running ~3-4% over the past 12 months, so rents in Boston actually decreased over the last year in real terms.

Will this performance change anytime soon? I for one doubt it. Too much new construction in the pipeline (see here) for a region with flat or declining population (see here), and don't forget about unsold houses/condos that will end up back on the rental market eventually.