It’s been roughly three years since the Boston metro area started showing the first obvious signs that the housing market was in trouble and even after 29 months of steadily declining home prices and dramatically lower home sales, the bust seems poised to bring further losses.It’s important to note that Boston was the first U.S. metro home market tracked by the S&P/Case-Shiller home price index to register a decline during this current housing bust and although some are looking to it as a leading indicator, the regional economic circumstances, as noted by the most recent Federal Reserve Beige Book, are only now beginning to show signs of notable stress in retail, construction, manufacturing, tourism, financial services and commercial real estate.
This is particularly bad news when considering that the Boston housing market has been, in a sense, declining steadily since early 2001 when annual home price appreciation peaked and the intensity of the housing expansion began to wane (click on following chart for larger version).
It appears that that the main thrust of the housing expansion occurred “in-line” with the wider economic expansion that was fueled primarily by the dot-com bubble and that since the dot-com bust, the housing market has never been quite the same.Considering the era of easy lending following the “dot-com” bust served to prop-up and inflate the regions housing market, seeing that the intensity of the pre-2001 expansion never again materialized should serve as a troubling sign.
To better illustrate the actual drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).
The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out.
The “peak” chart compares the percentage change, comparing monthly Boston index values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.
In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.
As you can see the last downturn lasted 105 months (almost 9 years) peak to peak.
