Tuesday, July 29, 2008

Crashachusetts Existing Home Sales and Prices: June 2008

Yesterday, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for June again showing the truly dismal and deteriorating circumstances that have befallen the Bay State’s housing market.

As any astute "bay state" real estate watcher is well aware, June represents the annual peak in sales and associated price movement with July and August typically initiating the seasonal pullback in demand (and its effect on pricing) that runs through the fall and into the following winter months.

Said simply, June is the best selling month in the season and with it now well behind us, the path of least resistance is down… lower sales and lower prices.

So, where’s the price “free fall phase” where prices fall steadily even through the spring selling season?

It fully materialized for lower priced homes (lower than $284,000) and almost occurred with middle priced homes (between $284,000 and $407,000) but strong upward price movement in higher priced homes buoyed the whole Case-Shiller series resulting in now two consecutive months of price increases overall (See chart for details).

So, the typical seasonal pattern of pricing is in place and it is clear we are not going to get a sequential meltdown ala the west coast this season…. pity.

Well on the up side the seasonal pattern is clear, thus upward price movement is likely to abate during July or August at which point this historic, albeit slow, price slide will resume.

With the report the Massachusetts Realtor leader Susan Renfrew makes another attempt at a self interested spin and cheerleading by suggesting that the month-to-month increase to median selling prices may indicate that demand could start to increase in the coming months.

“However, median prices are at their highest level in several months, while the number of homes for sale and the months of supply are continuing to come down, meaning demand for those properties could start to increase.”

MAR reports that in June, single family home sales slumped 14.9% as compared to June 2007 with a 5.3% decline in inventory translating to 8.4 months of supply and a median selling price decline of 8.0% while condo sales plunged 20.3% with a 10.7% decline in inventory translating to 8.1 months of supply and a median selling price decline of 0.3%.

The S&P/Case-Shiller Home Price Index for Boston, which is the most accurate indicator of the true price movement for single family homes, showed continued weakness with Boston declining 6.21% as compared to May 2007 leaving prices now 12.11% below the peak set in September 2005.

To better illustrate the 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 including 34 months of annual price declines during the heart of the downturn.

The final chart shows 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.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current home price movement.

June’s Key MAR Statistics:

  • Single family sales declined 14.9% as compared to June 2007
  • Single family median price decreased 8.0% as compared to June 2007
  • Condo sales declined 20.3% as compared to June 2007
  • Condo median price decline of 0.3% as compared to June 2007
  • The number of months supply of single family homes stands at 8.4 months.
  • The number of months supply of condos stands at 8.1 months.
  • The average “days on market” for single family homes stands at 129 days.
  • The average “days on market” for condos stands at 140 days.