One Response to “Boston-area housing cheaper than at any time during past eight years” »»

1. Gus
   Comment by Gus | 04/13/08 at 7:16 pm

   There are a lot of things going on in this Globe article. First of all, they compare the current housing market to the one in 2000, as if that was a neutral benchmark. Using the numbers in the article, prices back then were 3.77 years median income ($275k/73k). That would mean the housing market in 2000 was 26% overvalued by the standard stated in the article. That’s a pretty good indication the market was in a bubble even then. Compare the 3.77 years to the current national average of “only” 3.5 years.

   Next, I question the use of median prices here. A better standard is to measure how much the same houses cost then versus now. Using the Case-Shiller index for the Boston area, prices are 62% higher now than the start of 2000, not 45% as the article implies. That should make the current prices, for the purpose of calculation, 12% higher than listed.

   Next, I wonder about the increase in median income, which the articles implies is 29% ($94.2k/$73k) over the period. It seems high at 4% above inflation, especially given the mass layoffs of high priced tech workers during 2001 to 2003. Indeed, I found some US census number here: http://www.census.gov/hhes/www/income/4person.html
   That report says median income in Massachusetts was $78k in 2000. This reduces the difference in wages between 2000 and 2007 by 8.3%, which makes housing correspondingly more taxing on income in 2007 than it was in 2000. (I know the area mentioned in the article is not the state of Mass., but I find it hard to believe that eastern Mass. and southernmost NH had a lower income than Mass. as a whole, including the poor west).

   Finally, the chart in this blog item takes into account the difference in mortgage rates, making the 2007 payments 16% lower than they otherwise would have been. That is completely proper. However, there are other costs that have risen proportionally with housing prices that are not entitled to the discount, namely property taxes and the down payment.

   Conclusion: Housing was quite overpriced in 2000, and is much more overpriced now.

   P.S. “Long-term owners who buy now are likely to see their home values increase over time as the market rebounds.” is a completely irresponsible statement. ” The fact that housing was overpriced in 2000 and is more overpriced in 2008 shows that the market cannot be predicted with any accuracy.

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