I've been spilling a good amount of electronic ink on the California housing bubble of late (see here, here, here and here for posts in June alone) and thought it's high time to begin widening my horizons. So today I turn the lens on the Northeast and the Bay State in particular, a region which is especially similar to the Bay Area in combining wild home price rises and a stagnant job base.
Massachusetts has a stunning 5.1% fewer seasonally-adjusted jobs today (May 2005) than at its jobs peak of February 2001. The jobs recession in the Bay State ended only in January 2004, and over the last 16 months Massachusetts has had a mere 1.1% growth in jobs (the US minus MA has had seen 2.3% growth over the same period). Over the last 24 months, job growth has been a nearly invisible 0.3%.
Since January 2004, 20.4% of that meagre number of new jobs (SA) in Massachusetts have been in construction. The state is not as dependent on building as California certainly, but considering the anemic job growth in the economy overall, a figure some 50% higher than the national average has to be cause for concern.
Despite the weak state economy, home prices have been rising dramatically. After all, this is America and who needs jobs and income to drive up prices, anyway?! While job growth has been just 0.3%, the median selling price for single-family homes in the state since May 2003 has jumped 19.0% and the median selling price for condos is up 19.6% (data from the Massachusetts Association of Realtors).
This froth built upon nothing but sand cannot last forever, of course. Calculated Risk is one who says the Boston market has already "peaked". One look at y-o-y home price inflation in the state shows he has a point.
After riding high in the double-digit saddle for most of the last 15 months, inflation in both single-family homes (SFH) and condos has trailed off considerably this spring. The last two months have seen the lowest inflation levels since the Mass. Association of Realtors started keeping median home price data in early 2003, and condo inflation has plummeted from 18.0% in February to just 4.7% in May.
While one or two months does not a trend make, two things make me stand up and take notice. The first is the depth of the inflation rate plunge from where it was just six months ago. The second is the fact that the y-o-y job growth rate (NSA) in Massachusetts is actually slowing -- from an annual 1.1% in January and February of this year to 0.7% in April and May. The Boston bubble seems built by the foolish man . . .