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This Just In From Boston ... Prices "Could Keep Increasing"

Posted by: Peter Coy on November 16, 2006

Mild optimism on housing out of Boston today. The Federal Reserve Bank of Boston issued a 34-page brief (only an economist would call 34 pages “brief”) saying that “the national OFHEO house price index could keep increasing well into 2007.” frblogo2a.gif

The OFHEO index they’re talking about is put out by the Office of Federal Housing Enterprise Oversight every three months. The latest reading in September said that the national median single-family house price rose at a 4.7% annual rate between the first and second quarters of 2006, which was a sharp slowdown from earlier double-digit growth rates.

Note, by the way, the “could” in the above quote. The Boston Fed is playing it extremely safe. Here’s another quote from the intro:

“Because house prices are subject to inexplicable movements, this conclusion should be viewed as a plausible extrapolation using historical evidence rather than a forecast. An additional caveat is that mortgage markets and other institutional factors may have changed sufficiently so as to alter the relationship between house prices and the economy ….”

What makes the Boston Fed at least mildly positive on the market? Looking at housing cycles state by state, senior economist Yolanda K. Kodrzyicki and research associate Nelson Gerew conclude that “house prices have rarely decreased in the absence of a state recession.”

Here’s the tentative bottom line: “Assuming continued increases in personal incomes, an increase in mortgage rates in 2006, and flat apartment rates, an extrapolation suggests that national house price increases are likely to be in the range of 1 to 3 percent in 2006 and 2 to 5 percent in 2007.”

Reader Comments


November 16, 2006 10:32 PM

Wow! first and second quarters were up! Who broke this story? Please, tell us what to buy.


November 17, 2006 9:33 AM

The key words "assuming continued increases in personal incomes". I just want to know how much increase? By the time you get your 3% raise, it's eaten up by more state & local taxes and higher benefits cost.


November 17, 2006 3:35 PM

They havent stop with ARM financing.
There are plenty of greater fools.

Just Me

November 17, 2006 5:46 PM

Well this should be quite interesting ? Boston RM must be quite special. I wander who massaged all the data. Quite creative I might add.

Bubble is just starting to deflate.Hang on for 2 years of down-slide. WEEEEEEEEEEEEEEEEEEEEEEEEEEEEE!!!

Wyman Elrod

November 20, 2006 1:49 PM

The Boston Fed is trying to prop up Boston's sinking housing market with one of the few tools it has - propaganda. Buyer beware.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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