Housing Starts

Housing Starts

Multi regression model:

The data provided regarding the price per board and interest rate and the house price is as follows:

Housing Starts

Interest Rate

Price Per Board Foot

8,500

0.11

1.25

9,000

Housing Starts

0.11

1.00

9,200

0.11

0.90

9,500

0.11

0.75

9,700

0.1

1.25

Housing Starts

10,000

0.1

1.00

10,300

0.1

0.90

22,000

0.09

1.25

24,000

0.09

Housing Starts

1.00

39,000

0.08

1.25

45,000

0.08

0.90

52,000

0.08

0.75

Housing Starts

When we regress this data using the linear classical regression model suing matrix form we get the stated model as follows:

The estimated model:

Where the house price is the dependent variable and interest rates and price per board are the independent variable, the regression model is as follows:

Y = 181131.6 -1744354 X1 + 16092.71 X2

Where Y is the house price

X1 is the interest rate level

X2 is the price per board foot.

Estimated Model interpretation:

Housing Starts

From the model above it is evident that the autonomous variable is 181131.6, this value is the value of house price that is unaffected by the interest rates and price of boards, if we hold all the other variables constant and increase the interest rates by one unit then the level of house price will reduce by 1744354, if we hold all the other factors constant and increase the price of per board foot by one unit then the price of houses will increase by 16092.71.

Approximations of house start given various interest rate levels and board price:

interest rates

price

house start

1

0.09

1

40232.45

Housing Starts

2

0.085

1.5

57000.575

3

0.055

1.25

105308.02

4

0.045

0.9

Housing Starts

117119.11

5

0.037

1

132683.21

6

0.023

0.75

153080.99

Housing Starts

If you were the owner of a business in the housing construction sector how would this information affect your decisions?

If I had a business in housing construction sector then when the level of price per board rise then there is need to increase the level of house prices, if the level of interest rates rise then the price of houses goes down, therefore if interest rates go up then there is need to reduce the price of houses

References:

http://people.hofstra.edu/Stefan_Waner/RealWorld/multlinreg.htm

P. Schmidt (1976) Econometrics, Marcel Decker publishers, New York