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Demand for Housing ---An Empirical Analysis

Demand for Housing ---An Empirical Analysis. By Ying Strow. Overview. Theoretical basis of demand theory Empirical evidences to construct an aggregate demand function for homeownership. Literature Review.

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Demand for Housing ---An Empirical Analysis

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  1. Demand for Housing---An Empirical Analysis By Ying Strow

  2. Overview • Theoretical basis of demand theory • Empirical evidences to construct an aggregate demand function for homeownership

  3. Literature Review • Fundamental negative relationship between the price of a good and its quantity demanded • Adam Smith (1937) • Roos and Von Szeliski (1943)

  4. Literature Reivew---other demand variables • The availability of substitute goods • A positive relationship between the demand for a good and the price of its substitute

  5. Literature Reivew---other demand variables • The consumer income level • A positive relationship between the level of income and the level of housing demand

  6. Literature Reivew---other demand variables • The interest rates related to available credit • A negative relationship between mortgage interest rate and the quantity demanded for home ownership

  7. Model Design---variables • A single dependent variable ---quantity of housing demand • Four explanatory variables ---purchase price of housing ---home mortgage interest rate ---household income ---cost of rental housing

  8. Model design---functional form • Double-log functional form • lnYt= 1 + 2ln(p) + 3ln(i)(t-1) + 4ln(m)(t-1) + 5ln(r)(t-1) +  where Y = number of houses sold, p = purchase price of housing, i = home mortgage interest rate, m = household income, r = rental price of housing and t = time period.

  9. Model Methodology---hypothesis • Hypothesis I: Purchase price will exhibit a negative relationship with quantity demand for home ownership • Hypothesis II: The price of rental housing will exhibit a positive relationship with quantity demanded for home ownership. • Hypothesis III: The median household income will exhibit a negative relationship with quantity demand for home ownership. • Hypothesis IV: The mortgage interest rate will exhibit a negative relationship with quantity demand for home ownership

  10. Model Methodology---ordinary least squares method • Model Specification I: ln Y = 3.065 + (0.52876)ln p + (-0.38912)ln i + (1.0933)ln m + (-0.98893)ln r se (2.425) (0.2560) (0.2486) (0.3002) (0.3948) t (1.264) **(2.065) *(-1.565) **(3.642) **(-2.505) • R2 = 0.7053 Adj R2 = 0.6853 • t 0.05 , 59 DF = 1.671 t 0.10, 59 DF = 1.296

  11. Model Methodology---exclusion of household income variable • Model Specification II: • ln Y = 3.9528 + (1.0110)ln p + (-0.25522)ln i + (-0.44367)ln r se (2.648) (0,2405) (0.2699) (0.4010) t *(1.493) **(4.204) (-0.9457) (-1.107) • R2 = 0.6390 Adj R2 = 0.6209 • **t 0.05 , 59 DF = 1.671 *t 0.10, 59 DF = 1.296

  12. Model Methodology---omitted variables • Table I Ramsey RESET Test Results • Model Specification I: • F-statistic (1 term) 2.9016 Probability 0.076 • F-statistic (2 terms) 2.4324 Probability 0.097 • ________________________________________________________________________ • Model Specification II: • F-statistic (1 term) 3.6381 Probability 0.062 • F-statistic (2 terms) 4.7714 Probability 0.012 • ________________________________________________________________________ • Model Specification III: • F-statistic (1 term) 5.0756 Probability 0.015 • F-statistic (2 terms) 3.5204 Probability 0.026

  13. Model Methodology---autocorrelation • Model Specification I AUTO: ln Y = 1.2236 + (0.35093)ln p + (-0.24925)ln i + (1.53661)ln m + (-1.0648)ln r se (3.187) (0.2479) (0.3006) (0.4100) (0.4426) t (0.3839) *(1.416) (-0.8292) **(3.748) **(-2.406) • R2 = 0.7653 Adj R2 = 0.7494 t 0.05 , 59 DF = 1.671 t 0.10, 59 DF = 1.296

  14. Model Methodology---multicollinearity • Table II Auxiliary Regressions • Model Specification I: • Independent Variable R2 of Indep Variable on other Indep Variables: • p 0.8934 • i 0.8256 • m 0.8718 • r 0.9094 • ________________________________________________________________________ • Model Specification III: • Independent Variable R2 of Indep Variable on other Indep Variables: • p 0.8867 • m 0.8660 • r 0.8660

  15. Conclusion • Purchase price of housing • Consumer income level • Mortgage interest rate • Rental price of housing

  16. Questions?

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