case 10 2 housing price structure in mid city

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1. Read below Case 10.2 – Housing Price Structure in Mid City (taken from the textbook…)

Sales of single-family houses have been brisk in Mid City this year. This has especially been true in older, more established neighborhoods, where housing is relatively inexpensive compared to the new homes being built in the newer neighborhoods. Nevertheless, there are also many families who are willing to pay a higher price for the prestige of living in one of the newer neighborhoods. The file C10_02.xlsx contains data on 128 recent sales in Mid City. For each sale, the file shows the neighborhood (1, 2, or 3) in which the house is located, the number of offers made on the house, the square footage, whether the house is made primarily of brick, the number of bathrooms, the number of bedrooms, and the selling price. Neighborhoods 1 and 2 are more traditional neighborhoods, whereas neighborhood 3 is a newer, more prestigious neighborhood.

Use regression to estimate and interpret the pricing structure of houses in Mid City. Here are some considerations.

a. Do buyers pay a premium for a brick house, all else being equal?

b. Is there a premium for a house in neighborhood 3, all else being equal?

c. Is there an extra premium for a brick house in neighborhood 3, in addition to the usual premium for a brick house?

d. For purposes of estimation and prediction, could neighborhoods 1 and 2 be collapsed into a single “older” neighborhood?

2. Analyze the data and write a report that addresses the four questions from the case and any other information you believe is relevant. Be sure to explain the rationale for your answers and conclusions.

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