Housing Market and Predictions

Predicting the housing market is a combination of subjective and objective evaluations.  It's like looking into a crystal ball.

Subjectivity

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In reason, subjectivity refers to the property of perceptions, arguments, and language as being based in a subject's point of view, and hence influenced in accordance with a particular bias. Its opposite property is objectivity, which refers to such as based in a separate, distant, and unbiased point of view, such that concepts discussed are treated as objects.

Dusting off one of my graduate books I found some interesting formulas. One was the least-squares regression model for pricing homes. A strictly objective means of evaluation.  

P=f(SQFT, BED, BATH, POOL)*

*Business Fluctuations - Forecasting Techniques and Applications, 2^nd Edition, Dale G. Bails and Larry C. Peppers.

Ah, memories of using the regression model in forecasting. What it does not take into consideration is location, existing sales, quality of fixtures, condition, parking, and a myriad of other factors.  

Another formula was for seasonal factors. 

Yt=B0+B1X1t+B2X2t+B3Q1+B4Q2+...BmQm 

Multiple regression models are fine tools for predicting things like manufacturing. How many tires will be needed in 3 years based on today's auto sales? How many refrigerators will be needed based on new home sales? How many light bulbs need to be produced over the next two years based on new home construction? Read the rest of this entry »