Read the short Excerpt, from the February 16 th issue of Business Week, “Housing

Question

Read the short Excerpt, from the February 16th issue of Business Week, “Housing: Guess who’s playing watchdog” ; then address the following issues/concerns

Home appraisers played one of the less well-known roles in pumping up home values and contributing to the current financial crisis. Retained by lenders or brokers, they frequently colluded – explicitly or tacitly – in overestimating the worth of houses to justify large mortgages and the lucrative fees each member of the real estate foodchain received at closing. Faced with investigations, lawsuits, the home-finance industry has agreed to a government – approved code of conduct for appraisals that take effect on May 1. The new rules promote the use of middlemen between the nation’s 60,000 freelance appraisers and the lenders and brokers. The middlemen, known as appraisal management companies, or AMCs are supposed to prevent lenders and brokers from pressuring appraisers to exaggerate assessments. But ….some of the same subprime players that helped inflate the real estate bubble in the first place.

How do you propose to Model a Demand for Housing Function? Be sure to include the variables that you think are most appropriate to include

Specify that function as in an estimable Regression equation

What data would you collect?

What sorts of hypotheses will you test?

Explanation / Answer

a) I will use the following variables to propose a demand model for housing:

those are below as fallows

Sp = Selling price of houses

Af = Appraisal fee

Cr = Credit score of home buyers

Ir = Interest rate on mortgage

Pi = Personal income of home buyers

Ep = Estimated future home value

Tx = Tax on property

Sc = Ratings of schools in the community

b) Specify that function as an estimable Regression equation

Qd = 0 + 1Sp + 2Af + 3Cr + 4Ir + 5Pi + 6Ep + 7Tx + 8Sc + e

c) What data would you collect?

I will collect the historical data of the selling prices of houses.

I would also collect the different selling prices for different sizes and for different locations.

In addition, I would be collected the historical data on the number of homes sold in different areas over the years.

Also, I would collect tax and interest rate information over the years

What sorts of hypotheses will you test?

i will most probabily i will use the null hypotheses test

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