|
| |
HOUSING STARTS.
Term Paper ID:29278
|
|
|
Essay Subject:
Construction of residential units as a key indicator of an economic system.... More...
|
10 Pages / 2250 Words
9 sources, 18 Citations,
APA Format
$40.00
Return to List of Papers
|
Paper Abstract:
Construction of residential units as a key indicator of an economic system. Linkage of housing starts to interest rates. Determinants of residential construction such as personal income levels, the cost of credit. Discusses the association between the 15-year fixed mortgage rate and the number of housing starts in a single year.
Paper Introduction:
Housing Starts and Interest Rates: A Case Study
Definition of the Problem
One of the key indicators used in most economic systems to
determine whether or not the economy is experiencing growth or decline is housing starts – the number of new residential units, both single-family and multi-unit homes or dwellings – that are initiated in any calendar year (Merwin, 2001). In theory as well as in practice, it is asserted that when an economy is prospering or growing, an increase in the number of housing starts will also be observed. When the economy is in a downturn or a slower period of growth, the number of housing starts will decline (Merwin, 2001).
Impacting upon the number of new housing starts likely to occur in a single year are a number of variables. Cooper and Madigan
Text of the Paper:
The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper.
However, Solomon (199 ) does state that one indicator that isapparently correlated with housing starts or construction is the mortgageinterest rate. 7.1 % 1998. When interest rates fall or rise - as part of an economicpolicy promulgated by the Federal Reserve Board in its efforts to spur orslow the economy - housing purchases are affected; housing purchases inturn impact upon housing starts, with low interest rates for mortgagesassociated with higher levels of housing starts (Cooper & Madigan, 2 2;McKee, 2 1). St. || | |Squares| |Square | | | ||1 |Regress|8 562. |.712 || |(2-tail| | || |ed) | | | || |N |7 |7 | ||STARTS |Pearson|-.172 |1. 1 || |nt) |44 |6 | | | | || |1 |-147.56|378.1 |-.172 |-.39 |.712 || | |9 | | | | | |a Dependent Variable: STARTSThese data support the conclusion that interest rates do not predicthousing starts for the year in which the rate occurs, but are significantlyassociated with subsequent year housing starts. Specifically, housing starts are very much linked to the interestrate - the cost of borrowing money to build or purchase a home, new orpreviously occupied (Solomon, 199 ). |.712 |. (1992). || | |ardized| |dized | | || | |Coeffic| |Coeffic| | || | |ients | |ients | | | ||Model | |B |Std. However, in making this assumption, several equally important factorsimpacting upon housing starts are not considered. The dependent variable in the analysis is housing starts for1996 through 2 2; the independent variable is the 15-year fixed mortgageloan interest rate, operationally identified at the October average for theyears from 1996 through 2 2. When the economy is in a downturn or aslower period of growth, the number of housing starts will decline (Merwin,2 1). Economists believethat this may be due to the difficulty of measuring demand. And now for the bad news. When money is "tight"(i.e., when interest rates are high and the supply of funds available forlending are low), borrowing becomes difficult and housing starts fall.Even affluent borrowers who are credit-worthy may find in suchcircumstances that banks andOther lends prefer to lend funds to established commercial accounts(Solomon, 199 ). In this study, the data selected were month-specific 15-year fixedmortgage loan interest rates and total number of new housing starts byyear. Below is a visual depiction of these relationships. Results are presented below.ANOVA|Model | |Sum of |df |Mean |F |Sig. World economic outlook. Nevertheless, what can be recognized in the data isthe likelihood that a declining rate in one year may predict an increase instarts in the second year.Conclusion This brief analysis has examined the relationship between mortgageinterest rates (15-year fixed rates, averaged by year and month, 1996 to2 2) and housing starts (in thousands of starts per year, 1996 to 2 2).It does not appear that interest rates alone significantly predict thenumber of starts likely to occur in the year when the interest rate ispublished. The next section of this report will describe the researchdesign that was selected to answer the foregoing research question andpresent a rationale for its selection. || |Correla| | || |tion | | | || |Sig. The data consisted of the following: Housing Starts by Year: (In thousands of single- and multi-family units)1996 1,4691997 1,4751998 1,6211999 1,6472 1,5752 1 1,5542 2 1,574(Merwin, 2 1). The data indicate that no direct causalassociation between interest rates as operationally defined herein and newhousing starts could be identified in the target years. || |(2-tail| | || |ed) | | | || |N |7 |7 | |Findings It was anticipated that as interest rates declined, housing startswould increase. (199 ). |. It will also describe theprocedures used to analyze data and the sources of the data selected foranalysis.Research Design The case study research design employed in this project was describedby Bailey (199 ) as an empirical design employing secondary (i.e.,previously published) data. These data were employed in a linear regression analysis, whichestimates the coefficients of a linear equation involving one or moreindependent variables that best predict the value of the dependentvariable. As income levels increase, individuals and familiesoften "buy up" or purchase a larger property or purchase a second home,thus driving construction levels up as well. HSH's national monthly mortgage Statistics: 1996 - 2 2. In theory as well as in practice, it is asserted that whenan economy is prospering or growing, an increase in the number of housingstarts will also be observed. Rather, it appears that current rates are predictive ofincreases of housing starts in subsequent years. Results are presented below. (2 1). Investors in construction are generally individualsand not businesses, and they do not have the varied means of financing thatare available to businesses. B. (2 2). Nevertheless, it is the purpose of this research project to considerone such relationship - that of the fixed 15-year mortgage interest rateand new housing starts - to illustrate how research in the social sciencesis conducted. Housing starts, usingcorrelation analysis, are not significantly associated with interest rates(an r coefficient of -.172). Statistics for the Behavioral Sciences. (199 ). Available at www.imf.org/exteral/pubs/ft/weo/weo1 98/McKee, B. Public construction alive despite slip in economy. P. 7.63% 2 . Economics, Reading, MA: Addison-Wesley. Architecture, 9 (12), 38-41.Merwin, D. Business Week, 3785, 31+.Gravetter, F. || | |Square |d R |Error || | | |Square |of the || | | | |Estimat|| | | | |e | ||1 |.172 |. Houses differ in terms of location, style, floorplan, utility, and cost. |Beta | | || | | |Error | | | | ||1 |(Consta|16614.2|2631.38| |6.314 |. |-.172 || |Correla| | || |tion | | | || |Sig. Impacting upon the number of new housing starts likely to occur in asingle year are a number of variables. The regression coefficients generated by SPSS analysis are presentedbelow.Coefficients| | |Unstand| |Standar|t |Sig. HSH Associates (2 2) further subdivides these datainto monthly averages by type of mortgage (15-year fixed, 3 -year fixed,and 1-year adjustable rate mortgages). It is in this general background that the present research ispositioned. Housing Starts and Interest Rates: A Case StudyDefinition of the Problem One of the key indicators used in most economic systems todetermine whether or not the economy is experiencing growth or decline ishousing starts - the number of new residential units, both single-familyand multi-unit homes or dwellings - that are initiated in any calendar year(Merwin, 2 1). The determinants of residential construction as identified by Solomon(199 ) range from the basic - the changes in the population of the system -to the more complex. If this is the case, one would anticipate that asthe 15-year fixed interest rate declined, the number of new housing startswould increase. A sustained decline in housing construction is seen asheralding the beginning of a recession. 5.79% (HSH Associates, 2 2)Once data were collected, the linear regression analysis was completedusing the Statistical Package for the Social Sciences (SPSS) computerizedanalysis program. The foregoing presentation of data generated by regressionanalysis does not support this assumption. C., & Madigan, K. Thus, afairly complex set of relationships between specific economic indicatorshas been observed. Available at www.hsh.com/natmo96- 2.html.International Monetary Fund. New York: The Free Press.Cooper, J. |.152 |.712 || |ion |1 | |1 | | | || |Residua|264438 |5 |528876.| | || |l |.847 | |169 | | | || |Total |2724942|6 | | | || | |.857 | | | | | |a Predictors: (Constant), 1b Dependent Variable: STARTSThese results indicate that housing starts are not predicted bythe interest rate as operationally defined herein. Among the more complex factors shaping housingconstruction are changes in the level of person income and the ways thatincome is distributed. Equally significant in shaping housing starts is the availability andthe cost of credit. (2 2). Housing starts, for example, are related to orcorrelated with such indicators as the employment rate, changes in wagesand compensation, the interest rate for mortgages as well as the primeinterest rate, Gross National/Domestic Product (GNP/GDP), and so forth. |1 |8 562. ReferencesBailey, K. 6.5 % 1999. Methods of Social Research. Cooper and Madigan (2 2) commentedthat the inter-relationships between a number of economic indicators areoften quote complex. Solomon (199 ) stated that manyeconomists consider residential construction one of the most importantindicators of future economic trends. The constant valuesin the regression equation are a = 1 (denoting that X represents the totalnumber of starts per year) and b = 1 (denoting the 1 th month of theyear, October, as the month for which the interest rate was obtained.Data Analysis The linear regression equation, Y = 1X + 1 , was used to analyze thedata. (2 1). 7.63% 2 1. Alternatively, if the interest rate rises, the number ofnew housing starts would be expected to decrease. Linear Graph of Variables: Rate and Starts[pic] Correlation further illustrates these associations.Correlations| | |1 |STARTS | ||1 |Pearson|1. The second data set was obtained from HSH Associates (2 2), thenation's leading publisher of mortgage information, which maintains anInternet site listing annual national mortgage rate averages subdividedinto monthly rates. 3 |-.165 |727.238|| | | | |7 | |a Predictors: (Constant), 1These results suggest that no statistically significant relationshipbetween the independent variable of interest rates and the dependentvariable of housing starts was identified by regression analysis. D. 7.68% 1997. There's no place like home - for economic growth. In fact, asinterest rates appeared to increase, housing starts also increased (seescatter plot above). TheIMF (1998) has suggested that in recognized periods of national economicgrowth (measured as positive increases in GDP and GNP), consumers'confidence increased and this in turn increases the willingness ofconsumers to acquire large debt for durable items such as houses. There appear to be rather lengthy cycles in housing construction,with periods of what Solomon (199 ) calls eras of alternating heavyconstruction and periods of almost complete inactivity. McKee (2 1) believes that in general, thefluctuations in the mortgage loan interest rate are used by actors inresidential construction (both businesses/contractors and individualpurchasers) to make important decisions as to when building should beslowed or speeded up. Construction Equipment, 1 4(6), 26-28.Recession: Is it still inevitable? (2 1). The InternationalMonetary Fund (IMF) (1998) commented that residential construction,regardless ofthe geographic region, nation, or economic system under examination, isalso dependent upon such factors as employment rates, inflation rates,costs of materials and labor, perceived job security, and so forth. Model Summary|Model |R |R |Adjuste|Std. J., & Wallnau, L. The data regarding the number of new single and multi-family housingstarts was obtained from Merwin (2 1), who captured this data for theyears 1996 through 2 2 (with 2 2 figures projected based on industryanalyses). Houses andmulti-family dwellings are not, unlike many other consumer products,uniform commodities. When construction increases in anyparticular year, the outlook for a period of general expansion is said tobe good. The data are presented in terms of the thousands of single andmulti-family units identified by the National Association of Home Buildersas having been started, completed, or projected to be started in the targetyears. Business Week, 3733, 36-37+.Solomon, L. October Average Interest Rates, 15-year Fixed MortgageYear Rate (%) 1996. (1998). Most commonly, individuals borrow from a bankor credit union or a licensed mortgage lender. ANOVA (analysis of variance) was performed to further examine theserelationships. New information can be generated and newrelationships identified by employing previously published secondary datain a study that examines potential interactions between disparate datasets. Paul, MN: West.HSH Associates. 6.27% 2 2. The problem addressed herein is stated as the followingquestion: What is the association between the 15-year fixed mortgageinterest rate and the number of new housing starts recorded in a singleyear in the United States? Gravetter and Wallnau (1992) stated that in general, a linear relationbetween two variables X and Y can be expressed by the equation Y = bX + a,where b and a are fixed constants.In this study, X is the dependent variable of housing starts in thousandsand Y is the independent variable of mortgage rates.
If this paper is not what you are looking for, you can search again:
or
Click here to request an essay written just for you.
|
|
|
