The real estate is a tangible asset that involves property which has land that sits on it. The real estate is like any other asset which is subject to changes of supply and demand. The purchase of homes relies heavily on supply and demand. Some of the factors that influence personal home purchases include mortgage rates, prices of houses, and inventory availability the supply of houses through construction of new homes or renovation of old ones. All these factors affect the personal purchase of homes differently.
The variation of home sales can be monitored monthly and one recent news article observed such a statistical variation. According to the article, pending home sales rose 5.2% for the month of January and was 5.7% higher annually. The pending home sale is a measure of signed contracts and are an indicator of personal home purchases. The percentage was observed to be high and one of the reasons was that mortgage rates had become friendly making more people ready to purchase houses. However, it was also observed that there was a low supply of homes for purchases and this was the lowest since 1999 (Olick, 2020). The price of homes was also found to be a limiting factor in the individual purchase of homes as high costs for land, materials, and labor that goes towards building homes had made homes to become more expensive.
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In order to understand the overall impact of the different factors on individual home purchases, the regression formula can be constructed as
. The dependent variable
indicated the purchase of home at time t and it would be impacted by different independent variables. The independent variables included
indicated the mortgage rates,
indicate the supply of homes through new constructions,
indicated the specific prices of homes and
indicated the economic situation of buyers such as their general income. As these independent variables varied, they would affect the purchases of different homes. The parameters of estimate were indicated by
and
was the error term.
References
Olick, D. (2020). January Pending Home Sales Jump More Than Expected, Up 5.2%. Retrieved from https://www.cnbc.com/2020/02/27/january-pending-home-sales-jump-more-than-expected-up-5point2percent.html
