Sales of single-family houses have been brisk in Mid-City this year. This has been especially 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 below 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. Be sure to carefully read the section of your text about dummy variables as you MUST use them in this problem.
Include your data with the dummy variables, your regression work, and answer these questions:
1. Do buyers pay a premium for a brick house, all else being equal? Explain your answer using your regression work.
2. Is there a premium for a house in neighborhood 3, all else being equal? Explain your answer using your regression work.
3. Is there an extra premium for a brick house in neighborhood 3, in addition to the usual brick house premium? Explain your answer using your regression work.
4. For purposes of estimation and prediction, could neighborhoods 1 and 2 be collapsed into a single “older” neighborhood? Explain your answer.