You are Jacky Tobin, a data analyst working for the City of Blue Lakes in their Research and Analysis department. You have been asked by the Real Estate Institute of Victoria Chief Executive Officer (REIV CEO), Ms Inika Vera?Mae, to analyse the sample data from a recent survey of 120 house sales in Blue Lakes as part of the REIV’s report on housing characteristics across various shires and municipalities. Her email making this request of you is reproduced below.

To: Jacky Tobin

From: Inika Vera?Mae

Subject: Analysis of recent housing survey data

Dear Jacky,

Regarding the recent survey of 120 house sales in Blue Lakes, the REIV requires answers to the following questions. Your responses will be used as part of our report into comparing house prices (and other housing characteristics) across various shires and municipalities in Victoria.

1. Regarding the price of houses in Blue Lakes.

a. Can you provide me with an overall summary of the price of houses?

b. Can you also provide a summary on the number of main rooms that these houses have?

c. There are about 30,000 stand?alone houses in the Blue Lakes region. Can you please provide an estimate of the total value of all stand?alone houses?

2. Regarding house price, houses constructed with a specific material (cladding) type, houses that have been either been renovated or built in the last 10 years, and houses that are older.

a. Can you please provide a summary of the cladding material (Timber, Veneer, Brick and Render) used?

b. Further, can you provide this same summary assessment of the cladding materials used in each of the 4 suburbs? Is there a difference in the cladding materials used across the 4 suburbs?

c. Do renovated and newly built houses appear to be worth more than those that have not been renovated?

3. I am also interested to learn if there is any evidence to suggest that:

a. The number of main rooms is related to the price of a house?

b. The lot size is related to the price of a house?

c. The distance to the nearest train station is related to the price of a house?

4. Can you please explain to me, in a simple way, why the median house price is most often used when reporting the “average” house price?

## Answers

**To:** Inika Vera- Mae

**From:** Jacky Tobin

**Subject** **Re:** Analysis of recent housing survey data

Dear Inika

In response to your email highlighting house prices in the Blue Lake area, I have taken a sample data of 120 house sales that have been concluded recently in order to compute the information that is required by your organization in drawing a comparison. My observations in relation to the points raised by you are as follows.

1. a) Based on the given survey, the mean sale prices of the house comes out to be $ 652,848. It is interesting to note that 50% of the houses were sold for an amount less than $ 613,650. The higher average value is clearly indicative of presence of some extreme selling prices which seems to have distorted the mean. This observation is also supported through relevant statistical analysis. Also, there seems to be high degree of variation in the selling price of houses ranging from as low as $ 138,700 to as much as $ 1,750,000.

b) The mean rooms possessed by these homes that have been sold come out to be 6.93. Also, 50% of the houses have less than or equal to 7 rooms. Also, most houses that have been sold had 7 rooms. Further, the variation of rooms in the houses sold is rather small varying from 5 to 110 in accordance with the data provided.

c) The median house price as highlighted in part (a) comes out to be $ 613,650. Thus, this can be assumed to be the price of one house on an average and thus the price of 30,000 standalone houses would be 30000*613650 = $ 18.41 billion.

2. a) Brick seems to be the most popular cladding material with 32.5% of the houses using it. After brick, in decreasing popularity would be timber, render and veneer accounting for 27.5%, 22.5% and 17.5% of the houses that have been recently sold.

b) It is apparent that there is a significant difference in the cladding pattern that is observed in the four suburbs and no particular pattern is available with regards to cladding preferences which depends on the underlying suburb.

c) From the given sample data, it is apparent that the renovated and newly built houses have a mean price of $ 754,659. This is significantly different from the mean price of the house sold without renovation which comes out to only $ 547,586. Thus, it is fair to claim that the prices commanded by recently built and renovated houses is more than that compared with those having not undergone any renovation.

3. a) There seems to be a significant positive linear relationship between rooms and the price at which the house is sold. However, it is noteworthy that there are additional factors as well besides the number of rooms that tend to determine the price of a house. Also, the strength of the relationship is strong.

b) There seems to be a significant positive linear relationship between lot size and the price at which the house is sold. However, it is noteworthy that there are additional factors as well besides the lot size that tend to determine the price of a house. Even though the lot size is important, but the relationship seems to be weak. .

c) The distance to the nearest railway station does not seem to have a significant impact on the price of the houses and thus may be ignored for house price determination. Hence, no relationship exists.

4. In reporting of the average prices, usually the mean price is reported instead of the mean prices. This is because, the mean tends to get distorted due to the presence extreme values either on the positive side or the negative side. Hence, because of certain transactions the whole value may present an incorrect picture to a potential buyer or researcher. However, this is not a problem with the median since the values on the higher end are anyways ignored in computation while the lower end extreme values also have minimal impact on the median.

The above analysis indicates that brick is the most popular cladding. Also, there seems to be significant difference the cladding usage pattern in suburbs. Besides, renovated and recently built houses are worth more than non-renovated houses. Besides, for determination of selling price of house, room and lot size are significant parameters.

Yours Sincerely

Jacky Tobin

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