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Executive Summary

Brooklyn home prices for single-family homes and condos likely increased significantly in Q4 2020 compared to Q3 2020. Using linear regression, I found a statistically significant positive effect at a 97.5% confidence level. While some model assumptions were violated and the confidence interval is wide, the overall trend suggests a price increase.

Motivation

This analysis explores the change in prices for single-family homes and condos in Brooklyn between Q3 and Q4 of 2020, a period heavily influenced by the COVID-19 pandemic. Understanding these changes offers insights into the housing market's health in Brooklyn.

Data Overview

  • Source: Sales data for Brooklyn single-family homes and condos from 2016 to 2020.
  • Filtering: Excluded homes sold for less than $10,000, more than $6,000,000, and certain atypical housing types (e.g., Cape Cods, mansions).
  • Final Dataset: 13,474 sales records.

Approach

  • Initial Analysis: Comparing average prices between quarters could be misleading due to variations in the types of homes sold.
  • Modeling Strategy: A linear regression model was used to control for factors such as ZIP code, neighborhood, square footage, building classification, and sale timing.

Methodology

  • Model Construction:
    • Variables included ZIP code, neighborhood, gross and land square footage, building classification, and sale timing.
    • ZIP codes were grouped using Tukey’s test; neighborhoods were grouped by mean purchase prices.

Results

  • Performance:
    • The model explains 61% of the variation in prices, with a root mean squared error of $445,177.40.
    • The estimated increase in Q4 2020 prices over Q3 2020 is $70,459, significant at the 97.5% level.

Limitations and Takeaway

  • Limitations:

    • The wide confidence interval ($8,859.37 to $132,059.50) may result from small sample sizes in Q3 and Q4 2020.
    • The model's assumptions of independent and identically distributed errors were violated.

  • Conclusion: Despite limitations, the analysis strongly suggests that Brooklyn home prices increased in Q4 2020. While the exact amount is uncertain, the trend is clear.