Second home real estate market : economic analysis of residential pricing behavior near Heavenly Ski Resort, CA
Author(s)Lee, Sean, S.M. Massachusetts Institute of Technology
Economic analysis of residential pricing behavior near Heavenly Ski Resort, CA
Massachusetts Institute of Technology. Center for Real Estate.
William C. Wheaton.
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This paper examines a second home market near Heavenly Ski Resort in South Lake Tahoe, CA to understand historical pricing behaviors and to forecast future prices using an econometric model derived from economic, demographic, and climate data. In order to do this study, we gathered historical residential sales data from 1988 to 2008 for the study area, which is limited to residential houses located within a one-mile radius of the resort. Moreover, other external variables, such as Tahoe skier visits, natural snowfall, San Francisco Bay Area income and employment, and mortgage interest rates, were collected for the same time period to determine how these variables influenced the prices. First, using approximately 550 residential sales data, a price index was created and subsequently historical residential home pricing behaviors were analyzed. Typically, evaluation of house prices is difficult since each residential property is a composite of goods that contain varying amounts of attributes. Therefore, the hedonic house price model was applied to recognize and remove effects of the housing-specific attributes on pricing. As a result, the real price index tracks only real prices as a function of time. Over the 20 years of study period, two distinct trends were observed. The real prices remained flat for the first 10 years and increased substantially in the second 10 years. Overall, the real price index linearly trended upwards. Employing the real price index and the external variables, a series of equations was developed as the foundation of an econometric model. The econometric model utilizes the following equation: New Permits (a measure of supply) and Tahoe Skier Visits (a measure of demand), to forecast future supply and demand.(cont.) The future projections with relevant economic variables then were put into Stock and Real Price (a measure of residential prices) equations to establish future prices. Using the econometric model, we employed three scenarios portraying future economic conditions to examine the pricing behaviors: realistic, optimistic, and pessimistic. In reaction to moderate snowfall and economic growth in the realistic scenario, the real prices slope downward immediately and then upward. With a higher economic growth and a phenomenal snowfall, the optimistic scenario predicts the highest price appreciation through increase in demand. The pessimistic scenario is the only one in which the significant price decline is predicted. This study concludes that residential home prices will continue to increase in all cases except for the pessimistic scenario, in which there are poor economic conditions and a light snowfall. Another conclusion is that the existing housing stock is confined and outdated due to the maturity of this market as well as new development restrictions imposed by the local authority.
Thesis (S.M. in Real Estate Development)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, Center for Real Estate, 2008.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Includes bibliographical references (leaf 63).
DepartmentMassachusetts Institute of Technology. Center for Real Estate; Massachusetts Institute of Technology. Department of Urban Studies and Planning
Massachusetts Institute of Technology
Urban Studies and Planning., Center for Real Estate.