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Saturation Point


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Has Milwaukee\'s Riverwest neighborhood reached a condo development saturation point? What is the impact of income and job growth on the sustainability of the condo building boom in this diverse area of Milwaukee?

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Saturation Point

  1. 1. Saturation Point? <ul><li>A Report on the Effects of Unemployment or Household Income on Condo Sales in Milwaukee’s Riverwest </li></ul><ul><li>Final Project </li></ul><ul><li>BA700.06: Business Research Methodology </li></ul><ul><li>Tracy Harrington </li></ul><ul><li>04/16/06 </li></ul>
  2. 2. Executive Summary <ul><li>Since the 1990’s condo development in Riverwest has been booming </li></ul><ul><li>As development has increased, so have property values – and property taxes </li></ul><ul><li>But has this area reached a saturation point – or not? </li></ul><ul><li>Can an analysis of Milwaukee unemployment and household income trends provide the answers? </li></ul>
  3. 3. Introduction <ul><li>Milwaukee’s Riverwest, a diverse, primarily working class neighborhood bounded by the Milwaukee River on the east and south, Holton St on the west and Capitol Dr on the north, has seen tremendous growth in condominium development. </li></ul><ul><li>According to the City Assessor’s website, 512 units have been built since 2000. These condo developments have been built and marketed to sell at mid- to upscale market prices (over $200,000.) </li></ul><ul><li>Can the growth of this upscale condo market be sustained given other economic trends in Milwaukee? What are the implications if this growth has reached a saturation point? </li></ul>
  4. 4. Hypotheses <ul><li>The null hypothesis for this study is that neither changes in unemployment rates nor household income levels, two bellwether economic indicators, will affect number of condo units sold. </li></ul><ul><li>The alternative hypothesis, and one which seems intuitively correct, is that one or both of the economic indicators should exert some influence over the pace of Riverwest condo sales. </li></ul><ul><li>If the alternative hypothesis is correct, and if job and population growth are stagnant in Milwaukee, we are at a saturation point. </li></ul>
  5. 5. Analysis <ul><li>The hypotheses will be tested by using bivariate data analysis on each of the two independent variables (unemployment and income) relationship to the dependant variable (condo sales.) </li></ul><ul><li>To test correlation between unemployment and condo sales, or household income and condo sales (using only those years for which we have complete data sets for each) we use the formula: </li></ul><ul><li>r = Σ(X i -X mean )(Y i -Y mean ) </li></ul><ul><li>√ Σ(X i -X mean ) 2 Σ (Y i -Y mean ) 2 </li></ul>
  6. 6. Data Analysis <ul><li>For the period 2000-2005 </li></ul><ul><li>City of Milwaukee unemployment: ‘00 – 5.32%; ‘01 – 6.72%; ’02 – 8.28%; ’03 – 8.74%; ’04 – 7.72%; ’05 – 7.067% </li></ul><ul><li>Milwaukee Metropolitan household income: ‘00 – $43,161; ‘01 – $45,390; ’02 – $47,715; ’03 – $48,531 ’04 & ’05 – not available </li></ul><ul><li>Riverwest condo units sold: ’00 – not available; ’01 – 147; ’02 – 223; ’03 – 386; ’04 – 363; ’05 - 401 </li></ul>
  7. 7. Computations <ul><li>Computations for unemployment return the following: </li></ul><ul><li>Xmean = 7.706; Ymean = 304 </li></ul><ul><li>Variance X = .555; Variance Y = 10164.8 </li></ul><ul><li>Covariance X and Y = 26.446 </li></ul><ul><li>Correlation X and Y = .352065 </li></ul><ul><li>Regression X on Y = .002602 </li></ul><ul><li>Coefficient of determination = .124 </li></ul><ul><li>Computations for household income: </li></ul><ul><li>Xmean = 47212; Ymean = 252 </li></ul><ul><li>Variance X = 1770818; Variance Y = 9940.66 </li></ul><ul><li>Covariance X and Y = 117823 </li></ul><ul><li>Correlation X and Y = .888046 </li></ul><ul><li>Regression X on Y = 11.853 </li></ul><ul><li>Coefficient of determination = .7886 </li></ul>
  8. 8. Results and Discussion <ul><li>The results obtained from the calculations above suggest that there is a direct correlation between the household incomes and condo sales during the period 2001-2003, with a positive correlation nearing .89. </li></ul><ul><li>Surprisingly, there is also a slight positive correlation between unemployment and sales of .35. </li></ul><ul><li>Less than 15% of the variance in condo sales can be explained by the variance in unemployment. </li></ul><ul><li>The coefficient of determination for income and sales is dramatically stronger: nearly 80%. </li></ul>
  9. 9. Conclusions <ul><li>The null hypothesis withstands the testing for unemployment, but not entirely for income levels. </li></ul><ul><li>Housing sales can be impacted by a variety of factors, only two of which are changes in unemployment and household income. Interest rates, for example, would be expected to have an impact, as would many other variables. The analysis and testing are applicable to other variables, time and resources permitting. </li></ul><ul><li>Provided with additional variables and further tests, we may find conclusive evidence that there is a saturation point for condo development in Riverwest. We would need to search further and deeper to discover just when and where the saturation point lies. </li></ul>
  10. 10. Afterward <ul><li>In preparation for this project, this researcher first undertook a survey of residents of three Riverwest condo developments. Because the sample size was very small, and due to the amount of time required to perform the surveys, this method of data gathering was eventually discarded in favor of more readily obtainable secondary research data. </li></ul><ul><li>However, it seems likely that the survey method might in fact provide a suitable model for investigating the future of the Riverwest condo market. </li></ul><ul><li>Recommendation for future surveys is that they be conducted through either email or mail rather than in person. </li></ul>
  11. 11. References <ul><li>Blum, Suzanne. Personal Interview. 13 April. 2006. </li></ul><ul><li>  </li></ul><ul><li>City of Milwaukee, Tax Assessor’s website. Accessed 11 April. 2006. milwaukee . gov /display/ displayFile .asp? docid =721&filename=/User/ dmalqu /2005_Sales/Condo_Projects. htm </li></ul><ul><li>  </li></ul><ul><li>Economic Time Series Page: Econo magic .com. Series Title: Unemployment Rate: Milwaukee city, WI, Wisconsin; Percent; NSA. Accessed 14 April. 2006. http://www. economagic .com/ em - cgi /data.exe/ blsla /laupa55010003 </li></ul><ul><li>  </li></ul><ul><li>Harrington, Tracy. Personal Interview Surveys. Conducted 2 April. 2006. </li></ul><ul><li>  </li></ul><ul><li>Lank, Avrum D. “Household Income Comes Up Short.” Milwaukee Journal Sentinel, JS Online. Accessed 13 April. 2006. http://www2. jsonline .com/ bym /news/mar05/306475.asp </li></ul><ul><li>Zikmund, William G. Business Research Methods, 7 th Edition . Oklahoma State University, 2003. </li></ul>