Intermediate Macroeconomics

Term paper - Part 1

1. New Home Prices

This first section of a term paper should highlight the issue you want to write about. For this paper we are interested in the trend in home prices. There have been many news stories over the last year or so about the dramatic rise in home prices in the Washington, DC, area. The question has become is this a trend that will continue or a bubble that could burst. We may not be able to fully answer this question but we will try to identify the major variables that influence housing prices and see how much we can explain.

The first section of your paper should simply lay out the data on current housing prices and price trends. We don't want to do any analysis at this point. We just want to say, Wow, look here. This is something worth looking at.

There are two kinds of empirical analysis: time series and cross section. Time series looks at the trends in one region over time. Cross section analysis compares one region with another. We will try to do both.

First, let's consider the time trend in U.S. housing prices over the last 40 years. The median and average sales price of new houses sold in the U.S. are available on a monthly and annual basis (starting in 1963) from the U.S. Census Bureau:

For our purposes annual prices will do. But do you use the median or the average? It depends on the purpose of your study. For a macroeconomic analysis you would probably be interested in average price. Since we want to look at affordability for the typical household we should use the median price in this study.

How did I find this data source? First, if its data you're looking for a good bet is always the Census Bureau. Going to the Census Bureau home page (, under "Subjects A to Z" at the upper left I clicked on "H" for Housing. This data was under the subheading of "New Residential Sales".

Look for and print out other housing data that is available such as housing vacancies, houses sold, houses for sale, and others, which we might use later on in this project. Also keep in mind that the conclusion of the paper, which we will write last, should include topics for further research. We can't cover everything.

What you should do is produce one graph that displays the trend in the median U.S. home price since 1963. But this graph conveys limited information. It doesn't reveal the percentage increases from year to year. On the same graph you can include the annual percentage change in the median home price. The median home price would be graphed against the left side axis and the annual percentage change against the right axis. Adjust the scales of the two axis so that the lines do not cross, or make one line a dashed line so that the reader can distinguish between the two when printed in black and white.

For a cross section analysis we can look at the median price of a home in the D.C. area with other cities. Home prices in metropolitan areas over the last few years is available from the National Association of Realtors:


I would start with a table with three columns: the area, the median price in the 3rd quarter 2005, and the percentage increase in price from 2002 to the 3rd quarter 2005 (if these exact dates aren't available then use the earliest and the most recent prices available). The choice of metropolitan areas depends on the story you want to tell. I would suggest picking the 5 highest priced areas and five lowest priced and order them from high to low with the Washington, DC, and U.S. median prices in the middle of the table. For example:

Table 1. Home Prices in Selected Metropolitan Areas

Area   Median Sales Price  
3Q 2005
  Price increase  
2002 - 3Q 2005

Highest priced:
     City 1
Washington, DC
Lowest priced:
     City 300


This table would reveal that DC areas prices still have room to rise and even fall, and if the recent price increases are a function of the median price (i.e., is the growth rate higher in low-priced or high-priced areas or neither.

So how should this first section be organized? I would suggest the following:

1. New Home Prices     <- Note: always include a section title

Opening paragraph describing what this section is about.
Paragraph describing the time trend in the median U.S. home price
Graph of time trend in the median U.S. home price
Paragraph describing median price differences across metropolitan areas
Table of metropolitan area median home prices

To grade this section I award points for things that should be included. For example, consider this checklist for the time series graph:

I also give points if you do not give reasons for the price trends or differences or explain what further analysis you will be doing in the paper. You may feel a compelling need to throw in a few sentences like that. Get over it.

Suggesting specific reasons for the trends/differences is premature. First, you should wait until you actually do that analysis. It's not good to mention a possible reason that you don't address later in your paper. Second, this will not be the best place to make these general observations. We can add general comments to an introduction section when we wrap up the term paper. Stay focused. It's easier on the reader if you severely restrict the scope of your discussion. In this section just describe what the trend has been and what the differences between cities are. Straying from a narrow scope indicates disorganized thinking and turns the reader off.

Making general comments that you will be doing further analysis is unnecessary. The reader already knows this. Don't overburden the reader by making him or her read more than is needed and don't confuse the reader by straying from the very narrow objective of simply describing the trends/differences.