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Historically, a typical home in the U.S. costs 2.5 times the typical annual income. For example, if the median income in a geographic area is
Historically, a typical home in the U.S. costs 2.5 times the typical annual income. For example, if the median income in a geographic area is $100,000, the median price of a home in that area would be 2.5 x $100,000 = $250,000. Unfortunately, since 1999, wage increases have not kept up with home prices, particularly in large urban areas. Homeowners were paying up to 52% more for homes at the end of 2012 relative to the median income in those areas. Suppose you take a random sample of 1,000 homes in Denver. You find that the average home price in your sample has increased 41.3% with a standard deviation of s = 2.1% since 1999. You want to estimate the average home increase in Denver with a fairly small risk of error, so you set alpha as 0.0001. This means you can be (90%, 99.99%, 91% or 89%) confident that increase in home prices in Denver will be (inside or outside) the confidence interval appropriate for this alphain this case, 41.3% 0.3%
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