Question 15.8: Valley Estates Quarterly House Sales Forecasts for 2011 Stud......

Table 15.14 shows the construction of forecasts using trend and seasonal measures derived from time series analysis. The following two-step approach is used:

Step 1: Identify the trend values (T)
From Example 15.5, the straight-line trend equation is given as:

T = 61.4 + 1.019x

Where: x = 1 in 2008 Q1; 2 in 2008 Q2; 3 in 2008 Q3; etc.

For the forecast periods of Ql, Q2, Q3 and Q4 of 2012, the corresponding x-values are shown in Table 15.14, which are found by continuing the numeric sequence of x-values to span the forecast periods. For each forecast quarter of 2012, substitute the appropriate x-value into the trendline equation as seen in Table 15.14 to produce the trend estimate of house sales.

The resultant values (e.g. 81.8 [or rounded to 82] for quarter 4 2012) are the expected house sales in the Cape Peninsula by Valley Estates in each quarter of 2012, based on trend estimates alone.

Step 2: Seasonalise the trend values (i.e. incorporate the seasonal indexes)
Using the seasonal indexes derived in Table 15.12, the trendline estimates for each quarter of 2012 are multiplied by their respective quarterly seasonal indexes to include seasonal influences in the forecasted values. These values are referred to as seasonally adjusted trend estimates, as shown in the last column of Table 15.14.

Management Interpretation

Valley Estates can expect to sell 62 houses in quarter 1, 68 houses in quarter 2, 109 houses in quarter 3, and 83 houses in quarter 4 of 2012 respectively.