According to a recent report by the government, new home construction fell to an 18-month low in October, 2010 (CNNMoney.com, November 17, 2010). Housing starts, or the number of new homes being built, experienced an 11.7% drop in the seasonally adjusted annual rate. Beena Singh works for a mortgage company in Madison, Wisconsin. She wants to better understand the quantitative relationship between housing starts, the mortgage rate, and the unemployment rate. She gathers monthly data on these variables from 2006:01-2010:12. A portion of the data is shown in the accompanying table.

In a report, use the sample information to:
1. Construct scatterplots to quantify the relationship of housing starts with the mortgage rate and the unemployment rate.
2. Estimate a linear and an exponential regression model and use numerical measures to select the most appropriate model for prediction.
3. Discuss the potential problems of correlated observations in this time series data application.

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Housing Starts Mortgage Rate (%) 6.15 6.25 0 Unemployment Rate (%) Date 2006-01 20 (in 1,00 2273 2119 0s) 2 2 4.8 2010-12 520 $1 9.4