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 its seasonally adjusted annual rate. Urmil 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 seasonally adjusted monthly data on these variables from 2006:01-2010:12. Use the file Housing Starts to answer the following questons.
Estimate a multiple regression model for housing starts using the mortgage rate and the unemployment rate as the explanatory variables.
At the 5% significance level, evaluate the individual significance of the explanatory variables.
Discuss the potential problems of multicollinearity.