In 2011 home prices and mortgage rates dropped so low that in a number of cities the monthly cost of owning a home was less expensive than renting. The following data show the average asking rent for 10 markets and the monthly mortgage on the median priced home (including taxes and insurance) for 10 cities where the average monthly mortgage payment was less than the average asking rent (The Wall Street Journal, November 26–27, 2011). City Rent ($) Mortgage ($)
Atlanta 840 539
Chicago 1062 1002
Detroit 823 626
Jacksonville, Fla. 779 711
Las Vegas 796 655
Miami 1071 977
Minneapolis 953 776
Orlando, Fla. 851 695
Phoenix 762 651
St. Louis 723 654
a. Develop the estimated regression equation that can be used to predict the monthly mortgage given the average asking rent (to 2 decimals). The regression equation is:
Mortgage ($) = + Rent ($)
b. Choose a residual plot against the independent variable.
c. Do the assumptions about the error term and model form seem reasonable in light of the residual plot?