Income and housing revisited. In given Exercise, we learned that the Office of Federal Housing Enterprise Oversight (OFHEO) collects data on various aspects of housing costs around the United States. Here's a scatterplot (by state) of the Housing Cost Index (HCI) versus the Median Family Income (MFI) for the 50 states. The correlation is r = 0.65. The mean HCI is 338.2, with a standard deviation of 116.55. The mean MFI is $46,234, with a standard deviation of $7072.47.

a) Is a regression analysis appropriate? Explain.

b) What is the equation that predicts Housing Cost Index from median family income?

c) For a state with what would be the predicted HCI?

d) Washington, DC, has an MFI of $44,993 and an HCI of 548.02. How far off is the prediction in b) from the actual HCI?

e) If we standardized both variables, what would be the regression equation that predicts standardized HCI from standardized MFI?

f) If we standardized both variables, what would be the regression equation that predicts standardized MFI from standardized HCI?

Exercise :
Income and housing. The Office of Federal Housing Enterprise Oversight (www.ofheo.gov) collects data on various aspects of housing costs around the United States. Here is a scatterplot of the Housing Cost Index versus the Median Family Income for each of the 50 states. The correlation is 0.65.

a) Describe the relationship between the Housing Cost Index and the Median Family Income by state.

b) If we standardized both variables, what would the correlation coefficient between the standardized variables be?

c) If we had measured Median Family Income in thousands of dollars instead of dollars, how would the correlation change?

d) Washington, DC, has a Housing Cost Index of 548 and a median income of about $45,000. If we were to include DC in the data set, how would that affect the correlation coefficient?

e) Do these data provide proof that by raising the median income in a state, the Housing Cost Index will rise as a result? Explain.