In January

Question

In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.
Which of the following, if true, best explains the sharp rise in the average price of new houses?
(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate

ANS : A

albatross86 · Answer

Drop in number of house sold because interest rates were following and consumers were waiting.
The average price of a house increased sharply.

Which of the following explains this rise?

A. Bingo. This suggests that though the overall sales reduced, all the higher priced houses were still sold. So say there were 10 highpriced houses costing 100$ each and 50 other houses costing 30$ each. The average price before was about 40$. Now let's say 30 of those other houses did not sell. BUT remember, those 10 highpriced houses are going to sell anyway! So our new average price has gone up to about 48$. So, total sales reduced but highpriced sales remained constant - this explains the rise.

B. Irrelevant, no evident effect on prices.

C. Steady rise over the past 3 years. Does this explain the SHARP rise now?

D. AVAILABLE for resale. Does that mean they sold or that they affected the average price? Too vague.

E. Interest rates are going to rise. This could actually indicate people would want to pay LESS for the house to compensate for the impending increased expense. Doesn't explain the sharp rise.

Pick A.

nikhilkatira · Answer

albatross86 wrote:Drop in number of house sold because interest rates were following and consumers were waiting.
The average price of a house increased sharply.

Which of the following explains this rise?

A. Bingo. This suggests that though the overall sales reduced, all the higher priced houses were still sold. So say there were 10 highpriced houses costing 100$ each and 50 other houses costing 30$ each. The average price before was about 40$. Now let's say 30 of those other houses did not sell. BUT remember, those 10 highpriced houses are going to sell anyway! So our new average price has gone up to about 48$. So, total sales reduced but highpriced sales remained constant - this explains the rise.

B. Irrelevant, no evident effect on prices.

C. Steady rise over the past 3 years. Does this explain the SHARP rise now?

D. AVAILABLE for resale. Does that mean they sold or that they affected the average price? Too vague.

E. Interest rates are going to rise. This could actually indicate people would want to pay LESS for the house to compensate for the impending increased expense. Doesn't explain the sharp rise.

Pick A.

I like your reasoning for Option C...keep it up albatross86

Best,
Nikhil H. Katira

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