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# A prolonged period of low mortgage rates resulted in a

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Director
Joined: 11 Jun 2007
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A prolonged period of low mortgage rates resulted in a [#permalink]

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22 Sep 2007, 21:03
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A prolonged period of low mortgage rates resulted
in a period of the most robust home sales ever.
At the same time, the average sale price of resale
homes actually dropped, when adjusted for inflation.

Which of the following, if true, would explain
the apparent contradiction between robust home sales
and the drop in the average sale price of resale homes?

(A) The inflation rate during this period exceeded
the increase in the average salary, thus preventing

(B) Resale homes represent the best value on the real estate market.

(C) Without the adjustment for inflation, the price of
resale homes actually increased by a very slight amount.

(D) The decrease in mortgage rates was accompanied
by a widening of the types of mortgages
from which borrowers could choose.

(E) The increase in home sales was due
entirely to an increase in the sale of new homes.

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Manager
Joined: 16 May 2007
Posts: 141

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22 Sep 2007, 21:17
E.

The increase was only because of new homes so the prices of second hand homes went down

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CEO
Joined: 29 Mar 2007
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22 Sep 2007, 21:34
eyunni wrote:
A prolonged period of low mortgage rates resulted
in a period of the most robust home sales ever.
At the same time, the average sale price of resale
homes actually dropped, when adjusted for inflation.

Which of the following, if true, would explain
the apparent contradiction between robust home sales
and the drop in the average sale price of resale homes?

(A) The inflation rate during this period exceeded
the increase in the average salary, thus preventing

(B) Resale homes represent the best value on the real estate market.

(C) Without the adjustment for inflation, the price of
resale homes actually increased by a very slight amount.

(D) The decrease in mortgage rates was accompanied
by a widening of the types of mortgages
from which borrowers could choose.

(E) The increase in home sales was due
entirely to an increase in the sale of new homes.

Man I dunno down to C or E. C seems a bit iffy and doesn't really explain the paradox.

E is much better. Robust home sales were entirely caused by new homes.

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Manager
Joined: 09 Jul 2007
Posts: 180

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23 Sep 2007, 01:36
clearly E

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VP
Joined: 15 Jul 2004
Posts: 1441

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Schools: Wharton (R2 - submitted); HBS (R2 - submitted); IIMA (admitted for 1 year PGPX)

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23 Sep 2007, 01:39
I don't quite understand this question -

Fact 1 - Low mortgage rates caused increase in home sales. (When they say increase in home sales, I assume they are talking about an increase in the NUMBER of homes sold)

Fact 2 - During the same period, the AVERAGE SALE PRICE of resale homes dropped. ----> Does it therefore imply that less units of resale homes were sold? And hence to compensate for the INCREASED HOME SALES, more new homes would have been sold.

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Director
Joined: 11 Jun 2007
Posts: 639

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23 Sep 2007, 06:35
dwivedys wrote:
I don't quite understand this question -

Fact 1 - Low mortgage rates caused increase in home sales. (When they say increase in home sales, I assume they are talking about an increase in the NUMBER of homes sold)

Fact 2 - During the same period, the AVERAGE SALE PRICE of resale homes dropped. ----> Does it therefore imply that less units of resale homes were sold? And hence to compensate for the INCREASED HOME SALES, more new homes would have been sold.

fact 2 says: At the same time, the average sale price of resale homes actually dropped, when adjusted for inflation

IMO, it does not imply that less units of resale home were sold.
It just says that avg. sale price of resale homes dropped,
irrespective of the number of resale homes sold. That is,
even if the resale home was not sold, the price still dropped!!

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Director
Joined: 11 Jun 2007
Posts: 639

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23 Sep 2007, 06:39
Obviously, (C) and (E) are in contention.
But can someone please explain in
greater detail why (C) is not a possible answer choice?

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Intern
Joined: 18 Sep 2007
Posts: 8

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23 Sep 2007, 14:05
I like (C) here.

To me, (E) does nothing to address the connection between sales and price.

(C) states the home prices only increaded a slight amount without inflation calculated in, this would mean, adding inflation into the equation home values would actually decrease.

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23 Sep 2007, 14:05
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