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A prolonged period of low mortgage rates resulted in a period of the

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A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 27 Feb 2016, 03:29
3
10
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A
B
C
D
E

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Question Stats:

60% (01:47) correct 40% (01:53) wrong based on 266 sessions

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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 the 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 many buyers from securing mortgages.

(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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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 28 Feb 2016, 21:15
1
Making a T diagram,



Robust home sale = Drop is sale price of resell home? :
+ | -
[Does home sales include only|
resells? If not, what else |
could have led to the increase|
in sales? New homes?] |
|


Looking at the options, only E fits to what I prethought.


A lot of people have gone for C.

But in a robust market, we can't have a slight increase justify anything if when rate is adjusted for inflation has dropped. Just like 50 Rands were an insane amount of money when I was a kid, but now it's worthless due to inflation. Saying that A stuff which cost R 50 then is R 60 now, it implies the market for the stuff has degraded insanely.
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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 28 Feb 2016, 21:17
1
The best way to explain the contradiction between increased home sales and reduces resale house prices is by attributing the increased sales to other factors.
Option E does just the same by saying that the increased sales have been because of the new home sales.
Hence the Correct Option.
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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 29 Feb 2016, 05:15
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 the 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 many buyers from securing mortgages.--Increases the paradox rather than solve it.

(B) Resale homes represent the best value on the real estate market.-- contradictory statement: complicate the paradox.

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

(D) The decrease in mortgage rates was accompanied by a widening of the types of mortgages from which borrowers could choose.-- no impact.

(E) The increase in home sales was due entirely to an increase in the sale of new homes.-- brings new item i.e. new homes, leading to indicate that apparent paradox between robust home sales and drop in resale home sales is due to increase in sale of new homes.

so, this choice explains the fact no1 : low mortgage rates resulted in a period of the most robust home sales ever by
fact no2 : the average sale price of resale homes actually dropped, when adjusted for inflation.
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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 01 Mar 2016, 09:48
Hi Experts / daagh / chetan2u ,

I am unable to comprehend the situation at hand. Can you please tell me the situation with an example.
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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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New post 01 Mar 2016, 10:02
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PrakharGMAT wrote:
Hi Experts / daagh / chetan2u ,

I am unable to comprehend the situation at hand. Can you please tell me the situation with an example.


Hi,
lets not get deeply into mortgage rates and answer as an average person would..
the para states that:-
low mortgage rates -- it ha sto mean some kind of loan
so these lower rates on loans have increased the home sales- these houses could be new or second hand, resale. Since the demand has been more, one shoud expect teh prices of houses to go up. But the resale home prices have declined, when we adjust for inflation. It means although th eprice may be higher than last year but when we add inflation it turns out cheaper..


We are to find a reason for this contradiction that on ONE hand the demand/sale has increased, and on the OTHER the resale value has gone down..

E choice does exactly the samething. It tells us that the increase has been only in new houses so their prices would have gone up, whereas the sale of second hand houses has not gone up and that is why their prices have gone down as people are looking for new houses

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Re: A prolonged period of low mortgage rates resulted in a period of the  [#permalink]

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