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

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Bunuel
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A prolonged period of low mortgage rates resulted in a period of the [#permalink] New post   06 Apr 2023, 01:30
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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] New post   06 Apr 2023, 06:08
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Bunuel 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 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.


Low M/g rate (long time) ---> Sales ↑
Avg Sale Price ↓ (Less : Inflation) {Avg Sale Price = (Highest Sale Price + Lowest Price)/2}


2 Points mentioned -

1. Sales ↑
2. Avg Sale Price ↓ (Possible only when the higher value decreases compared to the previous year)

(A) increase in the average salary - Out of scope.
(B) the best value on the real estate market - We are concerned about decrease in price not best value, hence out of scope rejected.
(C) Without the adjustment for inflation & increased by a very slight amount - We have no information to comment on the same.
(D) widening of the types of mortgages from which borrowers could choose - Not mentioned, we can not comment on the same, hence rejected.

The answer will hence be (E) , an increase in the sale of new homes (At lower sale price compared to previous year)
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Re: A prolonged period of low mortgage rates resulted in a period of the [#permalink] New post   17 Apr 2023, 14:22
Low Mortgage rates resulted in a period of the most robust home sales ever. This means that the prices for all homes should increase due to the stratospheric increase in demand. But the resale home prices have actually decreased, implying that the demand for resale homes has also decreased. Hence the only way this paradox can be explained is if the demand for new homes has increased, thereby resulting in new home prices rising.
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Re: A prolonged period of low mortgage rates resulted in a period of the [#permalink] New post   07 May 2023, 18:30
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Bunuel 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 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.



This is a CR Butler Question



OFFICIAL EXPLANATION



E

During a period of robust home sales, one would expect the prices of all homes to increase; that would be the natural effect of the law of supply and demand. The question tells us, however, that the real price of resale homes during this period actually decreased. Thus, it is reasonable to assume that the demand for resale homes decreased. How can we resolve this apparent contradiction? If all the increased demand for homes was in the new home market, then it would be possible that the overall increase in home sales would not result in an increase in resale home prices and may, in fact, even accompany a drop in those prices. The best answer is E.
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Re: A prolonged period of low mortgage rates resulted in a period of the [#permalink]
07 May 2023, 18:30
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