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E
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
75%
(hard)
Question Stats:
53% (01:57) correct
47%
(02:06)
wrong
based on 213
sessions
History
Date
Time
Result
Not Attempted Yet
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.
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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03 Sep 2025, 03:42
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Ok... so... this problem is definitely written with choice E as the intended correct answer—turning on the fact that the housing market as a whole can be broken down into two mutually exclusive parts: "resale homes" (i.e., homes that AREN'T new), as mentioned in the prompt, and "new homes", as mentioned only in choice E.
The reasoning behind choice E is simple: if a statistical trend is confined to just one of these two segments (appreciation of new homes only), then it's possible for a counter-trend to obtain in the other segment (depreciation of resale homes).
.
Having said all that... this problem is deeply flawed. The big issue is that, when you read "a period of the most robust home sales ever", you're expected to infer HIGHER prices. That flies directly in the face of basic market economics (in normal markets, LOWER prices bring higher consumer demand and therefore higher sales quantities), so, insofar as this might be true, it's an esoteric quality of the housing market specifically.
The GMAT NEVER calls on non-trivial outside technical knowledge of any kind, so, there's just no way you could possibly be asked to make an inference like this. (The closest you'll conceivably get would be in RC—if a passage were to explicitly state such a correlation and then you were served a detail-level question based on that explicit statement.)
(The actual reason why housing often sees an upside-down demand curve—with surges of sales happening when prices are higher—is because typical homebuyers frame their budget in terms of a maximum MONTHLY MORTGAGE PAYMENT that they're willing to be responsible for, NOT a maximum home price that they're willing to pay. A fixed monthly payment buys a much more expensive home at lower mortgage rates: e.g., if Bobby and Brenda Buyer are willing to make a monthly payment up to $3,000, then at 7% annual interest for a 30-year mortgage term, the Buyers can only afford a $384,000 home [net of down payment], but at 3% annual interest for the same 30-year term, the Buyers can afford a $566,000 home! THIS is why higher prices and higher sales volumes often coexist for housing, in violation of basic Econ 101 rules.)
.
"Adjusted for inflation" is also a problematic concept here, because the single biggest component of the 'basket of goods' used to gauge inflation rates is... well, housing prices😅. (Of course, this is another piece of outside knowledge that will never be required for the GMAT.) Accordingly, the references to "adjustments for inflation" in this problem are essentially circular reasoning—a lot like saying "housing prices adjusted for housing prices", lol.
Technically this isn't a functional flaw in the problem (since reasoning behind the correct answer doesn't use the concept of inflation in any way), but, I don't think I've seen any official GMAT problems that contain logical/rhetorical fallacies like circular reasoning.
The reasoning behind choice E is simple: if a statistical trend is confined to just one of these two segments (appreciation of new homes only), then it's possible for a counter-trend to obtain in the other segment (depreciation of resale homes).
.
Having said all that... this problem is deeply flawed. The big issue is that, when you read "a period of the most robust home sales ever", you're expected to infer HIGHER prices. That flies directly in the face of basic market economics (in normal markets, LOWER prices bring higher consumer demand and therefore higher sales quantities), so, insofar as this might be true, it's an esoteric quality of the housing market specifically.
The GMAT NEVER calls on non-trivial outside technical knowledge of any kind, so, there's just no way you could possibly be asked to make an inference like this. (The closest you'll conceivably get would be in RC—if a passage were to explicitly state such a correlation and then you were served a detail-level question based on that explicit statement.)
(The actual reason why housing often sees an upside-down demand curve—with surges of sales happening when prices are higher—is because typical homebuyers frame their budget in terms of a maximum MONTHLY MORTGAGE PAYMENT that they're willing to be responsible for, NOT a maximum home price that they're willing to pay. A fixed monthly payment buys a much more expensive home at lower mortgage rates: e.g., if Bobby and Brenda Buyer are willing to make a monthly payment up to $3,000, then at 7% annual interest for a 30-year mortgage term, the Buyers can only afford a $384,000 home [net of down payment], but at 3% annual interest for the same 30-year term, the Buyers can afford a $566,000 home! THIS is why higher prices and higher sales volumes often coexist for housing, in violation of basic Econ 101 rules.)
.
"Adjusted for inflation" is also a problematic concept here, because the single biggest component of the 'basket of goods' used to gauge inflation rates is... well, housing prices😅. (Of course, this is another piece of outside knowledge that will never be required for the GMAT.) Accordingly, the references to "adjustments for inflation" in this problem are essentially circular reasoning—a lot like saying "housing prices adjusted for housing prices", lol.
Technically this isn't a functional flaw in the problem (since reasoning behind the correct answer doesn't use the concept of inflation in any way), but, I don't think I've seen any official GMAT problems that contain logical/rhetorical fallacies like circular reasoning.
This Question is Locked Due to Poor Quality
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The question you've reached has been archived due to not meeting our community quality standards. No more replies are possible here.
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07 Sep 2025, 07:30
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Bunuel
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.
