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# Average price of new house

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Senior Manager
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Average price of new house [#permalink]

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07 Sep 2008, 07:48
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
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Senior Manager
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Re: Average price of new house [#permalink]

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07 Sep 2008, 08:00
Nihit wrote:
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

IMO A)
Manager
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Re: Average price of new house [#permalink]

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07 Sep 2008, 08:14
Nihit wrote:
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

A is good.
we have a decrease in the number of medium priced houses that are sold.we see number of high priced houses sold unchanged .hence average price of house should increase.
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Re: Average price of new house [#permalink]

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07 Sep 2008, 08:55
nmohindru wrote:
Nihit wrote:
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

IMO A)

Chan > there is no mention of medium houses .
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Re: Average price of new house [#permalink]

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07 Sep 2008, 09:09
Nihit wrote:
nmohindru wrote:
Nihit wrote:
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

IMO A)

Chan > there is no mention of medium houses .

Avg = Total price of n number of houses / n

Now number of homes sold are going down (both numerator and denominator on the fall) but the avg is going up. This is possible when the homes that are being sold are high end homes and those who buy them don't care much about IR. Its is possible that only 2 homes (both high end) got sold and the avg price might have shot up by 400K.
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Re: Average price of new house [#permalink]

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07 Sep 2008, 09:17
makes sense now , cheers icandy
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Re: Average price of new house [#permalink]

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07 Sep 2008, 09:20
IMO 'E'

Since the sales of the new houses is declining becoz the interest rates are going down.

If interest rates increases because of the improved economy, people who were waiting for the interest rate to go up have started to buy the new houses ..... and that created a spike in the prices of new houses.
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Re: Average price of new house [#permalink]

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07 Sep 2008, 09:27
amitkaneria wrote:
IMO 'E'

Since the sales of the new houses is declining becoz the interest rates are going down.

If interest rates increases because of the improved economy, people who were waiting for the interest rate to go up have started to buy the new houses ..... and that created a spike in the prices of new houses.

Its contradictory. The stem is saying that number of houses being bought are going down in the same month. If IR were to goo up later, people would be gobbling up the homes on the market right now.

On a diff note, FRE and FNM are gobbled up today by the government. Disastrous Monday for markets tomorrow.
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Re: Average price of new house [#permalink]

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09 Sep 2008, 12:34
Initially, thought of A. But, after looking at icandy's comments, A makes perfect sense.
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Re: Average price of new house [#permalink]

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09 Sep 2008, 12:39
IMO E ... tough one

EDIT : A .. make sense after a close look.. thanks icandy
Re: Average price of new house   [#permalink] 09 Sep 2008, 12:39
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