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# In January there was a large drop in the number of new

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Director
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In January there was a large drop in the number of new [#permalink]

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18 Sep 2005, 17:48
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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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Cheers, Rahul.

Manager
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18 Sep 2005, 18:34
A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.

Sales of high priced homes now comprise a greater percentage of a shrinking total sales figure, hence average price increases.
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18 Sep 2005, 20:36
A because the higher price homes are for those who are not worried about saving money. Therefore, it would not affect those who would want to purchase a higher price home regardless of the decrease in mortgage rates.
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18 Sep 2005, 20:41
A because people who can afford a slightly higher interest rate will purchase the house anyway, rather than timing the market to the second.
Director
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18 Sep 2005, 21:05
I see it! Thanks guys! OA is A indeed!
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Cheers, Rahul.

18 Sep 2005, 21:05
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