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

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Senior Manager
Joined: 26 Jun 2006
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In January there was a large drop in the number of new [#permalink]

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17 Aug 2006, 04:38
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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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Current Student
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17 Aug 2006, 05:14
Saw a similiar CR in the archives that used the same logic but was referring to cars instead of homes.

Answer should be (A). The affluent aren`t particularly threatened by a small dip in the economy, therefore, the homes they buy \$2M+ offset the average per home price for all the "small" \$200K homes that stay on the market.

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VP
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17 Aug 2006, 18:35
Picked E but not sure why it can be wrong

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17 Aug 2006, 18:39
A for sure. Same reasoning as gmatt.

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Senior Manager
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17 Aug 2006, 19:21
OA is (A)
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Intern
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17 Aug 2006, 19:24
A

"Sales of higher-priced houses were unaffected by the sales drop "
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18 Aug 2006, 00:39
Will go with A.

A and C both make sense. But having done so many CRs, I know that GMAT will find A best.

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18 Aug 2006, 00:39
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In January there was a large drop in the number of new

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