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

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

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New post 19 Jan 2010, 09:36
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47% (01:35) correct 53% (01:56) wrong based on 1158 sessions

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

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New post 18 Apr 2012, 13:01
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The key here is the term "average price of home."

In answer choice (A) it gives us a concrete reason for why the average price of homes would increase: the number of expensive homes sold was higher than usual. Since the rest of the housing market - cheap homes to average priced homes - is not doing as well, the average price of homes sold is going to increase. Even if the number of expensive homes sold remained the same, the average price would still increase if the number of medium-priced homes sales decreased.

In answer (C), we are no longer dealing with averages but with number of units sold. However, we are not worried here about the number of houses sold per se, but the average price of homes sold.

Hope that helps :)
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Re: In January there was a large drop [#permalink]

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New post 19 Jan 2010, 14:47
OA is

Explain ur logic pls
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Re: In January there was a large drop [#permalink]

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New post 15 Apr 2010, 08:00
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Kind of late to reply but I guess its better to be late than never :D
I got to the conclusion thru POE,

SudiptoGmat 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.-- Irrelavent

(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing. --- Okay, this doesnt expain why the prices rose sharply, in fact this says that the prices have been rising slowly over the past, but the question why the prices rose sharply - So basically tempting wrong answer :)

(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months. -- This infact weakens it, if the supply is high and demand low then prices should go down.

(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-- This again is irrelavent as in the passage it never mentiones about the increase in the mortage rate
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Re: In January there was a large drop [#permalink]

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New post 15 Apr 2010, 17:17
I also think it is A.
Can somebody send the correct answer please.
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Re: In January there was a large drop [#permalink]

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New post 16 Apr 2010, 01:08
sibijosephv wrote:
I also think it is A.
Can somebody send the correct answer please.

The OA is mentioned in the above post. It is A.

A and C are the tempting choices.
C, I think, contradicts the premise. It indicates housing shortage, whereas premise is about sales drop. Am I right here?
BTW, I picked A as well.
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Re: In January there was a large drop [#permalink]

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New post 27 Apr 2010, 05:57
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Can someone please explanation why A is correct?

There is no detail in the stimulus regarding higher-priced houses.
People were waiting for mortgages rate drop in January. So, the number of sold house fell. This was accompanied by sharp rise in prices.

This is obvious, as the dealers want to balance their profits. So, C fits the best here.
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Re: In January there was a large drop [#permalink]

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New post 27 Apr 2010, 13:18
ykaiim wrote:
Can someone please explanation why A is correct?

There is no detail in the stimulus regarding higher-priced houses.
People were waiting for mortgages rate drop in January. So, the number of sold house fell. This was accompanied by sharp rise in prices.

This is obvious, as the dealers want to balance their profits. So, C fits the best here.


I boiled down to A by POE, but to answer your question C is wrong because in the question stem it asks why the prices rose sharply and in C it says the prices have been rising slowly and steadily from last 3 years which is in contradiction to the question stem and it does not explain why the prices rose sharply.

Hope that helps ..!

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Re: In January there was a large drop [#permalink]

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New post 31 Aug 2010, 08:21
sharp rise in the average price of new houses sold.

I thought we are dealing with new houses ONLY.
(A) deals with houses (expensive ones), not necessarily new houses. I would have thought that this could be the shell game ; similar concept with slight difference. If the houses mentioned are new houses, it would explained it .
(C) At least we are dealing with new houses here. the prices were rising slowly because the mortgage were higher. When the mortgages fall,the shortage of new housing combined with lower mortgages will drive the price up real fast

I'm sticking with C :roll:
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Re: In January there was a large drop [#permalink]

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New post 02 Sep 2010, 03:47
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If more High Priced houses are sold then average price of the houses sold will increase.

Hence A.
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Re: In January there was a large drop [#permalink]

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New post 02 Sep 2010, 07:34
Actually bit confused between A and C :(
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Re: In January there was a large drop [#permalink]

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New post 02 Sep 2010, 12:12
C doesn't explain the sharp rise in housing price. A is the best.
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Re: In January there was a large drop [#permalink]

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New post 02 Sep 2010, 12:18
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I said (A) immediately. The argument is that the overall number of houses being sold is down due to people waiting for interest rates on mortgages to drop to a minimum. If at the same time, the average price of houses being sold is going up, it follows that the houses still being sold cost more money. The people who would buy more expensive houses wouldn't be (as) concerned with the interest rates on mortgages, so they're still buying their homes.

(C) doesn't work because it mentions a housing shortage, but if sales are down, there would actually be an EXCESS of houses, not a shortage.
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Re: In January there was a large drop [#permalink]

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New post 03 Sep 2010, 03:13
A and C seems close but will go with A
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Re: In January there was a large drop [#permalink]

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New post 18 Jan 2011, 00:47
I have managed to leave A as an ans. because other answer options couldnot withstand the test of appropriateness to the premise.
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Re: In January there was a large drop [#permalink]

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New post 15 Apr 2011, 10:39
+1 A

The average price increased because the percentage of expensive houses sold of the total sold has increased in january.
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Re: In January there was a large drop [#permalink]

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New post 20 May 2011, 08:22
A and C come close.

C says that prices have been increasing steadily. Thats the fallacy used.

A says that high priced houses might have caused the sharp price rise,as lesser buyers automatically translates to increase in prices.

A it is.
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Re: In January there was a large drop [#permalink]

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New post 20 May 2011, 09:28
A because of rise in avg price of household sold..

nice question..
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Re: In January there was a large drop [#permalink]

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New post 29 Jun 2011, 23:25
Option A seems to be the best answer

My explanation:

average price of new houses sold (Z) =
((average price of High-price house sold * Nbr of High-price houses sold) + (average price of Low-price house sold * Nbr of Low-price houses sold)) / (Nbr of High-price houses sold + Nbr of Low-price houses sold)

That is

Avg = (A*B ) + (C*D))/(B+D)
Where A (average price of High-price house sold) < C (average price of Low-price house sold)
and B (Nbr of High-price houses sold) is constant but D (Nbr of Low-price houses sold) has Decreased

So its quiet evident that "average price of new houses sold (Z)" would increase
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Re: In January there was a large drop in the number of new [#permalink]

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New post 18 Apr 2012, 06:55
First of all this is Not a strengthen type Q. This is more like Resole the paradox.
So, two contradictory facts are given. We have to answer: why average price of sold house has gone up, while the demand is supposed to be low. Only A answers the question clearly.
pre-phrasing the answer helps.
Re: In January there was a large drop in the number of new   [#permalink] 18 Apr 2012, 06:55

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