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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Kind of late to reply but I guess its better to be late than never :D
I got to the conclusion thru POE,

If more High Priced houses are sold then average price of the houses sold will increase.

Hence A.
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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.

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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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.

IMO A
for me A and E were tempting!
Reason for A:
If the sale of expensive houses is not affected then the avg price of the new houses sold will be high as mostly the higher priced houses r getting sold!

Reason for E:
Although, E sounded good too, but even if the rates are expected to increase then also it does not mean that the prices of the new houses sold will increase. Also, nothing can be concluded about the average price of the new houses sold.

Hence, i Chose A
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I guess A but even then is not very clear because in no part of the argument does it mention the share of higher priced houses on the overall market. Mind you, if these were only 1% of the total market then it would not cause average prices of new houses to increase sharply

You get the point

Cheers
J

Hello jlgdr.

My opinion, the wording is a bit tricky. Let read the last sentence one more time.
"This large sales drop was accompanied by a sharp rise in the average price of new houses sold"

The argument just says that the average price of houses that were SOLD increased sharply. On the other hand, the argument provides facts of TOTAL new house market, but the last sentence ONLY focus on A SUB-DIVISION of the market - new houses SOLD. Be aware, the argument does not say the average price of ALL new houses increased sharply. Readers may be fallen in trap by thinking that the argument said that the average price of new houses in general had increased sharply.

Back to option A.
Option A: Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
A only focuses on houses that were sold. Because their price were not affected by the sale drop, their average price could increase. Clearly, the paradox is resolved.

Your example "if these were only 1% of the total market then ......" does not help to evaluate the argument. It does not matter 1% or 50%, because the argument does not talk about average price of total new houses market but a small segment - new houses sold.

Hope it's clear.

1. PEOPLE ARE NOT BUYING HOUSES AS THEY WANT TO SEE FURTHER FALL IN INTEREST RATES.....as in jan this year..

2. SINCE SALE OF HOUSES LESS, THEIR AVERAGE PRICE SHOULD FALL.....

3. HOWEVER, SHARP INCREASE IN AVERAGE PRICE OF HOUSES......


WE NEED TO EXPLAIN......

AVERAGE PRICE WILL INCREASE IF SALE OF SOME HIGH PRICE HOUSES UNAFFECTED BY THE DECREASE IN INTEREST RATE PHENOMENA...SUCH HOUSES PRICE WILL CONTINUE TO ESCALATE AND ALSO will increase the overall average price of all 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. correct
(B) Labor agreements of builders with construction unions are not due to expire until the next January. WHAT IS THIS TO DO WITH THE ARGUMENT! WRONG...
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing. There may have been shortage of housing in last three years.... BUT FROM JAN THERE IS AN INCREASE ... AND WE ARE TALKING OF THAT.... HENCE WRONG...
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months. WE ALREADY KNOW THIS... IF PEOPLE WAIT... AVAILABILITY WILL INCREASE... HENCE WRONG....
(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. WE are not worried about what will happen to interest rates......IN FUTURE.... HENCE WRONG...


KUDOS IF YOU PLEASE....

Summary of passage: number of new houses sold decreased because interest rates were decreasing and people wanted to see how low rates would go. At the same time the average price of a new houses sold increased. We are looking for an explanation where the number of houses being sold has decreased but the average price of houses sold has increased.

(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
Keep-this statement gives us a reason why the average price of houses being sold is increasing despite the number of houses being sold decreasing.
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
Irrelevant-we want to know about housing prices
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
Eliminate- this tells us that prices are rising but doesn't give us a reason why they rose sharply during this specific timeframe
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
Eliminate-This would weaken the argument because it is the opposite of what we are looking for. If inventory was high but demand was low, the prices should drop, not increase.
(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
Eliminate-irrelevant- the passage doesn't mention anything about mortgage rates

Always identify the paradox.

Here it's "Even though the demand for houses dropped, the AVERAGE sale price of houses rose sharply"

Answer choice A explains how could such a scenario could occur.

Let's say that, in a typical January, 10 houses are sold.
The sale prices are typically, $100K, $100K, $100K, $100K, $200K, $200K, $200K, $200K, $900K, and $900K, for an AVERAGE sale price of $300K

Answer choice A says that the rich people continued to buy houses while the other potential buyers (who might buy the $100K and $200K houses) waited to see what happened with mortgage rates.
So, of the 10 houses what would typically sell, only the expensive $900K houses sold.
So, if the two $900K houses sold, the AVERAGE house price would increase sharply from $300K to $900K

Answer: A

Cheers,
Brent
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I narrowed down the answer choices to A and C, but chose A. Here's my reasoning why:

The prompt highlights a sudden increase in the price of new houses that are sold. The key word here is "Sudden increase".

Option C talks about "Gradual Increases" in prices. But this won't be enough because we are trying to explain why there is a "SUDDEN" Price increase.

Only option A does this effectively.