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How many months of supply is oversupply?

Discussion in 'General Appraisal Discussion' started by CSP 49, Nov 2, 2009.

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  1. CSP 49

    CSP 49 Member

    6
    Dec 2, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    I'm doing several condo appraisals and am coming up with substantial differences in absorption rate in the general market vs. my projects.

    How many months of inventory is considered oversupply?

    The absorption rate has been steadily increasing but with these apartment to condo conversions, foreclosures/new inventory is still outpacing sales.
     
  2. Randolph Kinney

    Randolph Kinney Elite Member
    Gold Supporting Member

    100
    Apr 7, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Excessive inventory should be looked at in a historical prospective and DOM.

    Months of inventory is coupled with declining markets or increasing markets.

    It is possible to have a declining market with very short DOM and a balance with inventory because it is driven by REOs. Normal listing take longer to sell if they are priced higher than distressed sales and may distort what is going on or visa versa.
     
  3. Joyce Potts

    Joyce Potts Elite Member

    19
    Feb 6, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    That's why I'm loving the 1004MC if done correctly! Just don't fill it in, read it.

    And I don't agree that excessive inventory should be looked at and judged within an historical perspective. In my market, we have unprecedented market conditions with current, competive listings that often have more (or as much) meaning than 90 day old closed sales.
     
  4. Elliott

    Elliott Elite Member

    57
    Apr 23, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Oregon
    CSP,
    So how many months of over supply do you have?
    How many projects are in auction?
     
  5. CSP 49

    CSP 49 Member

    6
    Dec 2, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    There's approximately 1 year supply. While the vast majority of the sales, pendings and actives are distressed (REO/Short) there are no bulk liquidation auctions by any large sellers.

    I guess this is causing me to overthink the meaning of oversupply when on one hand I have a year of inventory (which I consider high for most markets in Central FL) but have a steadily increasing absorption rate and low DOM of 35 days.
     
  6. Riick

    Riick Elite Member

    40
    Aug 14, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    Delaware
    AFAIC, if it were going to take me over 4 months to sell my house,
    though Fannie says it's normal, I'd sure think there's oversupply.
    At over 9 months to sell, I'd be sure there's oversupply
    At a year, I'd be tearing my hair out.

    For what it's worth, the original 1004 was set up so that the boxes would (theoretically) line up
    ... Declining/Oversupply/Over 6 mos
    ... Increasing/Shortage/Under 3 mos

    .
     
  7. Ken B

    Ken B Elite Member

    110
    Feb 18, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    If prices are declining, supply exceeds demand.

    If prices are stable, supply equals demand.

    If prices are increasing, demand exceeds supply.

    Notice that nothing was stated about marketing time, although changing marketing times may be leading indicators of future supply/demand characteristics.
     
  8. Bama Bayou

    Bama Bayou Senior Member

    0
    Oct 19, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Alabama
    Ken, I'm not buying that rationale. In my market we have a 15 month supply of beach front condos and prices have been stable in almost all market segments since March of this year. I don't think a 15 month supply for resort condos in the 200k to 500k price range is in balance with demand. The problem here is about 80% of the condos are waaaaay over priced relative to the asking prices of the constant influx of foreclosures.

    The supply and demand of foreclosed properties may be in balance, which may be the reason prices are stable, but not the overall market. The units with the inflated asking prices are next months foreclosures.
     
  9. Mike Garrett RAA

    Mike Garrett RAA Elite Member

    25
    Jan 14, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Would you believe...."it depends!"

    Should we base it on historic trends or forecasting?
     
  10. CSP 49

    CSP 49 Member

    6
    Dec 2, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    Kind of like the Supreme Court and porn. I know it when I see it.
     
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