What is your definition of Oversupply?

[Mztk1]

I called my neighborhood in an oversupply once on an appraisal for an agent's house who lives here (an agent I greatly respect, BTW). In a news letter for the project that she sends out, like all good agents do, she has this long artical on my subdivision and how it is not in an oversupply and how those who think it is are wrong. Hmmmm, I thought.

Her reasoning? We are a neighborhood of 500 houses and only 42 are for sale. If the average person owns their house for 5 years that means we should see 100 sales a year on average, and if marketing times are acceptable up to 6 months, then any number under 50 houses listed at any given time represents a balanced market.

About three weeks later I was asked to "transfer the appraisal to another company", and of course, that is a new assignment. I made sure in my addendum I specifically wrote:

"There are currently 42 houses listed for sale and in the past 12 months the neighborhood has had 10 closed and or pending sales. The average list price is slightly below the past 12 month average sale price, and marketing time is in excess of 6 months for twenty-six of fourty-two active listings, several of which exceed 600 days on market. At such a rate, assuming all things remain equal, the absorption rate for the currently active listings is just over 4 years, which constitutes an oversupply."

I did like here theory on the 5 year thing, though. It goes to show, there are so many ways to determine, but each market has to be read on its own current condtiion.

 

[Mike Garrett RAA]

And the next blind man felt the elephant's *** and said...."an elephant stinks!" Supply and Demand isn't exclusive of real estate, it's basic to economics. More supply than demand...over supply!.

 

[Couch Potato]

And the next blind man felt the elephant's *** and said...."an elephant stinks!" Supply and Demand isn't exclusive of real estate, it's basic to economics. More supply than demand...over supply!.

Yes, and if the numbers never changed it would be very simple. One could simply plot a couple of line on a graph and look for the intersection. Unfortunately demand constantly fluctuates making a the call on oversupply an ever moving target. We have the data on the past, but did the chicken plant close two weeks ago putting hundreds out of work, or did the new regional hospital start hiring its support staff? Only 5 houses closed each of the last 5 months, but the average list price this month is 15% lower than it was for those months. Is the sales count from the past few months appropriate for evaluating the current supply?

It is basic to the economy, but it is hardly a simple matter.

 

[Mztk1]

A favorite Nietzsche Quote of mine:

"Alle Wahrheit ist einfach-ist, dass nicht eine zusammengesetzte Lüge?"
"'All truth is Simple' -is that not a compound lie?"

Sorry in advance for my bad German, but I try.

 

[moh malekpour]

You cannot isolate the supply from the demand and always the demand comes first. In order to find out whether the supply is increasing, decreasing or remains estable, you got to analyze the demand. Which one came first at the beginning of civilization, the man or the shelter?

 

[Kevin Mc]

Many realtors consider an inventory of three to six months worth of unsold homes to be a balanced market.

Bingo. High end markets can be 12-18 months, Low end markets can be the same (currently due to financing issues). I have seen in my market (which has experienced limited declining areas) numbers being consistent to what I posted. Restricted financing is most likely reeking more havoc than anything else.

 

[ZZGAMAZZ]

Wouldn't it be logical to assemble a relatively small taskforce of experienced appraisers who could study the issue and generate a position paper to include a template, or a formula, to apply in the majority of residential appraisals. (There being nothing inherently wrong with templates despite the bad rap from Formulites concerning inappropriate application.)

. . . oh, I forget, there is no cohesiveness among appraisers, and no industry model to facilitate communication among peers on a formal basis.

 

[Couch Potato]

You cannot isolate the supply from the demand and always the demand comes first. In order to find out whether the supply is increasing, decreasing or remains estable, you got to analyze the demand. Which one came first at the beginning of civilization, the man or the shelter?

Ah yes, and if demand is increasing faster than supply is increasing we get a shortage even in an increasing supply situation. Likewise supply may be decreasing, but is demand is decreasing at a faster rate we get an oversupply situation. If there is no demand, one house is an oversupply situation.

It is just a check box on a 1004, but it does require substantial market knowledge and analysis to support that check.

 

[ZZGAMAZZ]

Don: My comment implied that market analyses can't matter because the concepts aren't defined, or if so the definitions--from a practical appraisal perspective--are a very closely held secret. Consequently, the market analysis included in a typical residential SOW is a pedantic exercise valued by appraisers as a form of self-aggrandizement . . . "full of sound and fury" so to speak...kinda like one of my graduate advisors once told when I was having trouble determining which statistical model to apply to a RESEARCH paper. . . he said, "the key to getting your thesis finished is to realize that nobody...nobody...gives a ****..."

 

[Mike Garrett RAA]

And that is why appraisal is an art form and not science.