Tony
Like everything else in the analysis used in writing an appraisal, you can make it complicated to prove an obscure point or you can do what is necessary to draw a logical and factual conclusion.
We are and have been operating in a general market area that is almost in every specific market, in an over supply condition.
What we use to be able to make and support a statement that the market is in balance or an over supply condition (under supply won't be back for a couple of years I'm afraid) is to look at the average DOM for the sales in the particular properties price/size range. Suppose the average DOM is 194 DOM and that in the past 12 months, within the defined market area, there have been 12 sales. Some sold at the beginning of the period, some along the way and some at the end of the 1 year period. That means that if there are 12 properties on the market right now(without any major changes in the economic climate and sales appear to be holding steady at last years pace), the anticipated marketing time to sell all of these properties should be similar (194 DOM). If right now there are 24 similar listings on the market, then we can logically say that we have about a 388 days supply of houses on the market. This is based on the assumption that all will sell. We would call that an over supply condition in the market. In other words, the present supply will not be sold or absorbed by the market in the anticipated marketing time of 194 days. All things being equal, 12 of them should sell in that period of time and the balance of them should sell in the next 194 days.
One thing that you have to remember is that a market in balance will have slightly more offerings than will we used up by sales in the given anticipated marketing time. In a market with a 6 month anticipated marketing time, I would consider a 7 to 8 month supply of houses to be a market in balance.
It is not scientific; there are much more precise ways of measuring using Excel and regression analysis but this data in this simple form is enough for our clients needs in making a lending decision. It is not necessary to write a doctoral dissertation on the market condition in order to supply the information that the client needs for a simple lending consideration.
You do not have to make a simple task difficult and not understandable for the conclusions to provide acceptable and usable results.
