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Oversupplied Market

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cobia

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Oct 24, 2007
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Certified Residential Appraiser
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South Carolina
We are having discussions in the office as to what exactly constitutes an oversupplied market. Is it a 6 month inventory? 1 year? 2 year? It seems that everyone has a differing opinion and we are unable to locate an exact answer. What do you think?
 

PropertyEconomics

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Certified General Appraiser
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New Mexico
Cobia ... we have had this same discussion at an appraisal group to which I am the chair. The consensus was that it means different things to different appraisers, however, as a group we kind of concluded that anything over a 12 month supply represented oversupply.

The form also gives you some indications that this is true .... the way it is set up ... Oversupply, Declining Values, and Market Times of >12 months all fall together ....

Proof positive as to a conclusion? No. But some indication as to what the framers of the 1004 were thinking when they designed it.
 

Vegan702

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Feb 24, 2005
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Certified Residential Appraiser
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Nevada
I use 6 months as my cut off point in most cases.

It's under 3 months, 3-6 months and over 6 months on the form.

FWIW also I believe NAR uses 6 months as the cutoff when they are considering markets over supplied, in balance or under supplied.
 

Lloyd Bonafide

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Jan 15, 2006
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Certified Residential Appraiser
State
California
The form also gives you some indications that this is true .... the way it is set up ... Oversupply, Declining Values, and Market Times of >12 months all fall together ....

The form actually says >6 months, not 12.

Generally I would say anything over 6 months of active listings is an oversupply. Maybe in some areas over 8 months. Some areas may have a seasonal variation.
 

Mr Rex

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Jan 12, 2004
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North Carolina
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Riick

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Aug 14, 2007
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Certified Residential Appraiser
State
Delaware
Traditionally, when market in balance, a sale can take up to 6 months.
When it takes longer than 6 mos ((on average)) to sell a home, the R.E. market
generally is in decline, and supply naturally goes to over 6 months of homes.
.
I use 6 mos as the balance point between under and over supply.
 

Mr Rex

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North Carolina
How are you determining supply? I don't think that the # of listings versus # of annual sales is an analysis of supply. What is really needed is a true absorbtion analysis, but thats a whole 'nuther conversation I guess.

One local market has had roughly a 1 year supply of listings versus # of annual sales for the past 5 or 6 years. With minimal population growth and minimal new construction, I'd say its balanced. Has been for 5 or so years.:shrug:
 

Vegan702

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Feb 24, 2005
Professional Status
Certified Residential Appraiser
State
Nevada
How are you determining supply? I don't think that the # of listings versus # of annual sales is an analysis of supply. What is really needed is a true absorbtion analysis, but thats a whole 'nuther conversation I guess.

One local market has had roughly a 1 year supply of listings versus # of annual sales for the past 5 or 6 years. With minimal population growth and minimal new construction, I'd say its balanced. Has been for 5 or so years.:shrug:

There really is no one correct answer to the question posed. In my market anything over 6 months is generally considered an over supply. We have new construction and a sky rocketing population growth. In other markets it may be more or less than the 6 months, only your research will give you the answer you seek.
 

The Argus

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Feb 15, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
Interesting. I think average marketing times have a lot to do with it.

What are your methods for determining supply and demand?

I know some appraisers who look at as how many sold in 12 months compared to how many are active as of the effective date. I feel this leaves the door open for wildly inaccurate results and a very unreliable idea of what the current absorption rate is.

Aren't we trying to determine how many potential buyers are in the marektplace when we estimate demand? Data from more than 6 months ago isn't too useful in making the determination of current demand IMO.
 
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