Question about oversupply

[Ultraviolet]

I'd like some feedback on when fellow forumites check the dreaded (in mortgage-speak) oversupply box.

I'm working in a large PUD of several thousand homes (and several thousand more planned). There is some new construction but the section I'm in is developed and has plenting of existing home sales and inventory.

MLS only (no builder stats available): 68 sales in the last 6 months - average DOM of 50. Currently 172 actives with average DOM of 58.

There are 14 active-contingent (inspection period) average DOM of 63 and 24 pendings average DOM of 55.

In the most simplistic terms there is at least an 11 month supply of existing houses, in addition to new construction competition.

I'm leaning toward an oversupply, but based on the subject's listing history I'm wondering if maybe the real issue is stubborn sellers who won't lower their prices.

This is a purchase - on the market for 142 days before they brought the list price down to reality. It sold within 5 days of a price reduction of $15,000.

Any comments would be appreciated.

 

[Christine Marie]

I'm leaning toward an oversupply, but based on the subject's listing history I'm wondering if maybe the real issue is stubborn sellers who won't lower their prices.

This is a purchase - on the market for 142 days before they brought the list price down to reality. It sold within 5 days of a price reduction of $15,000.

greed, can be a very lengthy, process thingy.. .

have you looked at the sales price to list price ratio, to further evaluate if they are out of the loop, and then still out of the loop.....


sounds like my market....

 

[Mike Kennedy]

I'm working in a large PUD of several thousand homes (and several thousand more planned). There is some new construction but the section I'm in is developed and has plenting of existing home sales and inventory.

I'm leaning toward an oversupply, but based on the subject's listing history I'm wondering if maybe the real issue is stubborn sellers who won't lower their prices.

This is a purchase - on the market for 142 days before they brought the list price down to reality. It sold within 5 days of a price reduction of $15,000.
Any comments would be appreciated.

R- sounds like a typical "trial balloon" by the builders to ascertain market acceptance on pricing the (planned several thousand more).......not uncommon. 142 days DOM vs less than half that at market .......id' say the market says your conclusion is correct.

a. any competing PUDS in market from which to analyze re-sale DOM and L to S ratios?
b. any pre-construction discounts factored into the shorter DOM closed sales? (wouldnt be too focussed on the actives )
c. when did the development first come on the market (pre-construction)??
perhaps the DOM factors only indicate MLS listing dates?
d. do you have prospectus which includes estimated marketing time for each phase as part of the marketing plan? may find your "oversupply" answers from there / and / or comparison to other PUDS.

From Freddie Mac:


Quote:
Comparables taken from the competing neighborhood are better indicators of current market trends in the subject neighborhood than the existing comparables available in the subject neighborhood

For properties located in established subdivisions or for units in established Condominium or PUD projects or ground lease communities (those that have resale activity), the appraisal report may use three comparable sales from within that subject project or subdivision. However, if the subject property is in a controlled market (such as a new subdivision or project, a newly converted project or an area where the property seller owns a substantial number of units), at least one comparable sale must be outside the influence of the developer, builder or property seller. Resales from within the subject project or subdivision may be used to meet this requirement. When comparable sales from outside the subject project or subdivision are used, they must also be outside the influence of the subject property's developer, builder or property seller.


From Fannie Mae:


Quote:
For properties in new subdivisions or for units in new (or recently converted) condominium or PUD projects, the appraiser must compare the subject property to other properties in its general market area as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. Generally, the appraiser should select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, as long as the appraiser considers it to be a good indicator of value for the subject property. In selecting the comparables, the appraiser should keep in mind that sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project as long as the developer or builder of the subject property is not involved in the transactions.

 

[Mike Boyd]

Rae, through the years I have found numerous periods when there appears to be an over-supply. I think this occurs after values have peaked and some people--maybe many--who had purchased strictly for a potential profit, hope to sell before a decline in value becomes severe. I don't look at those owners as typical for the market....they just hope to make a profit and if they do they consider themselves astute investors. If they don't, they sit tight and convince themselves they bought for the long term anyway. 10 sales a month is not something to sneeze at. It reflects an active market and not one that suggests slow sales. Compare the listing prices to those that have sold. If that ratio is normal for your area, I would not call it an over-supply. Also, look at the prices of the NEW homes under construction and whether or not they are offering overly generous incentives.

 

[J Grant]

In above case I wold not click over supply but might mention in addendum that the only listings going into contract are those where prices are lowered. In my market I am starting to mark oversupply in some subdivisions, where I see real low ratio of sales in contract with lots of listings and marketing times over 6 months. things can be different from community to another another so one can't generalize about a whole region

 

[Ultraviolet]

Thanks, everyone. Some really good things to think about and apply to my current assignment.

I wish agents weren't playing the "withdraw and relist after 30 days - multiple times" game. It's nearly impossible to get an accurate picture of true DOM.

All comments are much appreciated!

 

[Karl]

On same idea BUT a SURE way to get more vacation time,; When do you check DECLINING ??

 

[Pat Butler]

I would most certainly call an 11 month supply an over-supply. Yes, those people with houses on the market probably are over priced, but that's what always happens with an oversupply- almost by definition.

In your case, you have a lot of sales to analyze for data, so I think your data is especially reliable because if just doesn't represent a few ignorant sellers, but rather, a whole market.

 

[Christine Marie]

I'd like some feedback on when fellow forumites check the dreaded (in mortgage-speak) oversupply box.

I'm working in a large PUD of several thousand homes (and several thousand more planned). There is some new construction but the section I'm in is developed and has plenting of existing home sales and inventory.

MLS only (no builder stats available): 68 sales in the last 6 months - average DOM of 50. Currently 172 actives with average DOM of 58.

There are 14 active-contingent (inspection period) average DOM of 63 and 24 pendings average DOM of 55.

In the most simplistic terms there is at least an 11 month supply of existing houses, in addition to new construction competition.

I'm leaning toward an oversupply, but based on the subject's listing history I'm wondering if maybe the real issue is stubborn sellers who won't lower their prices.

This is a purchase - on the market for 142 days before they brought the list price down to reality. It sold within 5 days of a price reduction of $15,000.

Any comments would be appreciated.

rae, i read pat's post, and yes, when you check that box 'oversupply', and the next one, which would make reference to 'increasing, stable or decreasing' and the next one marketing time, herein is the two fold scenario.... if the subject appropriately offered at a marketable level was a negotiated contract at the less than ridiculous previous offering price in five days? to me, that speaks volumes, REALTORS and FSBO's don't make the market price, they just play with it...... we do not have to assume anything is ever offered at the right price, sometimes all we have is a round peg that is supposed to fit into the square...

my own penny worth

 

[Elliott]

Checking the "over supply" box is like hitting the
"declining" value box. The appraiser that checks
it is required to "prove" or write addnedum adnausuam.

I've recently switched from "shortage" box to the
"in balance" box.....because listings in the last six
months have increased by 50% and are back where
they were 3 years ago.

Its better not to check the "third rail" boxes and
reflect the market in your value estimate, IMO.

Elliott