A market has 240 active listings and sells 30 a month. What is the months of supply?
Correct Answer
B) 8 months of supply
Why this is correct: 8 months of supply. The governing concept is months of supply = (Active Listings) / (Monthly Absorption Rate). Calculation: 240 active listings divided by 30 sales per month = 8 months of supply. Why the other choices are wrong: 6 months of supply would result from 180 listings (240/30=8, not 6). 10 months of supply would require 300 listings. 12 months of supply would require 360 listings. Exam tip: Months of supply = Total active listings / Average monthly sales rate. A result above 6-7 months often indicates a buyer's market.
Why This Is the Correct Answer
Months of supply is inventory divided by monthly sales, so 240 listings divided by 30 sales per month gives 8 months.
Why the Other Options Are Wrong
Option A: 6 months of supply
Six months would correspond to 180 listings at this sales pace, and is the conventional balance point rather than this market's figure.
Option C: 10 months of supply
Ten months would require 300 listings at 30 sales per month.
Option D: 12 months of supply
Twelve months would require 360 listings at this absorption rate.
Inventory Over Absorption
Inventory Over Absorption. How long to sell everything on the shelf at today's pace.
How to use: Compare the figure with six months to characterise the market, and watch the trend rather than the level alone.
Exam Tip
The measure supports the exposure time and marketing time estimates as well as the market conditions adjustment.
Common Mistakes to Avoid
- -Inverting the ratio
- -Reading the level without the trend
- -Treating six months as a rule rather than a convention
Concept Deep Dive
Analysis
Months of supply is inventory divided by absorption rate — 240 active listings divided by 30 sales per month gives 8 months. The measure answers a practical question: at the current pace of sales, how long would it take to sell everything now on the market if nothing new were listed. That framing is what makes it useful for market conditions analysis. Conventional interpretation treats roughly six months as balance between buyers and sellers, below that a seller's market with upward price pressure, and above it a buyer's market where prices soften. Eight months therefore indicates a market tilting toward buyers. For an appraiser the figure supports the market conditions adjustment and the reasonableness of the exposure time and marketing time estimates the assignment requires. The trend matters more than the level: supply moving from six months to eight signals a market changing direction, which is precisely what a time adjustment is meant to capture.
Background Knowledge
Months of supply equals active inventory divided by the monthly absorption rate. Roughly six months is conventionally treated as a balanced market, with lower figures favouring sellers and higher figures favouring buyers.
Real-World Application
An appraiser computes 8 months of supply, notes the trend from 5 months a year earlier, and supports a slight downward market conditions adjustment.
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