In a defined competitive market, 96 comparable sales settled during a single calendar quarter (3 months), and 160 comparable listings are currently active. What is the indicated monthly absorption rate, and how many months of housing supply do the active listings represent at that rate?
Correct Answer
D) Absorption 32 sales/month; inventory 5 months
A quarter has three months. Absorption=96/3=32 sales/month. Inventory duration=160/32=5 months. These are an historical average velocity and a conditional duration, not the predicted selling period for an individual property.
Why This Is the Correct Answer
Option D is correct because absorption equals 96 sales / 3 months = 32 sales per month, and months of supply equals 160 listings / 32 per month = 5 months. This follows the Form 1004MC structure of total sales divided by months, then total listings divided by the absorption rate. These are an historical average pace and a conditional duration, not a prediction of how long a single property will take to sell.
Why the Other Options Are Wrong
Option A: Absorption 96 sales/month; inventory 1.67 months
Option A, absorption 96 sales per month and 1.67 months of inventory, treats the whole quarter's 96 sales as one month's sales, so 160 / 96 = 1.67. The 96 sales took three months, giving 96 / 3 = 32 per month and 160 / 32 = 5 months.
Option B: Absorption 32 sales/month; inventory 15 months
Option B, absorption 32 sales per month with 15 months of inventory, has the right absorption but the wrong supply figure; 15 results from multiplying 160 / 32 = 5 by 3 again, converting to months twice. At 32 sales per month, 160 listings represent 5 months of supply.
Option C: Absorption 8 sales/month; inventory 20 months
Option C, absorption 8 sales per month with 20 months of inventory, treats the 96 sales as an annual count and divides by 12: 96 / 12 = 8, then 160 / 8 = 20. The sales occurred in one quarter, so absorption is 96 / 3 = 32 per month and supply is 160 / 32 = 5 months.
Per Month First, Then Divide
Turn the sales count into sales per month before anything else, then divide listings by that monthly pace.
How to use: Use this order to avoid mixing quarterly, annual and monthly figures.
Exam Tip
Check the time period of each sales count in the stem and convert it to a monthly figure before computing months of supply.
Common Mistakes to Avoid
- -Using a quarterly count as a monthly rate
- -Dividing a quarterly count by 12 as if it were annual
- -Treating months of supply as the expected marketing time for the subject
Concept Deep Dive
Analysis
This question tests converting a quarterly sales count into a monthly absorption rate and then computing months of supply. A quarter is three months, so absorption is 96 / 3 = 32 sales per month, and 160 active listings / 32 = 5 months of supply. Wrong answers come from using the wrong time base at either step.
Background Knowledge
Absorption rate is the rate at which available properties are sold or leased in a market over a given period. Months of supply equals current listings divided by the monthly absorption rate. Lower months of supply generally indicates a tighter market, while higher supply suggests more competition among sellers.
Real-World Application
An appraiser finds 96 comparable sales in the last quarter and 160 active listings. With about 5 months of supply, the appraiser describes the market's supply and demand balance on the market conditions addendum.
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