A consistent competitive market segment has 154 active listings and 84 closed sales during the latest 6-month window. Using that window’s average monthly sales pace, what months of inventory are indicated? Round to one decimal place.
Correct Answer
C) 11.0 months
Monthly sales = 84/6 = 14; months of inventory = 154/(84/6) = 11.0 months. Keep the stated numerator, denominator and units distinct. Common errors: dividing by total period sales instead of the monthly pace gives 1.8 months; adding the closed sales to the active listings gives 17.0 months; converting the answer to years gives 0.9 months.
Why This Is the Correct Answer
Option C is correct because the monthly sales pace is 84 / 6 = 14, and months of inventory = 154 / 14 = 11.0 months. Months of housing supply is total listings divided by the absorption rate. Using the monthly pace keeps the units in months.
Why the Other Options Are Wrong
Option A: 0.9 months
Option A is wrong because 0.9 months comes from 154 / 14 / 12, converting the 11.0-month answer into years and then labeling it as months. The correct figure is 154 / (84 / 6) = 11.0 months.
Option B: 1.8 months
Option B is wrong because 1.8 months comes from 154 / 84, dividing by total six-month sales instead of the monthly pace. Dividing by 84 / 6 = 14 gives the correct 11.0 months.
Option D: 17.0 months
Option D is wrong because 17.0 months comes from (154 + 84) / 14, adding the closed sales to the active listings. Only active listings are the supply: 154 / 14 = 11.0 months.
Listings over monthly sales
First turn total sales into sales per month, then divide listings by that number. Listings on top, monthly pace on the bottom.
How to use: Use this two-step order for any months-of-supply or absorption question.
Exam Tip
Convert sales to a monthly rate before dividing, and keep closed sales out of the listings count. Check that the answer's units match the question.
Common Mistakes to Avoid
- -Dividing listings by total period sales instead of monthly sales
- -Adding closed sales to active listings
- -Mixing up months and years in the answer
Concept Deep Dive
Analysis
This question tests calculating months of inventory from listings and a sales pace. First convert period sales to a monthly absorption rate, then divide active listings by that rate. With 84 sales over 6 months and 154 listings, the result is 11.0 months.
Background Knowledge
The absorption rate is the rate at which available properties are sold in a specific market during a given period. Months of supply, found by dividing active listings by the monthly absorption rate, shows how long current inventory would last at the current sales pace and helps indicate whether a market is balanced.
Real-World Application
An appraiser completing a market conditions analysis counts active listings and closed sales in the subject's segment over the last six months. Dividing listings by the monthly sales pace shows the months of supply, which the appraiser uses to describe market balance.
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