In a defined competitive neighborhood supporting Fannie Mae B4-1.3-03 market-condition analysis, 195 comparable listings are currently active and the indicated months of housing supply is 6.5. Using the identity months of supply = active listings ÷ monthly absorption rate, what monthly absorption rate (sales per month) is implied?
Correct Answer
B) 30 sales per month
Monthly absorption = 195 active listings / 6.5 months = 30 closed sales/month. Keep the stated numerator, denominator and units distinct. Common errors: multiplying listings by months of supply instead of dividing gives 1268 sales per month; annualizing the monthly pace gives 360 sales per month; dividing by 12 again gives 3 sales per month.
Why This Is the Correct Answer
Option B is correct because monthly absorption = 195 active listings / 6.5 months = 30 sales per month. Checking: 195 listings / 30 sales per month = 6.5 months of supply.
Why the Other Options Are Wrong
Option A: 3 sales per month
Option A, 3 sales per month, comes from dividing by 12 again: 195 / 6.5 / 12 = 2.5, shown as 3. The months-of-supply figure is already in months, so no further division is needed; the answer is 30 sales per month.
Option C: 360 sales per month
Option C, 360 sales per month, comes from annualizing the monthly pace: 195 / 6.5 x 12 = 360, which is a yearly figure, not a monthly one. The monthly absorption is 195 / 6.5 = 30.
Option D: 1268 sales per month
Option D, 1268 sales per month, comes from multiplying instead of dividing: 195 x 6.5 = 1,267.5, about 1,268. Rearranging the identity requires division: 195 / 6.5 = 30.
Listings over pace
Months of supply is listings over pace; to find pace, swap places and divide listings by months.
How to use: Use this to rearrange any of the three terms in the supply identity.
Exam Tip
Check your answer by plugging it back into the identity; 195 divided by 30 should return 6.5 months.
Common Mistakes to Avoid
- -Multiplying listings by months of supply
- -Converting a monthly pace to an annual figure
- -Dividing by 12 when the inputs are already monthly
Concept Deep Dive
Analysis
This question tests rearranging the months-of-supply identity. If months of supply equals active listings divided by monthly absorption, then monthly absorption equals active listings divided by months of supply. Keep units straight: the answer is sales per month.
Background Knowledge
Absorption rate is the rate at which available properties are sold or leased in a market during a given period. Months of supply equals active listings divided by the monthly absorption rate and indicates how long current inventory would last at the current pace. These measures support market condition analysis on residential appraisals.
Real-World Application
An appraiser has a report showing 195 active listings and 6.5 months of supply but lacks the sales count. He backs out about 30 sales per month to compare with prior periods and judge whether demand is changing.
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