An appraiser is comparing two competing subdivisions in a market analysis. Northgate has 144 active listings, and its MLS report shows 216 closed sales over the past 12 months. Southgate has 84 active listings, and its MLS report shows 27 closed sales over the past 3 months. Which subdivision has the greater months of housing supply?
Correct Answer
C) Southgate, 9.3 months against 8.0 months
Northgate sells 216/12 = 18 homes per month, so its supply is 144/18 = 8.0 months; Southgate sells 27/3 = 9 per month, so its supply is 84/9 = 9.3 months. Southgate holds fewer listings but more months of supply because its pace is half of Northgate's. Treating Southgate's 3-month total as a monthly pace gives 84/27 = 3.1 months, and treating both totals that way adds 144/216 = 0.7 months for Northgate. Dividing Southgate's sales by 12 instead of 3 gives 37.3 months.
Why This Is the Correct Answer
Option C is correct because Northgate's pace is 216/12 = 18 per month, giving 144/18 = 8.0 months, and Southgate's pace is 27/3 = 9 per month, giving 84/9 = 9.3 months. Southgate has fewer listings, but at half the sales pace those listings would take longer to clear.
Why the Other Options Are Wrong
Option A: Northgate, 8.0 months against 3.1 months
Option A shows Northgate greater, at 8.0 months against 3.1 months. The 3.1 comes from dividing Southgate's listings by its 3-month sales total as if it were one month: 84/27 = 3.1. Southgate's monthly pace is 27/3 = 9, so its supply is 84/9 = 9.3 months, above Northgate's 8.0 months.
Option B: Southgate, 3.1 months against 0.7 months
Option B shows 3.1 months against 0.7 months, which comes from using each period total as a monthly pace: 84/27 = 3.1 and 144/216 = 0.7. Each total must first be divided by its own months, giving 84/9 = 9.3 months and 144/18 = 8.0 months.
Option D: Southgate, 37.3 months against 8.0 months
Option D shows 37.3 months for Southgate, which comes from dividing its sales by 12 although they cover 3 months: 27/12 = 2.25 and 84/2.25 = 37.3. It names the right subdivision with the wrong figure; the correct supply is 84/(27/3) = 9.3 months.
Same clock before you compare
Put each subdivision's sales on a per-month clock first, and compare listings after that. A big pile that sells fast can be lighter than a small pile that sells slowly.
How to use: Use this check whenever two markets report sales over periods of different lengths.
Exam Tip
Compute both supply figures in full before choosing, because options can name the right subdivision with a wrong figure. Check that each sales total was divided by its own number of months.
Common Mistakes to Avoid
- -Treating the subdivision with more listings as the more heavily supplied one
- -Using a multi-month sales total as a monthly pace
- -Applying one subdivision's period length to the other subdivision's sales
Concept Deep Dive
Analysis
Supply can be compared across subdivisions once each one is on a common monthly basis. The reporting periods differ, so each sales total is divided by its own number of months before listings are divided by the pace. The subdivision with fewer listings turns out to have the greater supply, which is the judgment being tested.
Background Knowledge
Absorption is the rate at which available properties sell in a market during a given period, so it must be stated per unit of time to be comparable. Months of supply relates listings to that rate. Two markets can be compared on this measure once their paces share the same time unit, even if the data periods differ.
Real-World Application
An appraiser reviewing two competing neighborhoods receives a full-year sales count for one and a latest-quarter count for the other. After converting both to a monthly pace, the neighborhood with fewer yard signs proves to hold more months of supply, and the market commentary is written to reflect that.
More Market Questions
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