In recent years, pricing real estate has been made much more difficult by the bi-polar nature of property value, a mood governed by the laws of supply and demand. Prognosis lies with an old tool, used in a new way to pinpoint local market conditions.

I) Supply-Demand Analysis (SDA)

Supply-demand figures can go a long way towards bringing parties together on price. They offer the seller a clear picture of the underlying forces affecting their CMA (Comparable Market Analysis) and the buyer, full disclosure of depreciation risks. The system is referred to here as Supply Demand Analysis (SDA).

A major component of SDA is obtained by dividing supply by the sales rate. The result is the time it would take to deplete inventory and for residential real estate, it's measured in months. This Months' Supply of Inventory (MSI), when plotted against the industry norm, reveals the state of that particular market. The scale below shows phasing from MSI of 2 through 20. 
MSI
Calculating MSI:

  1. Choose Property Type (attached or detached)
  2. Define Price Range (default is 10% on either side of center)
  3. Geographic boundry (default is school district)
  4. Choose a Sold Date Range (default is the last 12 months)
  5. Obtain the Sales Rate (Absorption Rate) include Pending
  6. Divide the Supply by Absorption
  7. Compare the results to the industry standard

MSI = Supply/Absorption Rate where Supply is the number of Active Listing's [on a given date] and the Absorption Rate is the number of sales per month.

II) Market Scope

Ideally, a "market" is that defined by a typical buyer. "I like to see Single Family Detached homes priced between $120K and $165K in the Central Dauphin school system". 

Data Source: Central Penn Multi List Inc. (CPML) - Camp Hill PA 17011

 

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