Subdivision - Solution

Solution:

Housing units demanded:

35,000 ¸2.75 x 60% = 7,636 single family units

Housing units per year:

7,636 ¸ 5 years = 1,527 per year

City wide supply:

500 + 100 + 750 = 1,350 lots & houses

Duration of supply:

1,350 / 1,527 = .88 years, or 10.6 months

Home prices in subject:

20,000 / .22 to 35,000 / .22 = $90,900 to $159,000

Incomes to qualify:

[90,900 x 90% x .0881* + (90,900 x .0275**)] / .28 = $34,700 (R)

[159,000 x 90% x .0881* + (159,000 x .0275**)] / .28 = $60,600 (R)

* Rm = 360 N, 8 ¸ 12 I, -1 PV, solve PMT x 12 (.0881)

** Taxes are 2% & insurance .75% of value = 2.75%

% who qualify:

The median income is $35,000 and 75% of the population is

within $25,000 of the median income, or $10,000 to $60,000.

Therefore, ½ of 75% is from $10,000 to $35,000 & ½ is from $35,000 to $60,000. This is translates to 75% divided by 2, or 37.5% of the population is in the range of the subject home value.

Lots/homes demanded:

1,527 per year x .375 = 572 units per year

Capture rate:

20%

Absorption:

572 x 20% = 114 lots per year

Sellout:

400 lots ¸ 114 = 3.5 years

Variations:

1.

If the market study is for apartments, etc. (rental units), then instead of mortgage payments, look at affordability and rental payments that will be made.

2.

Also look for % owner vs. renter, & possibly further segmentation based upon type of subject property (e.g. high amenity apartments, extended care facilities, etc.

3.

The problem above gives the capture rate (20%) for the subject. You may be asked to make a judgment call on the test based upon competitive supply.