The most common question that anyone involved in real estate gets asked is “How’s the market?” Every industry has key indicators and one of the best indicators for the current state of the housing market is the Absorption Rate.
Real estate is governed by the law of Supply & Demand. Absorption Rate compares how many homes are for sale at the end of the month (the Supply) to how many homes sold that month (the Demand). We can then determine how many months it would take for every home that is currently listed to sell at the current pace of sales. This is the Absorption Rate. A balanced market has an Absorption Rate of anywhere between 2.0 – 4.0 or (2-4 months of inventory). Anything over 4.0 would favor buyers (more selection) and anything less than 2.0 would favor sellers (less options for the buyers).
So… how’s the current market? Here’s your answer…
It depends on if you are selling or buying. Currently, it is a buyer’s market based on a March 31, 2011 Absorption Rate of 4.3* (it would take more than 4 months to sell all the homes for sale). There were 10,043 homes for sale and 2,347 homes sold. This means that buyer’s will have more options and seller’s need to be more competitive on their pricing in order to sell.
Curious how we currently stack up to boom and bust times? Check out the charts below for the Absorption Rates over two 3 year periods including December 2008 (bust) and April 2006 (boom):
CURRENTLY – MARCH 2011
Absorption was 4.3 mths
Active – 10,043
Sold – 2,347
BUST – DECEMBER 2008
Absorption was 11.0 mths
Active – 8,854
Sold – 806
*All data courtesy of CREB®