Tuesday, January 3, 2012

JC Downtown Real Estate Absorption Rate

Many people have opinions on the state of the housing market, but the easiest way to understand current and future conditions is to monitor the movements in the real estate absorption rate. Mathematically, this is the measurement of Current Active listing in the market divided by the number of listings sold in last week.

A simpler way to express the definition of the real estate absorption rate is to say it is the number of weeks that the market will need for the foreseeable future. So how do we put this into perspective. Consider this: The typical home seller would like to move within two to four months of placing their home on the market, so over time, we have developed expectations in real estate and have defined situations as follows:

  •     Sellers Market: 1-40 Weeks supply of homes
  •     Neutral Market: 40 to 50 Weeks supply of homes
  •     Buyers Market: More than 50 Weeks supply of homes

As Shown in table, Week 1 to week 23 Inventory was high and sales was low. That was Buyers Market Period.  

In the real estate graph above, Current active listings is measured in Blue, Weekly sales in red, and the green vertical bars show the real estate absorption rate. In the simplest sense, this means if nobody puts another home on the market ever again, we still have enough for sale to satisfy all buyers for the next year! That is a lot, and I suspect more will be hitting the market over the next year.

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