We talk about real estate with lots of people every day. Inevitably, unless we’re talking about a specific property, the conversation usually boils down to one simple question: “How’s the real estate market these days?”
Agents at many real estate brokerages are trained to give a canned response to this question. Namely, something like, “It’s always a great time to buy or sell!” That’s trite, but not very helpful. As real estate professionals, we aim to dig a little deeper.
There are several ways to look at market performance. In many cases we use a metric called the “absorption rate” to advise our clients on market trends.
Simply put, the absorption rate looks at how quickly the inventory of properties for sale in a given area is being consumed (or “absorbed”) by buyers. This statistic is generally expressed as a number, representing the number of months it likely would take for all the properties for-sale right now in a given market to be bought by buyers (theoretically, on average, and assuming that recent sales trends were to continue). An absorption rate of six (ie. it would take six months for the current inventory of homes for sale to be consumed, on average, given recent market data) is generally considered to be a “balanced” real estate market. Absorption rates below six are generally considered to be favorable to sellers, since lower rates mean properties are selling relatively faster than in a balanced market. Absorption rates over six are generally considered to be favorable to buyers, since relatively slower sales mean more available inventory to shop.
Here’s an example. According to MLS-PIN, during 2018 the absorption rate for single-family homes in Haverhill, MA was 1.08. That figure tells us that (on average) there were enough houses on the market at any given time to satisfy the interests of available buyers for a little more than a month (ie. 1.08 months). In 2017, the absorption rate was 1.53. So, generally speaking, the real estate market for single-family homes in Haverhill became slightly more favorable to sellers from 2017 to 2018.
Now, in the real world, it gets a little more complicated. Yearly municipal averages are informative, but if you’re buying or selling a home, you might want to know more detailed information. For example, maybe you’re looking for property in a specific neighborhood, or price range. Maybe you want to know more more about how market performance changes from season to season, or month-to-month. And, since statistics like the absorption rate are just theoretical averages, maybe you want to know how what market trends might mean for your specific property.
As real estate professionals, we have access to all of this information and more, so that we can provide our clients with timely and informative data specifically tailored to their individual needs.
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