More Information on Real Estate Absorption Rates
A question was asked of me why we consider a Seller's advantaged market less than 12 weeks of inventory at the current rate of sale. A Balanced at 12-24 weeks of inventory and a Buyer's advantaged market for anything over 24 weeks.
Here's my take on why this is:
In a Seller’s market (<12 weeks), we have to remember that this number is for ALL ACTIVE AND PENDING inventory in a particular area. To get to this number, a LARGE number of homes have to sell quickly — very quickly–often with multiple offers. This happens when there are more buyers than sellers. As seller’s markets strengthen, and we get into 4 week territory, the market is virtually a feeding frenzy of buyers merely trying to acquire any house. There are still homes in these markets that WILL NOT SELL, because the seller has so grossly overpriced them for condition they aren’t in the ballpark. The Absorption Rate (AR) accounts for every active and pending in the area.
As supply increases, so does market time. Most any seasoned vet figures a well priced home will take 30-45 days to sell in a normal market (not hours or days like in recent seller’s markets). In a balanced market neither buyer or seller have a particular advantage and the good homes are still moving. Few bidding wars happen here. Normal marketing takes it’s course. Generally one buyer is negotiating with one seller at an arms length. Another way of looking at this is a normal, healthy real estate market.
As market time increases further, the sellers become starved for buyers. They see few showings. Weeks of inventory build. The buyer gains full advantage as they have so many choices. Only the cream of the crop (compelling homes) get sold. The rest just sit on the market….until the market changes…..or until the seller makes their home the compelling offering.
I started studying AR’s after listening to Larry Kendall, who owns The Group, which has the highest agent productivity of any real estate company in the US. Currently the CRS (Council of Residential Specialists) is starting to teach practical applications of AR’s in working with sellers and buyers.
I find AR’s incredibly useful in negotiations for buyers and useful to help sellers really understand the market.
Here is a link to some very graphic heat maps based on AR’s. This is for 3rd quarter 2007…..the quarter where the market shifted. I wrote this post in October of last year.
http://blog.seattlepi.nwsource.com/realestate/archives/124285.asp
Statistics are tricky and multi layered. AR’s are not the end all be all of RE stats. I am convinced after over 4 years of study and application, however, that AR’s are best way to measure the relative strength or weakness of a RE market…..and here’s why….. AR’s are the sales ratio of both supply AND demand numbers. We cannot just look at supply and have any real understanding of a market.
Used in conjunction with customary Comparative Market Analysis data, AR’s are powerful in assisting buyers and sellers understand what to do.





























