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May The Numbers Always Be in Your Favor: The Absorption Rate in Real Estate

May 22, 2018

Appreciate

absorption-rate-real-estate-blog

Data, measurements, statistics, calculations. The different terms for real estate stats seem endless. You may hear these descriptions, but what use are they really and how are these numbers relevant to your transaction? One form of calculation is called the Absorption Rate. Also known as “the months of inventory based on closed sales,” it is a way of knowing how much time it would take to sell the homes currently listed. By using this form of calculation, you can determine whether it is a seller’s or buyer’s market. Studying the Puget Sounds’ low Absorption Rate will enable those selling to maximize their potential in today’s real estate market.

Having only one month of inventory, King and Pierce counties are experiencing a shortage of inventory. The time to sell the number of houses listed is far below what would be considered a balanced market. The numbers tell the story. Since anything less than four months of inventory is considered a “Seller’s Market” you can see why having this little inventory is so good for sellers.

Absorption Rate (Months of Inventory)

 

King County

Pierce County

April-2018

1 Month

1 Month

January-2012

11 Months

13 Months

 

 

 

 

 

 

King County Absorption Rate

months of inventory king county may 2018

Pierce County Absorption Rate

TGChartImage_PC42018

During the mortgage meltdown, the months of inventory was much higher, peaking in 2012. The market time was longer, buyers were able to take their time choosing between houses, and they had negotiating power.  That’s a far cry from the 1 month that we see in today’s market.

Having an understanding of statistics, like the Absorption Rate, will give the seller a major advantage over potential buyers. Because the months of inventory are so low, once a house is listed, there are often several buyers waiting, who quickly pounce, and place an offer. Multiple offers and few buyer contingencies are common place when there is so little inventory.  The months of inventory don’t increase, because the supply doesn’t get replenished. Since a seller knows that there will be a large number of waiting buyers, they can price high and negotiate firm. Conversely, a buyer knows there will be competition and if they want their offer to get accepted, they will need to pay the highest price.

If you are considering selling, contact your real estate professional. He or she will be able to give you additional market statistics and provide guidance on how to best take advantage of this market. Having a skilled real estate agent will serve you well, as they will be able to analyze the numbers that will lead you to success.

FIND OUT WHAT EVERY SELLER SHOULD KNOW

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