Absorption Rate – what is the market able to absorb?
The absorption rate refers to the number of properties in a given location, price range and style that a real estate market can absorb in a given amount of time. This rate is influenced by the demographic and economic factors that exist in the marketplace, and as a result the absorption is subject to constant change. In most cases the absorption rate of properties in one price range may be totally different than the absorption rate in another.
Example Criteria:
- Condos
- 22201, 22203 zip codes (includes parts of Rosslyn, Courthouse, Clarendon and Ballston)
- Last 3 months
- $350,000 — $450,000
Active Inventory = 50
Number of Properties Sold in Last 3 Months = 48
48/3 months = 16
Average Number of Properties Sold Per Month = 16
50/16 = 3
Months Supply of Homes = 3
Economists at the National Association of Realtors suggests that when there is 6 months supply of unsold inventory on the market, it is a neutral market. This means that the prices are not going up or down because there are an equal number of buyers and sellers in the market. It is important to understand that in many cases there is a buyers market in one price range and a sellers market in another at the same time.
It is generally believed that a buyer’s market exists when there is more than 6 months of inventory on the market. In most cases there is very little change the prices of homes until there is a year or more of inventory.
A seller’s market exists when there is less than 6 months of inventory on the market. It is rate but not uncommon to see markets that have less than a month of inventory on the market and in some cases the inventory is expressed in days. Prices generally react faster in a seller’s market than in a buyer’s market. In the example above, there is a 3-month supply of inventory, which indicates a seller’s market.
Follow market trends surrounding your Northern Virginia home.
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