People always wonder if we are in a buyer’s market or a seller’s market. You’ll hear some say it’s a buyer’s and some say it’s a seller’s market. You can argue either point based on guess work, but there is a specific way to determine the market conditions in your area. Absorption rate is a mathematical representation of the relationship between supply and demand. Below are the market statistics for Springfield from March 2010. We will use these numbers to get a snapshot of the Springfield market.
- Total Active Listings – 312
- Under Contract – 130
- Total Sold – 85
- Avery Sales Price – $377,773
- List to Sell Ratio – 98.03%
These numbers show an improvement in several areas over the same period last year. The number of units sold was not changed significantly but the average sold price increased by $45,000. The days on market decreased from 91 to 34 and sellers were getting 98% of their asking price up from 91% last year. So it appears that things are looking up. But are we in a buyer’s market or a seller’s market? To determine that, lets look at the absorption rate. Here’s how it works. We determine the total number of active & pending listings (442), and the total sold last month (85).
85 x 12 (months) = 1020
1020 / 52 (weeks) = 19.62 (units sold per week)
If 19.62 units sell each week, divide that number into the number of active listings.
442 / 19.62 = 22.53 weeks or 5.63 months (Absorption Rate)
The absorption rate means that it would take 5.63 months to sell all the inventory. Absorption Rate is not an exact science. One month does not determine what the market is, there needs to be a trend of perhaps 3 or 4 months.
When the rate is 1-4 months it is considered a seller’s market. Buyer’s market conditions exist when its 7+ months. Between 5-7 months “normal market” conditions exist. It’s not quite a trend yet, but Springfield is experiencing normal market conditions.
Market data and commentary by Charles J. Carroll, Managing Broker at Avery-Hess, Realtors.
Search for homes in the Springfield, and the rest of the DC Metro: www.averyhess.com