The Kitsap County home for sale inventory is down 25.4% from the same time in 2008. That is the largest drop in inventory in the Puget Sound area. So, with inventory down is it still a buyer's market?
What is a buyer's market?
A very simple way to explain the definition of a buyer’s market is a simple statement such as, a market which has more sellers than buyers. Low prices result from this excess of supply over demand.
So how does the real estate profession calculate statistics to arrive at the conclusion there is more supply than demand ?
Most real estate professionals define market conditions by using the absorption rate formula. So what is an absorption rate? An absorption rate is the mathematical representation of the relationship between supply and demand.
The total quantity of available homes is divided by total homes sold in the previous month. The results represents the number of months it will take, at that same pace, to sell the entire real estate inventory of a local market area.
Here is last months example:
• Kitsap County has 1982 homes currently on the market. (as of December 31, 2009)
• Last month, 237 homes sold
• 1982 / 237 = 8.36
• So the Kitsap County area has 8.36 months of inventory.
But, remember the answer is only true if the housing market stays the same. The same meaning that there is always 1982 homes on the market and each month 237 of those homes sell. Absorption rates allow us to give some kind of mathematical equation to determine what type of real estate market we are experiencing at any given time.
Remember that real estate is local and that towns, cities, counties and states all have different absorption rates and will have different markets. There are also different markets within a market. You might have a buyer’s market when you look at high end homes and yet a seller’s market when it come to 1st time home buyer properties.
• NORMAL MARKET :: conditions exist when the Absorption Rate is between 5 and 6 months
• SELLER’S MARKET :: conditions exist when the Absorption Rate is lower. (1 – 4 months)
• BUYER’S MARKET :: conditions exist when the Absorption Rate is higher. ( 7 plus months)
Comments (1)Subscribe to CommentsComment