Is it a Buyer’s Market or Seller’s Market? Understanding Solano County, CA Absorption Rates.
How can you determine whether it’s a buyer’s market or a seller’s market? By looking at housing market absorption rates.
The Market Absorption Rate, also known as months of supply, measures the number of months projected to deplete the existing inventory of homes based on the current monthly sales, assuming no new homes will come on the market. It is calculated by taking the total number of active listings and dividing by the number of homes that have gone under contract in the last 30 days and is expressed in months to sell.
For example, if 100 homes sold per month and there are 800 homes currently for sale, then there is an 8-month supply of inventory for this particular market.
Absorption Rate: 800 listings / 100 average sales per month = 8 months of inventory
In a Normal Market homes generally take between 5-6 months to sell. In a Seller's Market, like the one we are in now, homes sell more quickly. In a Buyer's Market, homes take longer to sell.
We have found a direct correlation between market absorption rates and property values. As absorption rates increase beyond a normal level of 5-6 months, property values depreciate annually. And as they decrease below the normal level of 5-6 months, property values tend to appreciate.
In Solano County, the current absorption rate is about 1.5 months of inventory. This is lowest we’ve seen it in 4 years! If you have a home to sell, now is the time as buyers are plenty and homes are few. As long as your home is in good condition, expect multiple offers because the demand is there.
Buyers should also be prepared for multiple offers, as many of the available homes today are getting at least 3 offers. With this much competition among offers, your first offer should be your highest and best. The days of lowballing and getting a huge deal on a home below market value are pretty much gone unless the property needs a lot of work.
The good news is that prices and interest rates are still the lowest they have ever been in the past 30 years, and with the right real estate agent, you can navigate multiple offers and still save a ton of money on your dream home.