Home Sellers Guide—Are you in a buyers market or a sellers market?
A buyers market or a sellers market? How can you tell and why should you care?
You’ve often heard the terms “buyers market” and “sellers market”. These terms refer to a concept called market absorption rate. Market absorption rate tells you how many months of supply of homes are available in your city, your neighborhood, or your price range.
The generally accepted definition of real estate markets follows.
Sellers Market Less than five months of supply
Balanced Market Five to seven months of supply
Buyers Market More than seven months of supply
How to Calculate Market Absorption
You can calculate market absorption by identifying the number of closed sales for the past month, three months, six months and 12 months. Divide the number of transactions by the number of months to determine the average homes sold per month. Then divide the average homes sold per month into the number of currently active listings. This will give you the months of supply on the market. The table below gives an example of a market absorption analysis.
| Market Activity | 1 month | 3 months | 6 months | 12 months |
| Closed Transactions | 10 | 24 | 54 | 107 |
| Average Sales per Month | 10 | 8 | 9 | 8.92 |
| Homes Currently for Sale | 32 | 32 | 32 | 32 |
| Months of Supply | 3.2 | 4.0 | 3.6 | 3.6 |
You can see that because there have only been between 3.2 and 4.0 months of supply over the last year, this area is in a sellers market.
Why You Should Care about Market Absorption Rate
If the supply of housing in your area is high enough to be defined as a buyers market, you will have a lot of competition for the buyers in the marketplace. Where there is a larger supply of homes for sale, buyers will have the upper hand in negotiations and there will be a downward pressure on home prices. In a sellers market, there will be more buyers than homes for sale and sellers will be stronger resulting in an upward push on prices.
Considering a sale of your current home? Request a free comparative market analysis and evaluation.
Copyright 2012. Carol Fox. Allen Tate Realtors. *Home Sellers Guide—Are You in A Buyers Market or a Sellers Market?*
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