Whether you're a buyer or a seller, understanding key real estate metrics such as "absorption rate" and "month's supply of inventory" are crucial to navigate the current housing market. In this post, I will explain what these metrics mean, how they are calculated, and how they relate to the current housing market in Seattle.
Absorption Rate
Absorption rate is a measure of how quickly homes are selling in a particular area. It is calculated by dividing the number of homes sold in a given time period by the total number of homes on the market during that same time period.
Example
If there are 100 homes on the market in a given month and 10 homes are sold, the absorption rate for that month would be 10%. It would take 10 months to sell all of the homes on the market at the current rate of sales.
A high absorption rate indicates a seller’s market. In a seller's market there is high demand for homes and not enough inventory to meet that demand. Conversely, a low absorption rate indicates a buyer’s market. A balanced market typically has an absorption rate of around 20%.
Months Supply of Inventory
Months supply of inventory measures how long it would take for all the homes currently on the market to sell, given the current rate of sales. It is calculated by dividing the number of homes on the market by the average number of homes sold per month.
Example
If there are 300 homes on the market and 100 homes are sold each month, the months of inventory would be 3. This means it would take 3 months for all of the homes currently on the market to sell, assuming the current rate of sales continues.
A low number indicates a seller’s market, where there is high demand for homes and not enough inventory to meet that demand. Conversely, a high months of inventory indicates a buyer’s market, where there is more inventory than demand. A balanced market typically has over three months of inventory.
Working with a Realtor to interpret the local data will help set realistic expectations for the buying or selling process. For example, if the absorption rate and months of inventory indicate a competitive market, it may take longer to find the right property or sell your current one. Conversely, in a less competitive market, the process may be quicker. Absorption rate and months of inventory are two great market indicators but they won't paint the entire picture. Do your research and work with your Realtor to understand your local market and how it impacts you.
If you’re considering buying a house in Seattle and don’t have a Realtor to represent your needs and interests contact me today! Not ready but want up-to-date data on your local market? Reach out today. I’d love to hear from you.
