Absorption Rates Help Answer The Questions: How Long Will It Takes To Sell The Current Inventory Of Available Baton Rouge Housing. How do Absorption Rates apply to Baton Rouge Real Estate Housing? The Absorption Rate topic can be a lengthy, complicated explanation. My goal here is to make the explanation as simple and abbreviated as possible .
Simply, the absorption rate is a measure of how long it will take to sell the current inventory of homes in a given market based on supply and demand factors. Why is this important to Appraisers, Real Estate Agents, Home Sellers and even Home Buyers? Because it helps classify if this is a buyer’s market (possibly over supply), seller’s market (possibly under-supplied), if the market is in balance, the current motivation of market participants in a housing market, and how long it could possibly take to sell a home .
Actual Calculation Used. Absorption Rate is the total number of available homes (inventory = listings and pending sales) divided by total number of homes sold in previous month. Since this data is limited locally to those with access to GBRMLS (Multiple Listing Service), mainly it’s local Real Estate Agents and Appraisers that will know these numbers. MLS is the private online database where the activity of local Real Estate Agents, licensed by N.A.R., house their records of home listings and sales.
Absorption Rate Applied To A “Sub-Market” or Subdivision -This Chart Shows A Pattern Of Slowing Sales, Not An Increase Of Sales As Is Being Reported.
The chart above shows how easy it is for Home Appraisers to calculate the Absorption Rate using a “dataset” from a local MLS. In this “sub-market” chart or a micro look at a housing market, we’re looking at Zip Code 70814 for listings and sold homes comparable to a 1600sf 35 year old home located in Park Forest.
As Number of Home Sales Declined, Absorption Rate Declined As Well! The chart above shows home sales taking place over a years period. 7-12 months ago, 14 homes sold and in the current to 3 month period, only 4 homes sold. The decline in the number of home sales meant a decline in Absorption Rate change from 2.3 to only 1.3.
As Absorption Rate Declined, Months Supply Of Housing Increases! The chart above shows home sales taking place over a years period. 7-12 months ago, 14 homes sold and in the current to 3 month period, only 4 homes sold. The decline in the number of home sales meant a decline in Absorption Rate from 2.3 to only 1.3.
How Does This Information Help In The Home Listing / Sales Process? It lets those in control of the listing and selling process know that home sales are slowing (down 71% from 7-12 months ago), it could take longer to sell this home and the faster the seller wants to sell their home, the more motivated the listing price needs to be. Again, this depends on seller motivation.
Absorption Rate Applied To An Entire Housing Market, Again, This Chart Shows A Pattern Of Slowing Sales, Not An Increase Of Sales As Is Being Reported
We’re looking at GBRMLS Area 43, sometimes called the Shenandoah Market, from 01/01/2011 to 01/03/2012, from $150,000 to $250,000, all ages, status of active, pendings and solds.
Absorption rate has been fairly tight between 23.3 to 27 to 22.3 despite slowing home sales from 140 sales 7-12 months ago to only 67 in the current to 3 month period. With a current housing supply of 5.3 months, based on current to 3 months period, this is a fairly healthy and in balance housing market as opposed to the 13 month period for 70814.
How Does This Information Help In The Home Listing / Sales Process? It lets those in control of the listing and selling process know that home sales are slowing, but the absorption rate is fairly healthy with only a 5.3 month supply of available listings on the market. The Months supply of 5.2 to 4.6 to 5.3 indicates a stable pattern and that a home could be sold within 4.5 to 6 months given a normal market, assuming the home is well prepared for this listing.
If you need assistance in calculating the Absorption Rate for a specific subdivision or housing market, type please feel free to contact me through this site or email us at email@example.com
OTHER HELPFUL ARTICLES ON ABSORPTION RATES FOR RESIDENTIAL HOUSING!
NOTE: Above Absorption Rate Image Used Courtesy of Sarasota Real Estate Review Dot Com.
NOTE: Based on information from the Greater Baton Rouge Association of REALTORS®\MLS for the period of 01/01/2011 to 12/13/2011. This information was extracted on 01/03/2012.