The most important real estate statistic to keep in mind is called the absorption rate, a fundamental measure that defines whether a housing market is hot or cool. It can be very important in deciding your approach as a potential home buyer or seller. First things first, however. What is an absorption rate?
Calculating the Absorption Rate
The absorption rate is found by dividing the number of homes for sale by the number of homes sold. For example, if there were 100 hundred available homes in the month of September and 90 of them sold than the absorption rate would be 1.11. Real estate professionals interpret this rate as how long it will take a home to sell, in this example 1.11 months. Seems relatively simple, right?
A real-world variation makes this equation a little more complicated, but not much. Usually, the number of homes available for sale in the equation is based on a six-month window. Therefore, to sell real estate longmont co could mean the stock of available homes in a six-month period could be 300. This would represent the number of properties put on the market since April. With this new divisor in place, the new rate is found by dividing 300 by 90 to reach the true absorption rate of 3.33. Real estate professionals will say it would take 3.3 months to sell a home based on these numbers.
Hot Market or Not-So-Hot Market
It’s a good idea to get a handle of this number, whether you are looking to buy or sell. It’s a barometer of how the real estate market is fairing and tells a lot about what you can expect. Basically, the lower an absorption rate the hotter a market. If it takes a shorter time to sells a home, the market has a lower absorption rate. Buyer and sellers will have to react certain ways to profit:
Avoid jumping the gun and making an offer on the first available home that looks great for fear of losing out. Doing so can mean ignoring things that could be wrong. Despite the hot market, look at the available stock of homes and do the research.
Consider staging your property. First impressions play a more important role in a hot market in attracting potential buyers. A quirky home that may have had a difficult time in a cool market will have a better chance in a hot market if it looks nice from the curb.
Good real estate agents calculate the absorption rate from town to town or neighborhood to neighborhood. It’s a good idea for a home buyer or seller to look at absorption rates over time versus just a snapshot absorption rate. This can reveal trends that can tell you if a hot market is on the rise and likely to continue or if the market is set to cool down. A look at the absorption rates over time can also indicate what time of the year a market is hot and when it’s not. This can tell sellers the best time to put a home on the market to maximize potential profit and buyer to enter the market.