It’s true… I post a LOT of Edmond real estate statistics. I’m a total stats junkie. Althought stats don’t show everything about every situation, they’re the most real way to evaluate many situations, and when it comes to the real estate market, statistics teach us a lot.
So, the whole key to statistics is knowing how to read what you’re looking at. In my opinion, one of the most useful tools for evaluating the health of a market, whether it be an entire metropolitan area, a neighborhood, or a size/price range of homes, is absorption rate. You’ll see that term all over my blog posts, so here’s what it means:
Basically, absorption rate is the amount of time it will take to sell all of the homes on the market, based on current sales trends. Again, this figure can be used to evaluate as broad or as narrow a section of the market as you would like.
Let’s say you’re evaluating the market in the Glen Eagles addition in Southwest Edmond. As of today, there are 3 homes actively on the market in the neighborhood. Over the past 12 months, 11 homes have sold in Glen Eagles. So here’s how you calculate absorption rate:
- Divide the number of sales by the number of months (11 divided by 12 equals 0.917)
- Divide the number of current listings by the result of the equation above (3 divided by 0.917 equals 3.27)
So, with 3 homes currently on the market, Glen Eagles currently has a standing 3.27 month inventory. From a home owners standpoint, the lower the number, the better. It shows that you have higher demand and lower supply. A higher number would obviously mean the opposite, and could indicate a slowing market which can result in declining values if that trend continues.
I hope this all makes sense, but if you have any questions, don’t hesitate to ask!
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3 months inventory is pretty darn good! Market absorption is a great way to gage the market.
Ginger, it really is. I use absorption rate in every CMA I do and it really helps my clients have a better understanding of where they stand and where they need to position themselves.