What kind of market are we in right now? Allow me to explain today by sharing an update on current happenings, as well as a few common terms that will help you better understand what’s going on.
Have you ever heard a real estate agent use the phrase “absorption rate”? What about the terms “buyer’s market” or “seller’s market”? And if you have, do you know what kind of market we’re in?
Parsing out the meaning behind real estate jargon can be difficult for those who don’t work in this industry, so allow me to give you a quick lesson on these terms and phrases today, followed by an update on what kind of market we’re facing at a local level. Knowing what each of these things mean will make it much easier for you to interpret what’s going on in your local real estate market.
First, let’s start by explaining what an “absorption rate” is.
Let’s say there are 1,000 properties listed in your local real estate market. If these properties sold at a rate of 100 per month, this would indicate that your market has 10 months’ worth of “supply” (or “inventory”). The terms “supply” and “inventory” refer here to the number of available listings in your market.
Essentially, a market’s absorption rate describes the amount of time it would take for the market to “absorb” all of its available inventory. In other words, it indicates how long it would take for every listing to sell before there were no listings left—assuming no new listings came on the market during that time.
With all of that out of the way, let’s turn our focus to the other terms I mentioned: buyer’s market and seller’s market.
"Our market is neither a buyer’s nor a seller’s market—it’s a “move-up” market, meaning current conditions are prime for anyone looking to sell their current home in order to buy one in a slightly higher price range."
In short, a buyer’s market is one in which supply outweighs demand, thereby giving buyers the upper hand. A seller’s market is the opposite—one where there are more buyers than available homes.
But how do all of these terms relate to each other? It’s actually quite simple. Agents determine whether a market is a buyer’s market or a seller’s market by assessing the absorption rate. If a market has more than six months’ worth of inventory, it is a buyer’s market. If it has less than six months’ worth of inventory, it’s a seller’s market. And, as you can probably guess, a market with right around six months’ worth of inventory is an even, or “balanced,” market.
Now that you understand what all of these terms mean, allow me to share a few variables to keep in mind when you apply them to your current market. Along with varying by location, absorption rates also vary by price point. Lower price ranges tend to experience seller’s markets more often, while higher price ranges tend to experience buyer’s markets more frequently.
What does this all mean for you? Well, the truth is that our market is neither a buyer’s nor a seller’s market—it’s a “move-up” market, meaning current conditions are prime for anyone looking to sell their current home in order to buy one in a slightly higher price range. This is because price trends correlate directly with a market’s given absorption rate, and since higher price ranges have a high absorption rate right now, prices have dropped. The bottom line is that it’s time to take advantage of these circumstances while they last.
If you have any other questions, would like more information, or want to know how my team and I can help you with your real estate goals, feel free to give us a call or send us an email. I look forward to hearing from you soon.