In two prior postings I have pointed out how various methods of measuring market value and activity just dont cut it in todays real estate market.  The AVMs are often hopelessly out of date, often based on tax assessments and comparison to comparable properties that in many cases simply arent comparable.  The absorption rate method of assessing a market is interesting, but in most cases is used in too small an area to be useful.

Supply/Demand ratios offer another way of looking at a market.  This is a sort of variation on the absorption rate, but based on real estate activity, not inventory.  It is more dynamic.  Supply/demand is the ratio between sales made (properties put under contract, not necessarily closed yet) and listings taken (which could be under contract or even sold) in a given month.  If 100 listings are taken, and 100 properties sold, the S/D ratio is 100%.  This is a high-velocity market.  Yet, if there are still 600 properties available for sale, there is a six-month supply – not exactly a hot market, but the activity says otherwise.  However, as in the aphorism one swallow doesnt make a spring, one good month doesnt make a spring (market).  If this kind of activity persists for several months, then further investigation is warranted, if inventory stays high.

So, supply/demand ratios provide interesting insight in a single month, but displays the dynamism of only that month.  By itself, S/D does not help in determining a lot about the market, except for that month.

So what's the answer?  I'll tell you - soon.

Nothing is more critical to the successful sale of real estate than pricing – not location (!), not condition – nothing.  To result in a successful sale, pricing must take into consideration location, condition, and the market.  A battered house priced right will sell.  A property next to an airport will sell if priced right.  A weak real estate market still results in home sales because properties are priced right.

Many appraisers and REALTORS® evaluate a market in terms of what is called the absorption rate.  Absorption rate is expressed in the number of days or months it would take the current inventory of homes to sell at the sale rate of the preceding month, without adding more properties to the inventory.  For example, if there are currently 100 properties on the market in Town A, and last month 20 properties in Town A went under contract, the absorption rate is 5 months, or 150 days.  Frequently, it is suggested that an absorption rate less than 2 months is a very hot sellers market, 2 to 4 months a hot sellers market, and 4 to 6 months a sellers market.  A six-month supply is also referred to as a balanced market, i.e., one favoring neither a buyer or a seller.  Over 6 months is considered a buyers market.

This approach assumes a homogeneous market, one in which all homes are priced within a narrow range, or a huge market of several thousand properties, such a state-wide market.  It does not work as well for a market that has a broad range of prices.

What does work?  I'll tell you - soon.