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Jul. 16, 2006 - Real estate absortion rate

Yesterday I mentioned absorption rate as it relates to real estate.

In a nutshell, absorption rate puts the number of homes currently on the market in relative terms - the number of months needed at current sales rates for the full inventory of homes to be sold. This can be computed on any scale, though the numbers carry less meaning with smaller sample sizes.

I'll use hypothetical numbers for an example then will start providing more city-specific data tomorrow ...

Let's say there are 100 homes for sale in a given city. Last month, 20 homes sold in that city. Dividing the number for sale by the number sold, there currently is a 5-month supply of homes on the market (100/20). But suppose only 10 homes sold the month before - that means there is a 10-month supply of homes.

Like many statistics, the raw numbers themselves aren't important on their own - they need context. And that context can be found in month-over-month comparison and trend analysis. If the number of months for which there is supply is rising month over month, it indicates a market where buyers increasingly have the upper hand. Conversely, declining month over month numbers indicate a sellers' market.

A balanced market, so the theory goes, comes with a five-month supply of homes on the market.

We'll start looking at some real examples tomorrow ...

Talk with you soon.

For more information about the Phoenix Arizona Real Estate market, visit my comprehensive website at http://www.DaltonsAzHomes.com!