There are many factors to consider when trying to determine the strength of the market. One of the indicators we use in determining the health of any real estate market is the rate of absorption (ROA). Simply stated, the rate of absorption calculates how fast homes are selling based on recent sales and homes that are currently available. The ROA indicates how long it would take for the entire current inventory to be sold based on the number of homes sold in a measured period, usually 3 or 6 months. Conventional wisdom dictates that a ROA of greater than six months indicates a market that is “buyer advantaged” with enough inventory to give a buyer choices and perhaps less of an urgency to buy. When the ROA is less than six months, it indicates a market that is seller advantaged. Also, once the ROA drops below 3 months, there is the chance that a marketplace can experience price appreciation due to the current lack of inventory. When compared to the prior 3 or 6 month period, you can determine if a trend towards either type of market is occurring. For instance, the chart below compares the six month period ending June 30, 2013 with the six month period ending June 30, 2012 in Union County.
I hope you find this information useful. Please call me at 908-447-3579(cell) with any questions you might have, or if you would like a No Obligation Market Analysis of your current home. I am always happy to help!
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