More in other real estate markets than in this market, we hear the term absorption rate used as an indicator of market strength. The absorption rate is simply the number of units sold in a given period in a given area, ie: in the last year, x units were sold in zip 38104. To look at figures in consistent terms, divide the number of units sold in the prvious 12 months by 12 for sales per month: units sold last 12 months/12=average sales per month. Current inventory divided by average sales per month for the last 12 months gives the number of months inventory, ie- how long one would one expect to take current inventory to be sold:current inventory units/average sales per month= months supply.So if 120 units sold in the previous 12 months, there were an average of 10 sales per month. If there are currently 80 units on the market, there is an “8 month supply of homes”. Generally more than 6 months supply in the indicator of a Buyers’ Market.The Memphis real estate market has trailed the rest of the nation in trends for a decade, and now we are beginning to see the slow down that has swept much of the country. While riding the wave of the seller driven market, we have become accustomed to upward spiraling prices and and buyers willing to pay ever increasing prices. This is not the nature of a buyers’ market, and the more inventories increase, the more the market favors the buyer.Future blogs will address the impact of the strengthening buyer market of both home buyers and sellers.
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