To continue the conversation of a changing inventory market using absorption rates to help explain the state of the market can be a useful tool with your sellers. To calculate absorption rates in an area you need to go back 12 months and get the total closed sales, you then divide that number by 12 to get the closed sales per month. Next find the number of active listings and divide that by the number of sales per month to find the number of months worth of inventory there is in that area. Here are two examples:
Area = 20874 Zip Code (Macro) Number of closed sales past 12 months = 768. 768 divided by 12 = 64 which is the closed sales per month. Number of active listings in 20874 is 254, 254 divided by 64 = 3.9 which is the number of months the market would take to absorb all of the properties if nothing else came on the market.
Area= Churchill Town Sector which is a subdivision in 20874 (Micro) Number of closed sales past 12 months = 131. 131 divided by 12 = 11 which is the closed sales per month. Number of active listings = 47, 47 divided by 11 = 4.2 months worth of inventory.
Where this becomes useful with your sellers is the dialogue you can create with it. "You see Mr. & Mrs. Seller with the data we just went through in Churchill Town Sector there will be 11 sales in the next 30 days, to be one of those properties to sell we need to be in the top 11 based on condition and price". So if you have a listing that is overpriced or not in the best condition you can show them what they need to do and where they need to be to sell based on the competition. If you need further help with this on a particular property don't hesitate to ask.
Enjoy the coffee,