Absorption Rates

Hello all,

"Absorption Rates"

I talk about this once a year or so just to make sure everyone remembers how to calculate Absorption Rates, so we know where we are in the market and you can explain them to your clients intelligently. Absorption Rates look at how much inventory of homes we have on the market and the rate at which they are coming off, It gives an indication of whether we are in a sellers or buyers market. A balanced market will have six months of inventory, anything below six months indicates a sellers market and anything above a buyers market. To calculate Absorption Rates in a particular area you need to go back 12 months and get the total closed transactions, you then take that number and divide it by 12 to get the closed transactions per month. You then take that number and divide it into the number of active properties to calculate the number of months of inventory. Here are 3 examples.     

                                   

20854 - Closed transactions last 12 months = 518. 518/12 = 43 closed transactions per month. 144 active properties divided by 43 = 3.3 months of inventory.

20874 - Closed transactions last 12 months = 658. 658/12 = 55 closed transactions per month. 72 active properties divided by 55 = 1.3 months of inventory.

20906 - Closed transactions last 12 months = 806. 806/12 = 67 closed transactions per month. 134 active properties divided by 67 = 2 months of inventory.

Not telling you anything that you do not know when I say we are deep into a sellers market. This can be a very useful tool if you have some buyers who just don't get it. Supply and demand = The home appreciation train is leaving the station so they better get on it.

Hope to see you all at the sales meeting today.

Enjoy the coffee,

Joe

INSPIRATION FOR TODAY:

 

"Money often costs too much." 

~ Ralph Waldo Emerson

 

"That man is richest whose pleasures are cheapest."

~ Henry David Thoreau

 

IMMACULATE CONSUMPTION! 

 

A cartoon recently ran on the editorial page: A very large sport-utility vehicle was releasing a large belch while someone's hand desperately reached out from inside the fuel door, a gas pump lying on the ground beneath. This humorous observation on rising gas prices immediately brought to mind the question, "Are we the consumers, or the consumed?" 

 

As the rising cost of fuel forces prices for everything else to rise in tandem, we are likewise forced to consider just how much we're willing to consume and at what cost. As you plan for your future and retirement, forget about all the hoopla surrounding the privatization of Social Security and consider another strategy: Don't spend your money (or at least not as much of it as you have been)! 

 

Think what you might get for $1,000: a new sleeper couch, 2 Super Bowl tickets, a riding lawnmower, a three-day weekend getaway? Regardless of how useful or entertaining any of these options might be, imagine how much $1,000 could really cost you. 

 

Let's say you're thirty years from retirement and are lucky enough to be managing a mutual fund with a steady return of 10%. (That's really not unreasonable if you are highly pro-active and educated in your investments.) If you spend that $1,000, instead of contributing it to your investment fund, you'll have reduced your future savings by at least $17,400! 

 

Do you want that $1,000 now or do you want that $17,400 in the future? Play around with the figures all you want, but the truth will remain constant: wealthy people get that way and stay that way by pinching pennies. Keep your goals well in sight, and avoid the temptation to be consumed by consumerism!