What The Absorption Rate Really Shows
After posting June's sales report, I received an e-mail from a reader who asked what the Absorption Rate (AR) really means to him as a seller. If he doesn't understand what the AR means, I guess others have the same problem. So, here's what you need to understand about the apparently confusing AR.
AR is the inventory turn. Almost every good retailer I know wants and needs to know how quickly he will sell his existing inventory so he can keep his goods fresh and always have an ample supply of product on his shelves for customers. He needs to know how long it will take, on average, to sell all his present supplies of each product. This also helps avoid being overstocked.
Same holds true for real estate. The AR tells us how long it will take to sell out of houses or condos. In other words, it tells us what our current supply of property really is.
This past month, the AR for single family homes was 7.3 percent in Pinellas County. In other words, we sold 7.3 percent of all the houses that were in the MLS system during the month of June. If you were to project that over time, it means that it would take 13.7 months to sell all the houses in the MLS system. This is calculated by dividing 100 by the AR. Essentially, real estate agents and sellers now know that there is currently a 13.7 month supply of single family homes in the overall MLS inventory given the current rate of sales activity.
Same for condos. The June AR for condos was 4.5 percent. This means that at current sales rates, it will require 22.2 months to sell the existing condo supply. That would be 100 divided by 4.5. So, there's almost a two year supply of condos currently in the MLS system given June's rate of sales.
The real estate market is said to be "in balance" when we have about a six to nine month supply of inventory. The exact "in balance" figure kind of depends on who you talk to. As you can see, we have a long way to go before the market gets back in balance -- and that's assuming no new property comes onto the market.
For more information about real estate in the Tampa Bay area, please visit my website at http://www.thestpeterealestatesite.com/.
AR is the inventory turn. Almost every good retailer I know wants and needs to know how quickly he will sell his existing inventory so he can keep his goods fresh and always have an ample supply of product on his shelves for customers. He needs to know how long it will take, on average, to sell all his present supplies of each product. This also helps avoid being overstocked.
Same holds true for real estate. The AR tells us how long it will take to sell out of houses or condos. In other words, it tells us what our current supply of property really is.
This past month, the AR for single family homes was 7.3 percent in Pinellas County. In other words, we sold 7.3 percent of all the houses that were in the MLS system during the month of June. If you were to project that over time, it means that it would take 13.7 months to sell all the houses in the MLS system. This is calculated by dividing 100 by the AR. Essentially, real estate agents and sellers now know that there is currently a 13.7 month supply of single family homes in the overall MLS inventory given the current rate of sales activity.
Same for condos. The June AR for condos was 4.5 percent. This means that at current sales rates, it will require 22.2 months to sell the existing condo supply. That would be 100 divided by 4.5. So, there's almost a two year supply of condos currently in the MLS system given June's rate of sales.
The real estate market is said to be "in balance" when we have about a six to nine month supply of inventory. The exact "in balance" figure kind of depends on who you talk to. As you can see, we have a long way to go before the market gets back in balance -- and that's assuming no new property comes onto the market.
For more information about real estate in the Tampa Bay area, please visit my website at http://www.thestpeterealestatesite.com/.
-30-
posted by Terry Ward at 3:54 AM
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