Why Do Absorption Rates Matter?

Recently, we started publishing absorption rates, as a way to judge the health of the Connecticut housing market.  We knew instinctively that things were not as robust here as they are in other states and regions.  It's hard to tell, however, by using average sales prices, which reflect so many other variables, or even average units sold.  That number is influenced by weather, timing, mortgages, and demographics.

While absorption rates take those factors into account as well, they level the playing field in a way.  So, if the Southwest has twice the supply, but also twice the number of buyers, the absorption rate will be more or less the same.  Absorption rate is simply the number of months it would take to sell every house on the market, at the current rate of sales.  Therefore, if it seems that there are a lot of houses on the market that aren't selling because they are stale, overpriced, or undesirable in some way, that shouldn't matter, because every region has those same types of houses.  The only way that the absorption rate would change compared to another area is if, for some reason, many more of them existed in one market vs. another.  While that could happen, it is usually pretty constant.  Sales that fall through due to contingencies, especially mortgages, also would be fairly constant by location.

That all means that, when Connecticut has twice the absorption rate of the national number (8 months' supply vs. 4 nationally), it means that our recovery is lagging.  Although we knew that, this statistic gives us a good proxy for the strength of the housing market in general.  So San Francisco, with 15 days of supply, is obviously a hot market.

Our market, while not in that category, is also improving.  You can see from my recent blog post that our absorption rate here is dropping.  We don't actually want it to approach San Francisco's rate, since that's a market too hot for most buyers to handle.  The most important fact to note is that we are trending down, so our market is improving.  When we get to a reasonable level of four months or so, we'd be happy to stay there for the foreseeable future, because that would be a balanced level of supply and demand.  And, at current trend rates, we're not far away.

Weather and Real Estate

I'm looking out my window at what promises to be the first full day of rain all summer. We need it! And it's hard to object, when there's been so much sun for so long. It's a great day for people to do what they haven't gotten done through the sticky season. Procrastination is very easy in hot, humid weather.

Well, that applies to buyers and sellers of real estate as well. We've known for a long time that there is a bell curve to open houses, for example. If the weather is too nasty, people don't come. If the weather is too good, people don't come. We also know that wintery weather causes almost everyone to cancel showing appointments. The height of summer is usually very slow, with few phone calls, although vacations have a lot to do with that also.

So what's the message here? Just as when you travel, you should expect weather delays when you buy or sell real estate. But on a day like today? Grab it and get business done!

Vacation!

Wow, it's been a long time since I've posted. I've been on vacation, which has coincided both with the only hot weather of the summer and our new puppy's arrival. That's kept me busy, but I did just finish reading Free by Chris Anderson, which is a book about all the things that we now get for free (mostly on the internet), and how that has changed business. Our industry, of course, is a great example.

When I started in real estate, all the information about all of the properties offered came in a printed book that was published every two weeks by our local Board of Realtors. Customers couldn't take it out of the office, so they had to come in to look at what was for sale. We controlled all the information, and thought that that was our salvation.

Fast forward to today: Our website gives away everything that we know about a property, and it does it without requiring payment or loyalty or even identification. We now map properties, so that you know where they are located, we tell you approximately what your own home is worth, and we post all the things we can think of that you might want to know.

What happened? Our role as Realtors has changed. We are now consultants, negotiating between buyers and sellers. We no longer work only for the seller, and we no longer rely on information as power. And what we've found is that people who use us, which they are no longer almost forced to do, get more for their homes, or pay less as buyers, than those who go it alone. Also, we save time, hassle, and costly mistakes. Are we worth it? You bet! Most people who buy or sell without a real estate agent say that they wouldn't do it again. There certainly is value in experience, expertise, and local knowledge. And we can still put all the facts on the Web. So take advantage of that, and log on anytime!