Holy mackerel!
For all of us who’ve been talking about a shift happening…. Look at this data. The blue bars represent the months of inventory and the green bars represent the absorption rate. The real story is the dramatic shift in the amount of change.
The absorption rate is for this period (the quarter) and it’s how much of the inventory is being absorbed each month:
Absorption Rate (Closed Sales) = (Closed Sales in period / Active Listings at end-of-period)
The absorption rate is the rate at which homes are closing in a given area during a given time period. The higher the absorption rate, the faster homes are selling relative to supply. Absorption rate (closed sales) is calculated by dividing the number of closed sales in a given month by the number of available homes for sale at month’s end. It is the inverse of months of supply based only on one period’s sales count (rather than the 12-month average pace as applied to months of supply). Generally speaking, an absorption rate above 20% is considered a seller’s market as it translates to 5 months of supply (based on a single month’s sales rate).
The months of inventory is how long it would take to sell all the inventory:
Months of Supply = (Active Listings at end-of-period / Average monthly sales over last 12 months)
Months of Supply (also known as “Months Supply of Inventory”) tells you how many months it would take for all the current homes for sale on the market to sell, given the sales rate for that market. RBI’s calculation takes into account the seasonal fluctuations of selling activity by applying the average sales rate of the prior 12 months. 4 to 6 Months is generally considered a balanced market; less than 4 months a sellers’ market as there are more buyers than homes available; more than 6 months can be considered a buyers’ market as there are more homes for sale than buyers to purchase them.
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