When someone asks, “How is the real estate market doing?” the answer depends on where you look. National and Austin area statistics provide a broad overview, but they may not accurately reflect what is happening in your neighborhood or even on your street.
One of the best ways to measure current market conditions is the absorption rate.
The absorption rate measures how quickly available homes are selling. It is calculated by dividing the number of homes sold during a specific period by the number of homes currently available for sale.
For example, if 10 homes sold and 50 homes are currently for sale, the absorption rate is 20%. At the current pace, that represents approximately five months of available inventory.
What Do the Percentage Bands Mean?
As a general guide:
Below 10%
This typically represents a strong buyer’s market. Inventory is moving slowly, buyers have more choices and sellers may experience longer market times and greater pressure to negotiate.
10% to 20%
This is generally a buyer leaning market. Homes are selling, but buyers still have leverage. Pricing, condition and presentation become increasingly important.
20% to 30%
This represents a more balanced market. Supply and demand are relatively even, although properly priced and well presented homes will usually outperform the competition.
Above 30%
This is generally a seller leaning market. Inventory is being absorbed quickly, buyers have fewer choices and sellers may have stronger negotiating power.
These percentages are guidelines and not absolute rules. Price range, location, property type and condition can cause two homes in the same city to experience completely different markets.
Looking at the Macro and Micro Market
At the macro level, absorption rates can tell us how the overall Austin area, a city or a ZIP code is performing.
The real value, however, often comes at the micro level. I can narrow the analysis to a specific neighborhood, school boundary, price range or even a small group of streets. This allows us to see what buyers are actually doing around your property instead of relying only on what is happening across the entire Austin metro area.
Real estate is local, but it can also be hyperlocal. Before deciding when to sell, how to price or whether to make a price adjustment, it is important to understand the rate at which comparable homes are being absorbed in your immediate market.
If you would like to know the absorption rate for your neighborhood or even just a few surrounding streets, I can prepare a customized market analysis for you.
