Absorption Rates: Window to R/E Trends
It’s easy to get swamped by real estate statistics, which is why a catch-all like the “absorption rate” is so popular.
In one, broad number — measured in months — it tells you how long it would take to absorb the current inventory on the market. Four months or less is generally considered a Seller’s market; eighth months or more is considered a Buyer’s Market.
Depending on how broadly you define the Twin Cities market, the absorption rate peaked at more than 11 months, and has now dropped to around 8 months.
Teresa Boardman, who writes The St. Paul Real Estate Blog, has a nice shorthand for the various types of markets (the imagery is Teresa’s, the corresponding market labels are my gloss):
Wet/Dry Vac: Buyer’s Market-strong
Paper Towel: Buyer’s Market-weak
Kleenex: Balanced
Cotton Balls: Seller’s Market-weak
Q-Tips: Seller’s Market-strong
Lost in the terrible news lately about the broader economy, and drowned out by foreclosures and (falling) housing prices, is the fact that aborption rates in many markets are now improving.
I’d go even further: within a larger, urban market like the Twin Cities, the absorption rates in more than a few neighborhoods are quite healthy.
