How is the Market? Buyers or sellers?
By Karen Scopetski, V.P. Coldwell Banker Residential Brokerage
One question that is usually on everyone’s mind is: “How is the market?” As a real estate professional, I get asked this question a lot, and over the past few years the answer has been it is a market of opportunity. Buying a home is almost always a good long-term investment. What people really want to know is it a market that favors a buyer or a seller. There is no denying the past few years have not been easy on the local real estate market but the Boroughs (Northborough, Southborough, and Westborough) have held their own.
One way to measure how the market is doing is to determine the absorption rate. Simply put, the absorption rate is the rate at which the inventory of homes are being sold. Absorption rate indicates the number of months it should take to sell all the homes for sale in a specific area.
Here is how the markets are determined:
An absorption rate of more than 8 months is considered a buyer’s market.
An absorption rate of between 5-7 months is considered a balanced market.
An absorption rate of less than 5 months is considered a seller’s market.
So how are the Boroughs doing? Let’s look at the absorption rate for Northborough:
First, we will look the time period between January 1, 2013 and March 20, 2013. During that time period (140 days) there were 61 single family homes sold in Northborough. Divide 140 (days) by 61. That number is 2.29. That means that 2.29 homes are selling every day in Northborough.
We aren’t done yet. Next, we determine the number of active homes for sale. As of May 20, 2013, there are 53 active homes on the Multiple Listing Service in Northborough. For this calculation I did not include homes that are listed as active but have a pending offer. Now we multiply the number of active homes (53) by the rate at which homes are selling (2.29). 53 x 2.29 = 121.37 days. To find the absorption rate in months divide 121.37 by 30 days per month = 4.04 months.
What does all this mean? The absorption rate is Northborough is currently 4 months or if you list your home for sale today it should take approximately 4 months to sell. Yes, in Northborough it is indeed a seller’s market!
Let’s look at the rest of the area. Again, we will look the time period between January 1, 2013 and March 20, 2013. In Southborough, during that time period (140 days), there were 38 single family homes sold. Currently for sale in Southborough there are 33 homes. Using the same calculation for the absorption rate we arrive at a figure of 4.05. A house priced right in Southborough should take about 4 months to sell on average. Again, it is a seller’s market.
We will use the same formula for Westborough. Since the beginning of the year 35 single family homes have sold in Westborough. There are currently 50 homes active for sale. The absorption rate in Westborough is 6.66 or an average of 6 months to sell a properly priced home. Westborough is currently experiencing a balanced market.
The flaw with figuring out absorption rate for all single families in an area is that it doesn’t account for specific price ranges. For example, Westborough, overall, is in a balanced market, but in certain price ranges the competition for homes is stiff. If you were to look at the rate at which homes are selling under $500,000, the numbers are completely different. The absorption rate at this price level is 3.92 with over five homes selling every day.
Bottom line in order to make a good real estate decision it is key to know the market, whether you are buying or selling a home.
Karen Scopetski is a real estate professional in the Northborough, Southborough, Westborough, and the surrounding communities.
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