Absorption of Inventory in Detail

Mike Elliott — Tue, 15 Nov 2011 22:54:39 +0000

Absorption of Inventory

Absorption of inventory is a kind of snapshot number that we use to tell us what is happening in our real estate market or to help us compare one segment (area and price range) of the market to another. We reference absorption of inventory in our monthly market update in the Market Activity section. Absorption of Inventory is a simple calculation of demand (pended sales or offers accepted) divided by supply (number of homes available). So in the following King County For Sale and Pended Chart the calculation is 1,711 ÷ 7,963 = 0.215 or 21.5% absorption of inventory.

King County For Sale and Pended

And here is the Absorption of Inventory Chart.

: King County Absorption of Inventory

So what does that mean? You will hear these numbers interpreted differently. My interpretation, based on my own experience, is that when the absorption of inventory is less than 30% market conditions favor Buyers ie; market times are longer, Sellers are more likely to negotiate etc. Between 30% and 45% absorption of inventory it is more of a balanced market with conditions favoring neither Buyers or Sellers and absorption of inventory over 45% has market conditions favoring Sellers ie; short market times, multiple offers etc.

We also mention in our monthly market update that absorption of inventory varies between area and price range. The following charts are a good illustration of what that looks like. The first chart shows the absorption of inventory for single family homes in Bellevue priced between $300,000 and $400,000.

Absorption of Inventory Bellevue $300,000 to $400,000

And this next chart shows what is happening in the same price range in Kent.

Absorption of Inventory Kent $300,000 to $400,000

The next two charts demonstrate the difference between two price ranges in the same area. The first chart shows us Renton between $0 and $200,000, it’s a pretty hot market.

Absorption of Inventory Renton $0 to $200,000

But Renton between $400,000 and $500,000, not so much.

Absorption of Inventory Renton $400,000 to $500,000

So you can see that if you are looking for the same price range home in two different areas you could be experiencing very different market conditions. You can also see that current market conditions favor selling a lower priced home and buying a higher priced one or if you are selling a higher priced home it might not be a bad idea to consider an offer on your home that is contingent on the sale of a lower priced home because in most cases the lower priced home will have greater odds of selling.

Please don’t hesitate to call on me at 206-947-9085 if you have questions or would like to further discuss what is going on in the market.

My New Web Site and Blog

Mike Elliott — Sun, 16 Oct 2011 08:15:01 +0000

The people at Windermere Technology have been hard at work developing a new website format for Windermere Real Estate Brokers. While having to learn new technology always makes me inwardly groan this one (like all the others) looks like it will be extremely beneficial. I am hoping this new format will give me the opportunity to go into a bit more detail on the statistics that appear in our monthly King County Real Estate Market Update, share more about the things Jennifer and I deal with on a daily basis in the real estate market and allow me to more seamlessly utilize social networking. So please bear with me as I learn how to get the most out of this new tool that has been given to me.