Key Indicators of Current Real Estate Market Condition

Here are descriptions of Key Indicators to access the Real Estate Market Condition. These measures describe the real estate market condition in general. Each property is unique. The Luckys use these key indicators and many other factors in developing a specific property pricing strategy.

Understanding Absorption Rate for Home Sellers

The absorption rate is an important metric for home sellers to evaluate the current state of the real estate market. It measures how quickly homes are selling compared to the total number of homes available for sale, helping sellers make informed decisions about pricing and timing.

What Is Absorption Rate?

The absorption rate reflects the speed at which homes are sold in a specific market over a given time period. It is calculated using the formula:

Absorption Rate = Number of Homes Sold ÷ Number of Homes Available

For example, if 50 homes were sold in the last month and 500 homes are currently listed, the absorption rate is 10%. This means it would take approximately 10 months to sell all available inventory at the current sales pace.

Why Does Absorption Rate Matter for Sellers?

• Market Conditions: A high absorption rate (above 20%) indicates a seller’s market, where demand exceeds supply, leading to faster sales and potentially higher prices. A low absorption rate (below 15%) signals a buyer’s market, where homes take longer to sell, and sellers may need to lower prices to attract buyers.
• Pricing Strategy: Sellers can use absorption rates to set competitive listing prices. In high-demand markets, sellers might price their property higher, while in slower markets, pricing aggressively can help attract buyers.
• Timing Decisions: Understanding absorption rates allows sellers to strategically time their sale. For instance, waiting for periods with higher absorption rates (such as spring or summer) may yield better results.

By keeping track of local absorption rates, home sellers gain valuable insights into market conditions, enabling them to make informed decisions about pricing and timing their property sale effectively.

North Scottsdale Key Indicators by Price Range North Scottsdale Key Indicators by Community

Months of Supply Inventory (MSI)

The Months of Supply Inventory (MSI) is a key metric used in real estate to measure the balance between housing supply and demand. It answers the question: If no new homes were added to the market, how many months would it take to sell all current listings based on the current pace of sales?

How MSI is Calculated

MSI is typically calculated by dividing the total number of active homes for sale by the average number of homes sold per month. For example, if 120 homes are currently listed and 20 homes sell per month on average, the MSI would be 6 months.

What MSI Tells You as a Seller

• Seller’s Market (MSI < 4 months): A low MSI indicates strong buyer demand relative to supply. In this scenario, sellers have more leverage, often receiving higher offers and selling homes more quickly.
• Balanced Market (MSI between 4–6 months): This range suggests a stable market where neither buyers nor sellers hold a significant advantage.
• Buyer’s Market (MSI > 6 months): A high MSI indicates more supply than demand, giving buyers greater negotiating power. Sellers may need to price competitively or offer incentives to attract buyers.

Why MSI Matters

MSI helps sellers understand market conditions and set realistic expectations for pricing and time on market. For example:

• In a seller’s market, you might price your home more aggressively.
• In a buyer’s market, competitive pricing and strategic marketing become essential.

By monitoring MSI trends in your neighborhood or city, you can make informed decisions about when to list your property and how to position it effectively.

Summary of Key Indicators

MSI (Months Supply of Inventory) and absorption rate are related but distinct measures of market health. MSI indicates how many months it would take to sell the current active inventory at the current sales rate. Absorption rate, on the other hand, reflects the speed at which properties are being sold in a given area. High absorption rates indicate a fast-selling market, potentially a seller’s market, while low absorption rates suggest a slower-selling market, potentially a buyer’s market.

Absorption Rate is inversely correlated with MSI, so absorption rates are high, MSI tends to be lower (and vice versa).