Real Estate Absorption Rate
Many people have opinions on the state of the housing market, but the easiest way to understand current and future conditions is to monitor the movements in the real estate absorption rate. Mathematically, this is the measurement of current housing supply divided by the current rate of sales, expressed in months of supply.
A simpler way to express the definition of the real estate absorption rate is to say it is the number of months that the market will need for the foreseeable future. Thus, 17 months of supply would mean that at our current rate of sales, we have all the homes for sale in Tallahassee that the market needs for the next 17 months.
So how do we put this into perspective. Consider this: The typical home seller would like to move within two to four months of placing their home on the market, so over time, we have developed expectations in real estate and have defined situations as follows:
- Sellers Market: 1 to 4 months supply of homes
- Neutral Market: 5 to 6 months supply of homes
- Buyers Market: More than 6 months supply of homes
Real Estate Absorption Rates In Tallahassee
The Tallahassee real estate market is still grossly over-supplied, with more than 1 year’s worth of inventory overall. This real estate absorption rate is too slow and must be increased before we will see property values increasing again.
In the real estate graph above, current supply is measured in red, monthly sales in green, and the blue vertical bars show the real estate absorption rate has reached a level of 12.5 months of supply. In the simplest sense, this means if nobody puts another home on the market ever again, we still have enough for sale to satisfy all buyers for the next year! That is a lot, and I suspect more will be hitting the market over the next year.