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Understanding Absorption Rate & A Balanced Market – 6/17/2022

Picking up where we left off last week we are going to go over the possible upcoming buyer’s market and some key market indicators that we will be watching in the coming months. The market is shifting. Are we going to reach a balanced market?
First of all, let’s clarify what a balanced market is and how it’s created. All markets are based on supply and demand. When there is a reasonably equal number of homes available compared to the amount of people looking to buy a home then the market is balanced. Nationwide the number of buyers is now decreasing due to rising interest rates and insecurity in the market. This will allow for a more balanced market as we reach a more even number of buyers and sellers. One of the key indicators of whether it is a seller’s or buyer’s market is called the months of supply or absorption rate. The absorption rate is determined by how long it would take for all the homes currently listed to sell (at the 12 month average price and if no new homes came on to the market). In a balanced market, with an equal number of buyers and sellers, this would take 6 months. If it would take less than 6 months to sell all of the current inventory, it’s considered a seller’s market or sellers have the advantage, as we have seen over roughly the past 10 years. If it would take more than 6 months to sell all of the current inventory then it’s considered a buyer’s market and buyer’s have the upper hand. We’ll go over strategies on how to make the most out of a buyer’s market next week.
Calculating the absorption rate is simple: divide the average number of homes sold in a time frame by the current homes available. For our East Shore market we have sold 19 properties in the past 30 days, divided by 77, the total number of properties for sale, equals 25%. Anything above an absorption rate of 20% indicated a seller’s market. This number fluctuates significantly when you take into account different variables such as condo vs house, neighborhood, price range, lake view, lakefront etc. If you want to know the numbers of your property or a property you are interested in please call or email me and I will give you a more detailed breakdown.
Whether we are going to reach a balanced market here at the lake is questionable. As we have been discussing in previous newsletters, the number of homes available in the Lake Tahoe Basin will always be limited due to building restrictions and the US Forest Service owning 78% of the land. COVID has made escaping to the mountains more desirable and available than ever so the number of buyers has increased in the past couple years. Markets like Jackson ($4M), Big Sky ($4.55), Vail ($6M), and Aspen ($15M) are still significantly higher than ours ($1.25M) (based on list price of condos and homes as of 6/18/22 ColdwellBanker.com), so we definitely have some room to grow. It is a precious commodity to own in a resort town where, even in a bear market, home values hold over time due to supply and demand.
We will go over additional key market indicators in next week’s newsletter and on our social media platforms so stay tuned for important numbers to be watching. We will be keeping you up-to-date, not only with our weekly market update but also with local market statistics to ensure that you are in the best position whether you are getting ready to buy or sell in the coming months.
Your Realtor should not only be someone you trust in knowing the real estate market but also in wealth building, preservation and management. At the Zager Group, we don’t take this responsibility lightly. We are committed to continuously learning and sharing about making the wisest choices for our future and the future of our friends and clients. We pride ourselves in being experts in this field. If someone you care about needs guidance or recommendations, please share our contact information as we are honored to be able to help!

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