A statistic that I have been tracking over the past couple of years in the absorption rate. This is a very theoretical statistic, meaning that the underlying assumptions are flawed, but it is very useful to compare the relative strength of different market segments. There are two flawed premises. The first is that the past is a good indicator for the future (not always true). The other is that the market will stand still until all of the existing properties are sold (absolutely not true).
The goal of finding an absorption rate is to figure out how long it would take to sell all of the existing inventory assuming that sales will continue at their historical rate and that no new listings will come on the market. I look back one year to find the average sales rate. This is a conservative way to do it and others use shorter time horizons and find greater volatility. In the end if you are consistent across the data this statistic tells you how well sales are going. It answers the question; “how long would it take to sell all of the homes on the market”.
The charts below show three years of data for both single family and attached homes in Boulder County. The two variables of the ratio are sales rate and number of homes on the market. The number of homes on the market is very similar to what it was last year and in most cases below where it was two years ago. The increase in the absorbtion rate has everything to do with the decrease of sales over the last few years. This is no surprise to those who have been reading this blog for any amount of time, but it is interesting to see the data across price ranges.
The number of months it would take to sell all active homes is higher in every category when you price range when you compare it to September 2007. When comparing it to a year ago the separation begins above $350,000.
Attached dwellings (condos) have a much tighter dispersion but as makes sense, as the prices rise the longer it would take to sell the inventory.
