How is a Buyers Market or Sellers Market Determined
Here’s an explanation of absorption rate, buyer’s market, and seller’s market in real estate:
Absorption Rate
The absorption rate measures how quickly homes are selling in a specific real estate market over a given period, usually expressed in months. It is calculated as:
Absorption Rate= The measurement of how quickly homes are selling in a specific real estate market over a given period, usually expressed in months. Absorption rate is calculated by dividing the number of homes sold in a specific time, by the total number of homes available for sale.
If 50 homes are sold in a month and there are 200 homes on the market, the absorption rate is 50÷200=25%50 \div 200 = 25\%.
To find how many months it would take to sell all homes at the current pace, you divide the total homes by the rate of sales.
Significance:
Low Absorption Rate: Indicates homes are selling slowly, suggesting a buyer’s market.
High Absorption Rate: Indicates homes are selling quickly, suggesting a seller’s market.
Typically:Below 15%: Buyer's market
Above 20%: Seller’s market
Between 15-20%: Balanced market
Buyer’s Market
A buyer’s market occurs when supply exceeds demand. There are more homes for sale than there are buyers, giving buyers more negotiating power. Characteristics include:
Lower home prices.
Longer time on the market for homes.
Sellers may offer incentives to attract buyers.
Seller’s Market
A seller’s market occurs when demand exceeds supply. There are more buyers than available homes, giving sellers the upper hand. Characteristics include:
Higher home prices.
Homes sell quickly, often with multiple offers.
Buyers may need to offer above the asking price or waive contingencies to compete.
Understanding these terms helps buyers and sellers make informed decisions based on current market conditions.
For more information about the current market. Contact Allen Deaver of Asset Realty today.
