I am often asked about how to figure out the right price for a property, both from the seller’s perspective for setting a listing price and from a buyer’s perspective in deciding what price to offer for a home. Most people know that one key factor is to “check the comps.” That means, to look at how much comparable homes (in terms of location, size and condition) sold for most recently. That is definitely very helpful information, but it only one of several salient data points.
Another important factor I look at is the “absorption rate”. This refers to how long it will take under current market conditions for the available inventory to be sold (absorbed). Here’s how you figure that out:
First, define your market. For example, perhaps you are looking at rowhomes in a specific school district, or condos in a certain downtown neighborhood, or detached homes in a particular zip code. Then look at how many of that type of home sold in the defined market over a specific period of time (e.g., 6 months, 12 months, etc.). Divide the number of sold homes by the number of months, to get a per month absorption rate. For example, if 100 homes sold in 6 months, the per month rate of sales was 16.67. Finally, determine how many currently available listings there are in the defined market and divide the per month rate of sales into that number to determine the number of months of supply. So, in this example, if there are 45 homes for sale, divided by 16.67, then the absorption rate is about 2.7 months.
This means it will take about 2.7 months for the current supply of housing inventory to be exhausted. The conventional wisdom is that a balanced market (neither favoring buyers or sellers) is around 6 months of supply. Anything lower than 6 months indicates a market trending toward favoring sellers (limited and fast moving inventory), anything more than 6 months looks like a market trending toward favoring buyers (ample supply and more negotiating power for buyers).
Based on most recently available data from the MRIS/RBI Smart Charts (for July 2017), here are the absorption rate for a sampling of areas in the region (looking at all types of homes):
– Glover Park: .8 months of supply
– Cleveland Park: 1.4 months of supply
– Hillcrest (20020 zip code): 2.9 months of supply
– Georgetown: 2.5 months of supply
– Crestwood: 2.0 months of supply
– Bethesda (20817 zip code): 3.6 months of supply
– Arlington (22207 zip code): 2.8 months of supply
– City of Falls Church: 2.0 months of supply.
Want to know the absorption rate where you live? Just send me a message and I’ll help you determine what it is.