A blog reader sent me an email and asked: How do you calculate the Boston condo absorption rate?
I calculate absorption rates in terms of Boston condos sold per month. Here’s an example; Boston absorption rate for the number of condos sold in one month is 3,949, divided by the months in a year, twelve. 329 condos are sold per month in Boston. This is the absorption rate. Some people like to express absorption rates in relation to the amount of inventory. Let’s say our inventory in Boston is 2,392 condos for sale. In the next step, divide the number of active Boston condo listings (2,392) by the absorption rate per month (329) = approx. 7.3 months supply of inventory; so the absorption rate is 7.2% of the inventory per month.
How to determine if it’s a buyer’s or seller’s market?
Six months’ supply is considered a balanced market — when the number of listings roughly equals the number of buyers. Numbers over six represent a buyers’ market and those below a sellers’ market.
To assess sales trends, one can also calculate supply over shorter six-and three-month periods.
Why is this important to Boston condo buyers?
Buyers should use this information to understand that if a home has been on the market for six months it is because it takes on average at least that long to sell a house, and that we have reached the tipping point, it really is a buyers market.
I hope this helps.