In my last post I looked at how the current real estate market in the Birmingham, Alabama area is performing compared to peak years in the past by analyzing the median price and number of sales that have occurred. Data has been taken from reports published by the Alabama Center for Real Estate (ACRE). This post will cover the last two statistics which are days on market and absorption rate.
Chart courtesy of Alabama Center for Real Estate
Days on Market: The days on market statistic can provide valuable information on how the real estate market is performing. A large inventory of homes can result in a buyers market. In this type of market if homes are overpriced they will sit for extended periods of time, until the price is adjusted to reflect supply and demand. If a home is priced too low it will sell fast but the seller may not get as much money for their home. In contrast, if a home is priced too high then it will take a long time to sell. When a home is priced to reflect what is occurring in the market, the days on market will fall within a range that is typical for the area, while at the same time allowing for the highest price to be paid for the home. The chart shows that in February the average days on market was 172, which is very close to what it was in 2002. This is a also the highest average days on market within the 10 year period. It reflects homes which have been on the market for a long period of time, most likely due to being overpriced. When the home is priced more realistically this should come down.
Chart courtesy of Alabama Center for Real Estate
Absorption Rate: I have covered what the absorption rate is, and how it is calculated in my blog post titled “A Look At The Absorption Rate In Pelham, Alabama“. It is a measurement of how long it will take to sell the current inventory of homes given the recent rate of sales. It determines whether the market is a buyers or sellers market, or if it is considered to be in balance. This is important to know because you would not want to overprice a home in a buyers market. Potential buyers would pass your home up in a heartbeat and move on to the next one.
The current statewide absorption rate of 12.4 months indicates a buyers market. If not priced correctly homes can take longer to sell, which actually appears to be happening from the days on market graph. It should be noted that the absorption rate, on a statewide basis, has been decreasing since February 2010, when it was at a high of 16.0 months. This may change soon because it was recently reported that the next wave of foreclosures will be entering the market soon. This will of course increase the level of inventory and absorption rate, unless sales activity increases to offset the increase in inventory.
Are you trying to sell your home? Are you pricing it to the market? If I can help you in any way please give me a call, I look forwarding to speaking with you.
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