Absorption Rates

As of last night there were 9,176 Residential Properties for sale in King County and 3,261 condos. I personally feel that calculating absorption rate is better done in smaller segments and not the entire County. But since many are trying to calculate the number of months of inventory for all of King County, I’ll throw my hat into the ring with my opinion on that.

Based on sales for the months of March through June of 2007, it would take 3.79 months to sell off the current inventory.

If single family home sales are down this year by about 30% compared to last year, and I think they are and will continue to be so, then that 3.79 months turns into 5.6 months.

So it would appear in my opinion that we currently have a full season’s worth of inventory on market. Another way to say that is: I predict that between March 1 of 2008 and August 20th or so, 9,176 homes will sell in King County, that being equal to the inventory as of March 2nd.

Now let’s do the condos.

3,261 on market. For the months of March, April and May of 2007 the avg. number of sales per month was 919. For the months of June, July and August of 2007, the avg. number of sales per month was 965. The average then for the six month period is 942. 3,261 divided by 942 sales would be 3.46 months if sales were not down. But if condo sales are going to be say 35% fewer, and I think that’s generous for a couple of reasons, then avg. monthly sales would drop from 942 to 612 per month increasing the absorption rate of current supply from 3.46 months to 5.3 months.

So let’s say it will take until mid-August to sell off 3,261 condos, which is equal to the current supply. That’s pretty much the same as my single famile home prediction.

One of the factors to consider if you are using absorption rates to determine how long it may take for you to sell your home is age. Any area that is competing with new construction may find a higher number of sales being new homes. If you have a home built in 2004 and your primary competition is a builder of new homes, the absorption rates may not help you if 60% or more of the purchases in your immediate vicinity represent people buying new construction vs. resale.

If all of the properties in your immediate vicinity are homes built between 1960 and 1980, and there is little or no new construction or newer homes, then the absorption statistics will be more helpful.

Identifying who your competition is, cannot be done on a County-wide basis. If you have a home near Microsoft, for example, better to use absorption rates calculated specifically for that area. If you have a lake view home, then it is a bit more difficult. Lake view buyers are more likely to look at other view homes and be more open to where. So looking too close to your home to calculate rate of absorption would not be as accurate.

In any event, it looks like we are starting the year in King County for both single family homes and condos at a full season’s worth of inventory. Remember that townhomes on the Eastside are likely to be included in the condo stats and townhomes in Seattle, particularly North Seattle, will most likely show in the Residential/SFH statistics. That is a function of how the land is and is not subdivided.

This entry was posted in General and tagged by ARDELL. Bookmark the permalink.


ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

6 thoughts on “Absorption Rates

  1. ARDELL,
    With regard to competition from new construction, we call it “shadow inventory” for all the obvious reasons; inventory lurking in the shadows that you know is just coming to market…..

  2. Kevin,

    I think that often the condos are recorded in the mls when sold but not separately shown as lisings. So the # of solds vs. inventory can be very skewed, particularly in Downtown Seattle where the projects are more like the ones in your area. They can be pending pre-sales for years.

Leave a Reply