Absorption Rate & Other Links
A: Jonathan Miller brings out a very interesting chart on Manhattan Real Estate's Absorption Rate; showing a sharp 50% decline from the same period a year earlier. For those who don't know, the absorption rate is the number of months it would take to sell out the existing inventory at the current sales pace. Not suprisingly, with the months of JAN - APRIL being super strong here in New York City, the absorption rate fell proving that the wall street bonus season of 2007 didn't disappoint! I also included some other links to interesting reads across the real estate blogosphere.
Don't confuse absorption rate with time on market! To clarify both, here are the definitions.
Absorption rate - The Absorption Rate is the ability of the real estate market to sell off all of the houses that are for sale. For example, if 100 homes are sold every month and there are 1200 homes for sale then it will take 12 months to sell all of those homes. If there are 2400 homes for sale then the absorption rate will be 24 months or 2 years.
To price a property correctly it would have to be in the lower 50% of the price range for similar properties in order for it to sell in the next 12 months. To sell in the next 6 months it would have to be priced in the lower 25% of the competition.
Time on Market - The time it takes for a property to sell on the open market.
While absorption rate is still an important metric to monitor for those interested in the state of the current market, it is time on market that might be more telling in picking a bottom to local markets. The two should be tied together and I would expect data in the near future on the average time-on-market in Manhattan real estate sales to show a declining number. Both of these trends are the result of the sellers' market we have seen in NYC real estate since the beginning of January! In short, we have had strong sales volume from very healthy buyer demand causing a temporary shrinkage in supply. I would expect sales volume to start to slow heading into the summer and inventory to bounce back up a bit; with the data proving this coming out in 4-5 months or so.
For a more detailed discussion on realizing when to re-enter the market with the hopes of timing close to the bottom, read my post "Realizing When To Re-Enter The Market".
Here are some more interesting reads from across the blogosphere:
Will NYC Co-ops Have To Disclose Why? (True Gotham)
More on Mortgage Equity Withdrawal (MEW) & Consumer Spending (Big Picture)
When Will The Housing Market Bottom? (Calculated Risk)
The New Kids on the Board (NY Times)