Inventory Accumulation
Absorption Rate (Residential)

Click Here for "Inventory Accumulation" chart by County

Click Here for chart on "Number of Homes Sold and Average Prices" by County

We provide real estate services to buyers and sellers in Pennsylvania (Berks County, Chester County, Delaware County, Montgomery County, Philadelphia, Drexel Hill, Haverford Township, Havertown and Upper Darby) as well as in New Jersey (Brigantine, Atlantic City, Ocean City, Camden County and Gloucester County).
 

Note:  Source of all chart data are from TrendMLS.

Anyone, whether buying or selling real estate, should understand the market they are in to get a general idea of market activity or demand ("sold homes") in comparison to the available inventory of homes for sale.  This is generally measured by what we call Inventory Accumulation or Absorption Rate, which is expressed as the number of months it would take to sell all homes currently in inventory based on the monthly sales volume.  This balance (or imbalance) in supply versus demand impacts significantly real estate values and the length of time it takes to sell your home.

Inventory Accumulation could vary for each county, or municipality, as well as for different price levels of homes.  Inventory Accumulation could also vary by the time of the year we’re in.  It is imperative that both the buyer and seller know the relevant Inventory Accumulation information before proceeding with the sale or purchase of a home to know if they are entering a seller’s market, a buyers market or a balanced market.  This could determine how long it would take a seller to sell a home, or how much bargaining leverage a buyer could have.

We usually use a simple formula for calculating the Inventory Accumulation index: Inventory of Available Homes for Sale divided by the Average Number of Homes Sold per Month.  (A Supply and Demand Chart, also known as Inventory Accumulation chart, is available by County by clicking at the hyperlink above.)  The average number of homes sold is computed based on a 12-month period to avoid volatility due to seasonal shifts.  This would result in the number of month’s supply of available homes.  As stated above, this is usually called the Inventory Accumulation, or Absorption Rate.

Just how do you read the Inventory Accumulation information?  Although this could vary from one area to another one may use the following as a guideline:

1-3 Months of Inventory Accumulation:   This is a Seller’s Market.  Not enough homes are available to meet the demands of the buyers.  In a Seller's Market, bidding war usually develops and multiple offer situation usually occurs.  During this Seller's Market condition, sellers generally do not accept home sale contingencies.  But this should not be a concern to the buyer because their home is likely to sell relatively quickly as well.

4-5 Month’s of Inventory Accumulation:  This could be considered a Balanced Market.  There are sufficient number of buyers to purchase the supply of inventory that flows into the market; and there are enough available homes for buyers to choose from.  In a Balanced Market, bidding wars is avoided, and price negotiations are likely.

6+ Month’s of Inventory Accumulation:  This is a Buyer’s Market.   Homes that are priced well and in high demand areas will most likely move quicker, and homes that are over priced or in low demand areas will take longer to sell.  In this Buyer's Market condition, sellers are more likely to accept home sale contingencies.

IMPORTANT:  Whether you are in a Buyer’s Market or Seller’s Market is largely dependent on the price range you are in.  Even in a Buyer’s Market, certain highly priced homes tend to move slower relative to the general market.  Care must be taken in using the county averages above. Ask us, or your real estate agent, for the Inventory Accumulation or Absorption Rate that more specifically apply to your area and price range.

Working with a full-time professional real estate agent is a must.  Choose your agent by asking questions of him or her.  Find out how knowledgeable they are about houses currently for sale in your price range and also of houses that have recently sold. Can your agent recommend a good lender that has the reputation of excellent customer service and low rates to assist your new buyer with financing?  A good listing agent can get your house sold quickly at TOP DOLLAR and help you find a new home.

To receive your FREE copy of Homebuyer's Handbook or Homeseller's Handbook, click here.
 

Last modified:  04/17/2008