What is Absorption Rate?
We keep hearing that Carlsbad real estate and homes will sell if they are priced well and are in excellent condition–and that Carlsbad prices are still increasing year-over-year.
We also keep hearing that the real estate market is in the tank and that recovery is years away. An absorption rate calculation might be in order.
So what are we to believe?
One of the best ways to check market conditions is to calculate the absorption rate, or roughly how many week’s or month’s inventory is on hand.
As the following calculations show, Carlsbad has 30.39 weeks worth of single family home inventory, which if current levels of sales continue, will take seven months to absorb.
Carlsbad attached homes and condos fare somewhat worse. There is a 38.8-week supply of inventory, which equates to an absorption period of just over 9 months if market conditions remain the same.
Given the current 5 percent annual appreciation rate for Carlsbad real estate as a whole (zips 92008,92009,92010,92011) and the relatively lengthy absorption rate, it would appear we have a standoff between buyers and sellers. If more buyers enter the market because of lower interest rates and greater inventory selection, the market time for Carlsbad properties will decrease. If buyers remain on the sidelines, market time will continue to increase and sellers will begin to capitulate on pricing.
Anecdotally, we are already seeing some of the latter with homes that are in less-than-prime condition and sellers who need to sell quickly.
So what advice do we offer Carlsbad home sellers?
Try to view your home from a buyer’s perspective. Is your home competitively priced (preferably at or just under recent comparables)? Is your home in good repair, clutter-cleared, and ready for a relocating buyer’s discriminating eye? Are you ready to start treating your property as a house instead of a home? This can be painful, but if the other steps are taken it will hopefully be a shorter selling process than what the statistics predict. Well-priced and show-ready homes are selling fairly quickly. It would also be advisable to have a seasoned real estate professional representing your interests–because it is likely your buyer will be represented by the same (see advice below).
And what advice do we off Carlsbad home buyers?
Be prepared to look at more homes than you would have two years ago. Have a current lender pre-approval letter in hand–and make sure it comes from a direct lender or other very reputable source. This will be a strong negotiating tool in today’s market. Make sure your Realtor has current market information and has a good handle on current market conditions. These can be treacherous waters, and market understanding and sharp negotiation skills have never been more critical. So do not be fearful. This is the market Carlsbad home buyers have been awaiting–and buying conditions have never been better with our current low interest rates and high inventory levels.
To paraphrase the Chinese wish: May we live in interesting times….