Absorption Rate, What Is It and What Does It Mean?

Real Estate

Absorption Rate, What is It and What Does It Mean?

Absorption Rate, real estate jargon that has a tremendous impact on the value of your home.  Absorption rate determines how many months of inventory of homes are available in any given market for a given time period. Real estate is a commodity that experiences highs and lows just like the stock market.  Economic factors such as government contracts creating new jobs, mortgage interest rates, building activity and changes in family dynamics determine the needs and wants of buyers and sellers.

There are three types of markets:

Seller’s Market 

A seller’s market is when there are more buyers creating demand that there are houses for sale in a given area.  In a seller's market prices tend to rise, buyers competing for the same property can create homes to sell for over asking price.  Sellers are usually less likely to include chattels in the purchase and turn down offers conditional on a buyer that has a home to sell.  It is important to note that a seller’s market often shows favourable conditions for getting the highest price possible.  It is important to note, unless you're in a big city centre like Toronto or Vancouver, if you overprice your home over what comparable properties are selling for in your neighbourhood you may not get the advantage of this market.

Buyer’s Market

A buyer’s market is when there are more houses for sale than active buyers creating demand.  In a buyer’s market it is likely that prices stay stagnant, days on market increase.  In a deep buyers market prices can actually decline.  The buyer’s market we just came out of in the Halifax we saw a zero equity growth or even a loss in certain areas.  For example there were military posts which sold for the same or lower than what they had purchased four years earlier.  For corporate relocation and military postings there is often a fund allocated to help mitigate this loss.  In a buyer’s market, buyers often get very cocky and hard to negotiate with because there is so much inventory to choose from.

Balanced Market

In a balanced market the number of homes on the market equals the demand of active buyers.  In a balanced market the homes sell within a reasonable period of time, the negotiations are often more reasonable between sellers and buyers.  Home values tend to increase in equity typical to the market location.  The atmosphere is much more relaxed during the conditional period also in a balanced market.

The type of market can vary from area to area within a city and even by price point.  If you are considering a move, talk to your realtor of choice, or reach out to me if you're in the Halifax area and find out if you're in a sellers, buyers or balanced market.

Think of the curve of a boomerang, in a seller’s market you can price ahead of the curve, in a buyer’s market you price behind the curve and in a balanced market you price on the curve.  

For first time homebuyers a buyer’s market is great and for downsizing to rental for seniors a seller’s market is great.  However the reality is everyone in between this, which is about a 30 year age span, a balanced market is the best for selling to buy your next home.

Thinking of Buying?     Thinking of Selling?

You can reach out to our team anytime at 902-471-8497 or email me directly at brendak@brendak.ca