So how does the real estate profession calculate statistics to arrive at the conclusion there is more supply than demand ?

Most real estate professionals define market conditions by using the absorption rate formula. So what is an absorption rate? An absorption rate is the mathematical representation of the relationship between supply and demand.
The total quantity of available homes is divided by total homes sold in the previous month. The results represents the number of months it will take, at that same pace, to sell the entire real estate inventory of a local market area.

Here is a fictitious example:
• Kitsap County has 989 homes currently on the market.
• Last month, 92 homes sold
• 989 / 92 = 10.75
• So the Kitsap County area has 10.75 months of inventory.

But, remember the answer is only true if the housing market stays the same. The same meaning that there is always 989 homes on the market and each month 92 of those homes sell.
Absorption rates allow us to give some kind of mathematical equation to determine what type of real estate market we are experiencing at any given time.

Remember that real estate is local and that towns, cities, counties and states all have different absorption rates and will have different markets.
There are also different markets within a market. You might have a buyer’s market when you look at high end homes and yet a seller’s market when it come to 1st time home buyer properties.

• NORMAL MARKET :: conditions exist when the Absorption Rate is between 5 and 6 months
• SELLER’S MARKET :: conditions exist when the Absorption Rate is lower. (1 – 4 months)
• BUYER’S MARKET :: conditions exist when the Absorption Rate is higher. ( 7 plus months)

The truth of the matter is most home sellers become home buyers. Let me try to explain how selling in a buyer’s market could be even better for you in the big picture.

Usually, when you have decided to sell your home it is to find another home, and so the switch from seller to buyer happens really quickly. You want your home to sell so that you can buy. Most second, third and fourth time buyers have a pretty good idea what they want to buy, you might have already decided to sell based on a house you just saw, in a neighborhood you have always wanted to live in. “Move-up Buyers” also at the very least know what price range they should be looking in.

So, if you are a “Move-up Buyer” and you are selling and buying in the same local area it just might be better to be in a buyer’s market than in a seller’s market. Ok, don’t look at me that way, let me explain. I know it does sound a little crazy.

Sure, in a seller’s market you might get more for your home than you ever imagined, there might be a bidding war with multiple offers and the days on market could be just minutes, making you a very happy seller.

On the other side, selling in a buyers market can mean days and days on the market (average is around 105 currently). You have to really be aggressive in your price to be competitive with the over-stock of inventory and you just might get less for your home than you would have a couple of years ago.

A couple of years ago was not the right time for you to sell so that gain really is just an imaginary figure, remember that.

Let’s look at how it was for a buyer in Kitsap County in 2006. I remember this well because I was a buyer during that time period.

• I couldn’t write a home with a contingency
• There were few home to choose from – I spent hours searching
• I had to be ready to write asap with out the benefit of “sleeping on it”
• Even going in full price I had no idea if there were going to be escalation clauses
• I was in several transaction were there were multiple offers from other buyers
• I did receive the “take it or leave it” attitude of sellers because buyers were a dime a dozen!
• I was told during an inspection process that if I asked for anything the seller was ready to take the “back up” offer.
• It was tough being a buyer!

Now, lets look at how it is for a buyer in Kitsap County in 2008.

• Most sellers will be happy to take a contingent offer (it’s an offer)
• The inventory of home is HUGE so you have more choice
• You have time to look and decide without feeling too rushed. You might even be able to “sleep on it”.
• The average asking price is coming down – you might get more home
• You have the opportunity to ask for some concessions (closing costs, home warranty, repairs)
• There might be homes listed with some incentives to buyers - Buyer Bonus

You don’t want to be the seller that waits until the market turns around. You will get less for your current home and then you will be buying in a seller’s market, not much sense in that. We never know where or when the bottom of the market is just like we don’t know when the market has turned until it has happened and we are on the up swing.

I would much rather buy in a buyers market than sell in a seller’s market because you have more control over your final product – the “Move-Up” house. You can feel better living in a home that you were able to choose wisely and were able to make an informed decision on rather than feeling like you had to make an offer out of fear. Buying in “fear of loss” is no fun and you loose so much control.

Remember, you may get less for your current home than you thought or you could have a couple of years ago, but you will be able to buy more with what you do realize out of your sale. You will also benefit with the Seller’s [Move-up Buyers] Advantage Plan.