Phoenix Real Estate Market Absorption Rate - Reader Feedback
I received this e-mail the other day in response to my posts about absorption rates here in the Phoenix area.
Tony writes …
I wanted to let you know that I think the concept of absorption rate is right on the money. I am not in the real estate business (actually in the aerospace business) and this really hits home with me as the best way to compare supply with demand. Funny you always hear “it is supply and demand.” Well, with absorption rate, it is both.
I was thinking about what you wrote about pending sales … probably the best thing I could think of with those it to take them out both inventory and sold numbers. I would think leaving them in would tilt the demand side (lower number, and the denominator) and result in showing too few months supply.
You could probably draw some interesting conclusions too if you looked at absorption rate in price buckets - more relative sales in the lower end of the market vs higher end of the market should be singnalling price pressure. Might also be interesting to look at age at sale … once that average number starts increasing it would indicate that people are having to look deeper in the market to get what they want… or that the sellers capitulated on price.
The only thing that really makes me think is that very often (most of the time??) a buyer of 1 home in Maricopa [County] is probably also the seller of 1 home in Maricopa. I’m not sure how that would/should/could be addressed./p>
I blabbed a little, but under any circumstances wanted to let you know that I appreciate the fact that you are applying some actual analysis to make sense of the market instead of a finger to the wind!!! Keep it up!
There are others who track absorption rate by price bucket. It’s something I may start to do but the tough part is not having historical active inventory numbers available. I’ve also debated tracking rentals to see what that market looks like but haven’t found the time.
I’m already incorporating Tony’s idea about pending sales. Essentially I ignore them (which is a less polite way of saying I don’t include them on either side of the equation.) These aren’t active listings, but they’re also not guaranteed closed sales … not until they show as sold.
If anyone else has an idea on what to do with them, I’m open to it but for the time being I think we’ve got the best course plotted.
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