Tell-Tale Absorption Rate Drops Again

(Westcoe Realtors, Riverside, California)…For the 8th consecutive month, the real estate absorption rate for the Riverside area has dropped to a new level of 6.1…a reduction from 39.0 in September, 2007.  If you have read our previous blogs on the importance of this statistic (posted March 3, April 2, and May 5), you know that this new low level reflects the increasing real estate sales activity in our Riverside market area.

 Briefly stated, the absorption rate is a measure of how long it would take to sell, in months, all the available housing inventory in Riverside at the most current rate of monthly sales.  In this case, due to the amazing increase in the number of sales over the past 8 months, our newest absorption rate indicates it would take 6.1 months to sell everything currently for sale in our local Riverside MLS.  This represents a sales rate not seen since August of 2006.  The chart below will give you a comparison of the last few months.

Month            Active properties for sale         Number of sales         Absorption rate

January                    2760                                         154                              18.0

February                  2776                                         221                               12.6

March                       2837                                         317                                8.8

April                          2778                                         368                                7.4

May                          2733                                         445                                 6.1

(all data supplied by the Riverside area MLS)

As you can see, the number of available homes for sale has remained relatively stable, but the number of monthly sales has increased dramatically.  The 445 sales registered for the month of May is a 288% jump in sales since the beginning of 2008.

Why is this happening?….Because buyers have realized that housing prices have fallen to such levels that affordability is now within reach of so many who could not afford a home at the massively high prices of a year or two ago. 

 Also, don’t discount the savy investor who understands that prices today will be the stuff of dreams within 4-5 years from now.  Anyone who looked at real estate prices in 2006 and “wished” they had purchased a home in 2002 understands what is happening now.  As we have said many times, this cycle will be no different from those of years past..and today’s buyer will be tomorrow’s hero.  While no one knows when this cycle of falling prices will end (although most feel we are at or near the bottom now), one thing is clear…no matter how long it takes the real estate market to recover, IT WILL RECOVER…and when it does, those who figured it out today will reap the equity rewards to be gained tomorrow.