The balance of supply and demand determines if real estate values go up or down. If one is higher than the other, home prices will change. More demand, prices will go UP. More supply, prices will go DOWN.

Absorption rate is a great indicator of the balance of a real estate market.  Absorption rate is often referred to by the months of supply of inventory.  Historically, 6 months was considered a balanced market. Anything higher than 6 months was considered a buyer’s market (where we might see prices going down), and below 6 months was considered a seller’s market (where prices tend to go up.) However, we’re here to tell you that 4 is the new 6. Meaning, if there’s around 4 months of inventory, that’s now a balanced market and supply meets demand.  In this situation, prices would remain relatively flat, or increase slightly (3-5%) each year.  

You’re likely thinking, why the change? In short, we now live in the digital era where information travels much faster than 30, 20 or even 10 years ago. Today, everything happens faster.  With so much real estate information out there, a property can get full exposure after a few days, and contracts can be negotiated extremely quick with digital signatures.

But where’s the link between things happening quicker and the change from 6 months to 4?  Let’s check the numbers in Routt county and find out.

To assess this, we’ll look at residential real estate in Routt County the last 8 years, this is rolling 12 months. 

Routt County residential median sales price:

·      August: $1,100,000 / September: $1,100,000 / October: $1,091,805

            A decrease of 1%. Not much change in prices, so a fairly balanced market between supply and demand.

Sold listings:

·      August = 66/ September: 63 / October: 70

If we look at the rolling 12 months, again, sales are remaining steady so we’re not seeing an influx of buyers entering or leaving the market that would impact the balance of supply and demand. Or an increase of about 1%.

Active listings:

·      August = 168 / September: 175 / October: 182                       

An increase of 4% month to month.  Yet again, fairly balanced.  Inventory is historically low right now and with available listings slowly increasing, It seems to be in line with demand. 

So, if these stats are showing market equilibrium at the moment, what is our current absorption rate or months of supply?

Months of Supply: August = 3.5 / September: 3.7 / October: 3.8    

                   

Thus, if we look at median sales price, sold listings and active listings, the market is fairly neutral or balanced. Not going up but also not going down. And if you compare those trends to current absorption rates being around 4 months, then 4 just might be the new 6.

So, what does this mean for you? Well, balanced markets are just that – balanced. Neither the buyer nor the sellers have the advantage. And often buying and selling in these times is a lot less stressful and navigable.  If you’re selling during these markets, having great marketing and getting noticed will favor your odds and if you’re buying during these times, choosing a knowledgeable agent with great negotiating skills could save you some money. 

Thanks,

Charlie

CHARLIE DRESEN
Partner / Broker | The Group Real Estate
509 Lincoln Avenue, Steamboat Springs, CO 80487
970-846-6435 | SteamboatsMyHome.com