Supply & Demand
It still comes back to the old “Supply & Demand”. This part isn’t rocket science, but is still very much over looked and not just in Real Estate, but with any market or product. In real estate however supply and demand is where the supply is low (homes) and the demand is high (desired to own a home). With these circumstances in real estate, the sellers have something that the market place wants…yes homes. Thus, we have a seller’s market
Absorption rate is a term that was coined a few years ago. In a nut shell, absorption rate is the rate homes are being sold in a certain time frame. Simple calculation is taking the number of active homes (example 2,000) and dividing that number by number of sold homes in a month (example 200), which gives a absorption rate of 10.0. If no other homes entered the market, it would take 10 months to exhaust the current inventory.
So what benefit can you use with this? An absorption rate of 5 to 7 represents a balanced market, not a seller’s or buyers, we are on equal ground. With the rate above 7, inventory is plentiful and buyers have more choices. With the rate going below 5, inventory is low, homes are selling quickly, and sellers have the upper hand.
Professional Home Sellers
Watching the professional seller’s will give you insight into your local real estate market. Professional sellers are your builders and contractors. These guys watch the market like a hawk, when they see movement in home sales, appreciation and the absorption rate, builders will enter the market in groves.
Subdivision will start sprouting up, land is being developed, an increase in building permits are being issued, and model homes are everywhere. Look around, what are you seeing in your area with new builds?
Increase In Home Values
And of course home appreciation. Fast appreciation is communicating that home values are on the rise due to sales and the demand for housing. When homes are appreciating 10%, 15% and higher annually, sellers who once couldn’t afford to sell, now have the equity to do so. Sellers are not the only one who will reap the benefit of appreciation, buyers can jump on the equity ride and gain values in there new purchase.
A Side Note
No low ball offers in a seller’s market. With a seller’s market, the days of offering way below asking price just to see if the seller’s will bight, does not work, and will only frustrate the buyer. If the home is priced right from the start, offering lower than asking price doesn’t make sense. If you don’t offer the sellers their asking price or very close to it, there will be someone who will.
Whats Happening In Salt Lake City Area?
What are we are seeing here in the Salt Lake City and surrounding areas? Homes prices at $300,000 and below have an average absorption rate of 3.57. We are seeing appreciation as high as 27% in some areas and are averaging out at around 13% annual through out the valley and yes, there are a lot of new builds through out the valley.
With home inventory being at an all time low which is keeping the supply down and adding low interest rates to the equation, this is adding fuel to the demand of buying…all these ingredients creates a seller’s market.
If you are planning on purchasing in a seller’s market, have your agent help valuate the home value so you can go in with your best offer. If you are a seller who is selling in this type of market, make sure you price it right and you will see multiple offers come across your door step.5 Things you should do in a multiple offer situation Salt Lake ranked #3 for homeownership New low down Utah mortgage program Todd Rodocker specializes with first time home buyers, seasoned buyers and investors. He can be contacted at email@example.com, cell or by visiting his websites: www.UtahRealEstateStore.com or www.UtahHomes.kwRealty.com