I have gotten several individual requests recently from both buyers and sellers to give them specific numbers and data about the current Charlottesville market. I have run some numbers and gotten together some data, but also wanted to just make some general statements as well. We are currently experiencing a buyer’s market. What this means is that there are more (in some cases, many more) people who are currently trying to sell their home than there are people trying to buy new homes. One number that shows this well is called an absorption rate.
An absorption rate essentially indicates approximately how many homes sell in an average month (in the current market climate), then looks at the number of homes currently active on the market to determine about how long it will take for all of those homes to be sold (or to be “absorbed”). Obviously it cannot take into account the number of homes that will be added to the market in the time that the others are selling off of it, nor will it take into account those that expire or those that are withdrawn throughout the process.
What the absorption rate DOES tell you, if you are a seller, is exactly how much competition you have and exactly HOW outstanding your home must be in order to be one of the few homes in the sea of inventory that sells in the next 30 days, as opposed to the next 60, 90, 120 and (gasp!) beyond.
Example; In the price range of $300,000 – $400,000 there were 426 home sales between the City of Charlottesville and Albemarle County in the previous calendar year (March 1, 2007 – March 1, 2008). In a very rough calculation that would tell us that in the past year, in this price range, about 36 homes were sold each month. Then by looking at our current inventory of 261 active properties in that price range, we can see that with an estimated 36 homes selling a month, the absorption rate is about 7 months. This tells us that we have a 7 month inventory of homes in that price range, or that it would take (at a minimum) 7 months for the market to absorb all of these homes (though as we all know, many of these homes will not sell and thus will not be “absorbed”).
This number is actually quite optimistic. Since that number is calculated with the past YEAR of sales (including the earlier months of 2007 when the market was moving faster), it actually gives us a slightly enhanced view of our odds.
Now, what this tells you if you are going to list your home in this price range amongst the sea of other homes out there, is that your home needs to be in the top 36 of the 261 homes out there if you have any desire to sell in the next 30 days. You will need to stand out of the crowd, and the three major ways to do this will be through price, terms, and condition. If you can already think of 36 homes out there that are much better maintained, decorated, or with newer systems and lower maintenance, then either you have a lot of work to do or you need to consider a different price range- this is, of course, unless you are in no rush and can wait 7+ months to sell.
What absorption rate doesn’t include is the handful of nice, new properties that will inevitably enter the market in your price range again next month, or the month after that, just serving to push yours further down the list if it’s not up to par. What this COULD mean, is that even if not another property was listed between now and then, we would still have inventory left on the market at Easter, still some at Memorial Day and over the summer and homes would still dwindle unsold through the 4th of July.
This could be looked at as a grim story. On the flip side, however, it also tells us that there is an opportunity for 36 home sales in this specific price range in the next 30 days. With the proper pricing, staging, and maintenance- there is still a chance! It is certainly no surprise to hear that if you want your home to sell, your property must be PERFECT in comparison to the other homes available in that price range. If it is not perfect in comparison, then it is not in the right price range. This will be a very difficult reality for people to face. The days of the past when selling your home for more money than you purchased it are no longer a guarantee. What you purchased your home for has absolutely no bearing on what you will sell it for now.
A “neutral market” is described as being one in which the absorption rates hover around 6 months of inventory- this is an indication that there are are relatively the same number of people trying to sell homes as there are looking to buy. We are currently in a “buyer’s market” in all price ranges in the City of Charlottesville and Albemarle County. I have listed the absorption rates for several different price ranges in the chart linked here- March 10 Absorption Rates.
On a closing note, sellers- do not fret. In most cases a buyer’s market also has many benefits for sellers, as most sellers are moving on to buy another home (and often moving “up”). We are in buyer’s markets nationwide, so it is likely that what you might perceive as your loss on your next sale can become your gain in your next purchase.