This is a complicated question. To discover the answer, we must know the forces that control our market. Real estate is a supply vs. demand business and is heavily related to the rate of absorption of the inventory.
If we have low inventory and high demand the absorption rate is high and we have a seller’s market. Conversely, if we have high inventory and low demand the absorption rate is low, we have a buyer’s market – which is where we are at today.
March of 2007 marked the last month that we had a strong sellers market. As we entered the second quarter of 2007, the pendulum started to swing. Inventory started to rise and sales began to fall off. If you look at the chart below, you will see the change.
You will notice that the absorption of the inventory is at its lowest levels in a decade. The rate of absorption on this chart has been at 15% for the last 12 months. In fact, we have numbers that are far from average.
The average pace of the King County Market
In-spite of showing resistance to go below 15%, the current numbers are well below our averages for last 10 years. Here is what we normally expect:
9309 Active Listings per month
2939 Pending Sales per month
32% Absorption Rate
When you compare these numbers to our current market, there are many more sellers wanting to sell and fewer buyers wanting to purchase.
Are we still adding “Fuel to the Fire”?
New listing are the fuel on the fire. When looking at the question “ Have we reached the bottom of the absorption rate?” you need to analyze the state of our inventory. Is it getting better or worse?
This chart shows a steady decline in the number of new listings coming to market since March 2008. It also shows the total amount of available listings stabilizing with last years numbers. Finally, you will notice that pendings are beginning to stabilize versus 2007 and September we surpassed the number for 2007 by 4.18%.
So have we reached the bottom?
Looking at this data alone, I would think it is likely. However, as I write this… the stock market has been taking a tremendous beating for the last 3 weeks. Now the big question is… will the real estate market recover on its own or will it require the stock market to stabilize before housing will do so too. Only time will tell!
Certainly, savvy investors will see that this is an amazing time to invest in real estate, especially when compared to the recent performance of the stock market!
If you would like to know more about investing in real estate, feel free to contact me.