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Ask Adam: Months of Inventory

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This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013 & 2014. Please submit your questions via email.

Q. Despite positive reports about the local real estate market, I would like to find out how my neighborhood and zip code are selling. I’ve heard that finding out the rate of sales compared to the amount of inventory is a valuable analysis. Can you tell me where this information is located on the internet?

A. What you are referring to is often called the absorption rate. Absorption rate calculates how approximately how many months it will take to sell the current inventory of active real estate listings, based on the most recent sales volume.

  • More than six months of inventory on the market is generally considered a buyer’s market.
  • Less than six months of inventory on the market is generally considered a seller’s market.
  • Six months of inventory on the market is generally considered a balanced market.

It will be easier to understand if I take you through an example. Let’s analyze the absorption rate for the 22207 zip code:

  • Within the last 90 days, 159 properties have gone under contract.
  • That’s an average of 53 properties per month.
  • Currently there are 113 properties actively on the market.
  • At the current rate of 53 properties being sold per month, we have a little over two months of inventory on the market.

If you agree with the assumption that under six months of inventory is a seller’s market, then this analysis would indicate that 22207 is currently experiencing a strong seller’s market.

I think it is smart that you want to analyze your neighborhood as well as your zip code. We often find that neighborhoods and condo buildings within a given zip code can perform quite differently.

I don’t know of a website that provides this type of analysis, but your Realtor should be able to create a custom absorption rate chart with data from the multiple listing service (MLS). If you don’t have a Realtor yet then let me know and we can help you out with this information.

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.

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