What is an Absorption Chart? How can this information help buyers in the Durham Region?

By: Lindsay Smith

What is an Absorption Chart? How can this information help buyers in the Durham Region?

Tags:

real estate, buyselllovedurham, oshawa real estate, durham region, market trends, COVID-19, spring real estate, tools, market information, sellers market, buyers market, whitby, clarington

Imagine you are placed in the role of ordering canned goods for a grocery store. For your first month, you watch the shelves emptying and being refilled and you keep track of what you have in inventory and how quickly they are selling. You notice that at the end of the month you sold 500 cans of tomatoes. You ended up with 250 cans. You determine that by carrying an inventory of 750 cans you had a 67% turnover of inventory for the month. In retail, it is expensive to carry inventory that doesn’t move. How does this relate to Real Estate? Let’s dig in to see.

Absorption charts are a similar tool used by some Real Estate agents and have similarities to retail turnover reports. Simply what they are, are taking the number of sales for a current month, in a $50,000 range, observing how many homes are left unsold at the end of the month and then dividing the sales into the homes left for sale to determine how long it would take to sell all the homes left (if there were no new homes placed on the market.)

Here is an example:
For the month of November 2021, there were a total of 803 homes sold from Clarington to Pickering. At the end of the month, this geographic area had 261 homes left for sale. This means that it would take 0.33 months to sell what was left on the market. That is about 10 days.

Here are the general guidelines of what “months of inventory” would define a Seller's market, a Buyer's market or a balanced market:
0-2 Months of Inventory – Active Sellers market with rising prices and multiple offers.
2-3 Months of Inventory – Normal Sellers market with moderate price increases.
3-4 Months of Inventory – Balanced Market with flat values
4-5 Months of Inventory – Buyer’s market, flat or declining prices.

How we use this chart when dealing with Sellers is to look at the area their home is located in, and the approximate value range and determine how fast homes are selling. This is a good tool to see how the market is acting as it applies to the Sellers's particular home. For Buyers, we use a similar approach, doing a quick check to see how easy or difficult it is to purchase a home in their range.

Here is a snapshot of a $50,000 range above and below the average prices in Oshawa, Whitby and Bowmanville as of the beginning of December:
Oshawa – Average home range $950,000 - $1,000,000. 18 Sales – 7 Active Listings –  0.39 months of supply.
Whitby - Average home range $1,150,000 - $1,200,000 +. 73 Sales – 26 Active Listings – 0.39 months of supply.
Bowmanville - Average home range $1,000,000 - $1,050,000. 5 Sales – 0 Active Listings –  N/A months of supply.

This shows that in Oshawa, with only 7 homes on the market at the end of November, and with 18 sales, it would take about 12 days to sell all inventory. For a Seller, this is good news. This means you have a good opportunity to get top price for your home in a short period of time. Buyers on the other hand, this news means that it is going to be difficult to find a home in this price range and when you do find a home, there is a good chance you will be competing with other Buyers for the same property.

The other benefit to sellers is to choose a price range that will get the most activity on their property. By choosing to list their home in a price range with fewer available, more attention will be created on the property. (If we go back to the grocery aisle, the best cans of tomatoes are at eye level, and the slow sellers are closer to the floor. This is a similar strategy of pricing a home where you will get the most “eyes” on it from Buyers.)

Looking at Bowmanville, we notice that there were no homes in the average range at the end of November. Really what this does is create pandemonium in the eyes of a Buyer. This is when prices escalate.

In a market, like we have currently, using a Real Estate Broker with tools like an Absorption Chart helps both Buyers and Sellers to create strategies to sell at the maximum or find a deal at market value.

If you have any questions on how this tool may help you buy or sell reach out to me at lindsay@buyselllove.ca I am eager to share.

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