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Three Cents Worth: Housing Market = Wet Sponge

[Special Friday edition of 3CW! This week, our chartman Jonathan Miller takes a look at recent trends in absorption rates. Click on the image to expand.]

Yesterday, after I wiped 3 months of coffee ring stains off my desk, I thought it might be a good dea to look at absorption rates in the New York area (in markets where I can get a hold of data right now) as well as the national market. My Manhattan absorption data goes back a lot further than the other market areas I cover, but I'm working on that. My timeline here is only 7 quarters, so I am only looking at the recent trend rather than being able to extract meaning from past historical patterns. For the US data, I used statistics published by the NAR.

On a side note, I have always found it frustrating that all brokerage listing systems that I am familiar with do not allow for snapshots of inventory at a particular point in time. If you don't capture the current inventory stats or want to add another submarket market, you can't come back later and get them, unlike sales data.

The monthly absorption rate of housing (how wet the sponge is) was calculated quarterly. The rate was calculated by taking the inventory totals at the end of a quarter and dividing them by the average monthly number of sales for that quarter. The result is the number of months it would take to sell out all existing inventory at the current rate of sales. Manhattan's average rate for the past 6 years (24 quarters) was 7.6 months. I can't go back that far for the other markets to make a comparison.

Monthly absorption rates in the four markets covered in New York generally declined throughout 2006, with Manhattan falling fastest in the second half of the year. This suggests that activity levels of the real estate market have improved, but its still not close the point it was last year.

This contradicts the overall US pattern of rising absorption rates. Rising absorption rates mean that more inventory is on the market than can be absorbed by current rate of sales.
· Monthly Absorption Rate of Housing [Miller Samuel]