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Three Cents Worth: Absorbing Velocity Until We Explode

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[This week, our graph guru Jonathan Miller on what it takes to have a good amount of absorption (Bounty not included).]

[Click to expand.]

Market Velocity, the term I dubbed the aggregate of all sales price sold during a given period, and Market Absorption, the number of months it would take to sell off the current level of inventory at the current pace of sales, are indicators I haven't gotten around to comparing side by side.

I was surprised by the closeness of the correlation, but I guess it's pretty logical. When looking at the summer of 2006, inventory was bloated, and that was a result of a slowdown in the number of sales, causing absorption to double. During that period, the number of sales flattened out. By early 2007, sales activity spiked, dropping the absorption level to four months, the lowest in recent history.

The big question going forward is whether or not sales activity is going to continue at the same pace of last year even with declining mortgage rates, the falling dollar and bonus income only 2% below the prior year. With the credit situation not likely to improve soon (that's why the Fed is dropping rates), I don't see how the absorption can improve this year.
· Manhattan Co-op/Condo Market Velocity and Absorption [Miller-Samuel]