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Three Cents Worth: Absorption Crossing the Blue Line

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[This week, Curbed graph guru Jonathan Miller wonders how long it's going to take to clean up all of this inventory.]

[Click to expand.]

Hockey metaphors aside (never played it either), the Manhattan absorption rate expanded sharply at the end of 2008, challenging the spike in absorption seen in mid-2006.

The absorption rate as presented here is the number of months it would take to sell all existing inventory (not counting shadow inventory) at the current pace of sales. By using both demand (sales) and supply (inventory) in combination, the weakness of the market is more apparent.

The mid-2006 spike was caused by a surge in homeowners listing properties at a “make me sell” price as the fear of high mortgage rates in 2007 (didn’t happen) caused people to think about “cashing out” in droves.

The blue line reflects the average absorption rate for co-ops and condos over the past 8 years. Periods of absorption that fell below the blue line were marked by brisk activity included early ‘02 (just after 9/11 when mortgage rates plummeted), 2004 (the peak period that marked the onset exotic mortgage products) and 2007 (one of the busiest years on record).

Absorption reached about 12 months at the end of last year, and preliminary numbers suggest this indicator is continuing to rise in Q1. The credit crunch continues to keep the level of sales low, causing listing inventory to rise (and prices to drop).

I suspect absorption will continue to trend higher until banks get interested in providing mortgage lending in a more reasonable way.
· Manhattan Co-op/Condo Monthly Absorption [Miller Samuel]
· Previous Three Cents Worth [Curbed]