One of the most important factors in determining whether we are in a normal, buyer’s or seller’s market is is how scarce or plentiful the inventory is. This is determined by a calculation called the absorption rate.
The number of Active units are divided by the number of units that have gone Under Contract within the past month. This calculation renders the absorption rate, which is the amount of months it would take to sell all the current inventory if nothing new came on the market.
A Normal Market = 6 months worth of inventory
A Buyer’s Market = over 6 months of inventory
A Seller’s Market is less than 6 months of inventory.
A seller's market increases the likelihood of multiple offers, whereas a buyer’s will show that inventory has been on the market for a longer period, which indicates that sellers may be more negotiable. Everything is supply and demand, so a lack of inventory will always drive prices higher.
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