Are you enjoying this wonderful Summer time of the year? Certainly, the folks who are taking advantage of the strength of the housing market to sell their home are enjoying it! Just look at this first chart, the Weeks of Supply & the Absorption Rate. Weeks of Supply means how many weeks it would take for all the houses to sell if the current rate of sales continued and no new listings came on the market. Absorption Rate is the percentage of available listings that sold in the time period. So, from a seller’s perspective, the lower the Weeks of Supply number is (currently it is 3 weeks) and the higher the Absorption Rate is in the Milton Ontario real estate market (which is currently 34.9%), the better it is for selling a home. Click the image to view it full-size.

A pretty powerful way to view what is happening in the local real estate market. If you’d like a longer-term view of what has been happening, see this recent post. And here’s a view of what has happened on a quarterly basis in the area covered by the Oakville-Milton Real Estate Board: Click the image to view full-size.

Now let’s look at the breakdown of the milton ontario real estate market numbers for the week ending July 31st, 2009.

First, the weekly summary of listings, solds and expired listings, by price range. This chart reveals a number of things to the casual observer, such as the most active price range for the week being the $300,000 to $325,000 range. In this range, virtually all of the available properties sold, with just one remaining on the market. Is your home in this range? Let’s get it on the market now and get you a fantastic price!

This chart also shows an average days to sell of 19, however, removing the couple of anomalies, that number becomes 6 days, from the time the listing was signed, through when the house gets onto the MLS and when all conditions are removed. SIX DAYS! That is extremely fast, perhaps too fast? Look for a follow-up post on this thought in the next couple of days. Removing those same anomalies also causes the average list-to-sell ratio to rise to 99.9%! Are houses perhaps being listed at too low of a price? Just a thought.

The next chart shows the Annual Summary of Total Market Activity for the Milton Ontario real estate market. Compare the averages down each column for an historical perspective.

Seeing the number of sales in milton ontario for the week jump by 60% over the previous week could lead one to conclude that people are listening to the warnings of interest rates going up. It could lead to that conclusion, I’m not saying that is the cause.

The final chart is included so you have a graphical representation of the ongoing activity - it’s easier to see the trend in a line-graph than to just see the numbers. Click the image to view full-size.

There is a lot more information and background conclusions that can be drawn from this data – if you are thinking of selling your milton ontario home, you need the complete picture of the real estate market. Call me, Chris Newell, at 905-208-7002 and we can set a time to discuss it.

I found this excellent article on About.com, in their extensive Real Estate section. Although the information makes reference to American companies Freddie Mac & Fannie Mae, it is none the less relevant to the milton ontario real estate market. The article is aimed at real estate agents, but that’s a good thing as it gives you information that many homeowners won’t have! For more on the local absorption rates, see my most recent posts on this blog.

Whether it’s the listing presentation meeting, or you’re following up with a seller who’s been listed a while, provide the added service of helping the real estate seller to understand absorption rates and how their price falls into the pool of available homes for sale. Absorption rates are now required from appraisers for all government related loans; which is just about every loan.

CMHC, the Federal housing organization, also takes the absorption rate into account; the role the absorption rate plays in a funding decision is dependent on the type of loan, area the property is in, etc.

Fannie Mae’s Form 1004MC, and Freddie Mac’s Form 71 both require that appraisers calculate days on market, inventory levels, and absorption rates for the comparables and immediate area around the subject home. The assumption is that tracking the variability of these three measures across time periods can provide trend information to determine home value direction. So, what’s absorption rate?

Example of Absorption Rate Calculation – Let’s say that we take the number of settled sales for the last six months in a certain area, and it is 120. We then check the current number of active listings, and it is 520 in that area. First, divide the 120 sales by 6 months, to get a rate of 20 closings per month. Then, divide the 520 active listings by 20 to arrive at 26 months to move that inventory; that’s the absorption rate.

Using Freddie Mac’s Form 71, we see that they require this number for three time periods; the immediately preceeding three months, four to six months back, and seven to twelve months in the past. Then, the appraiser must indicate whether the absorption rate is decreasing, stable, or increasing. If it’s decreasing, then the market appears to be slowing, and this could cause the value of the home to be adjusted downward.

As a homeowner considering selling your home, the absorption rate, when viewed in an historical perspective, can be an extremely informative tool in planning when to sell, how long to expect the sale to take, etc.

Also considered are corresponding periods for days on market, inventory, and the sale-to-list price ratio.

If sale prices are getting lower in relation to list prices, this will be evident on these addendum forms, and the appraiser should be adjusting the home value downward. So, it’s clear that a good market is showing higher absorption rates, lower inventories and shorter times on market on average. They prefer to use “median” numbers by the way.

On the bad side, if median absorption rate is declining, and days on market and inventory are rising, this doesn’t look good for the market in the near term. Couple that with wider spreads between list and sale prices, and the picture darkens as well. But, good or bad news, you should be on top of this information and sharing it with sellers and prospects to help them in their decision processes.