The most misunderstood statistic in Real Estate is also the most predictive. It is “The Absorption”. This is the percentage of inventory that sells on a monthly basis. When you think about it, this statistic deals with 2 things; supply and demand. These are the 2 strongest indicators as to what is going to happen to sales and prices in the near future.
If the demand starts to rise the supply begins to fall and vise versa. Studies have shown that a rise in the absorption rate for 4 months or more will show up in “upward pressure” in sales and prices within the next 18 months. Correspondingly, a drop in absorption for 4 months or more will show up in downward pressure in sales and prices within the next 18 months.
What does pressure mean? It means that prices and sales may not change direction but the rates at which they are changing may slow or speed up. If you are wondering how to predict what is going to happen to sales and prices. Call me for an interpretation.