Absorption Rate Key to Successful Pricing
Telling sellers the price they want to hear may get you the listing, but it won’t sell the home, Zan Monroe, ABR®, CRB, CRS®, said during a presentation at the 2007 REALTORS® Conference & Expo on Tuesday.
Only pricing the listing right will do that, said Monroe, whose comic presentation style had the audience in stitches. And the right price depends in large part on the current absorption rate in your market. Here’s how you find that:
First, determine the number of homes closed in your market over a specific period — say, 12 months. You can get this data from the MLS.
Next, divide the number of homes by the number of months in the period — in this case, 12. This calculation gives a per month absorption rate.
Last, divide the rate into the number of current listings. This yields the months’ supply of homes.
Six months’ supply is considered a balanced market — when the number of listings roughly equals the number of buyers, says Monroe. Numbers over six represent a buyers’ market and those below a sellers’ market.
To assess sales trends, you can also calculate supply over shorter six- and three-month periods. “Price in real estate is mostly a matter of supply and demand, just like in every other industry,” said Monroe.
Once you have these basic calculations down pat, you can focus on absorption in particular neighborhoods or price ranges, says Monroe. Showing clients local absorption rates will give sellers the information they need to price their homes to sell. “Once they’ve arrived at a price, you can decide whether you want to spend your marketing dollars selling it,” says Monroe. If they don’t price it realistically, he concluded, then seriously consider taking a pass on the listing.
Monroe also explained how to calculate the odds of selling any one home. “Even in a hot market, it’s rare for more than 50 percent of homes to sell,” he said. To make this calculation:
Search the MLS to determine how many transactions have closed in the last six months.
Divide that number by the number of new listing that came onto the market during the same six months. (Don’t include listings that expired and then were relisted.)
This equation gives you the percentage of homes entering the market that actually sold. For example, if 100 homes sold and 200 were listed, the odds of selling are 50 percent.
Greenspan: High U.S. Housing Inventory Key Global Issue
Former U.S. Federal Reserve Chairman Alan Greenspan told Tokyo businessmen that the most important global financial issue is reducing the excess home inventory in the United States.
“The critical issue on the whole subprime, and by extension, the international financial system, rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,” he said, speaking via video conference.
Greenspan also said he was concerned that the global economy is moving into an inflationary phase. “I’m concerned that we were moving from this 20 to 18 year disinflationary period and beginning to move in the other direction,” he said.
Source: Dow Jones International News (11/05/07)
Could Mortgage Rates Drop to 5 Percent?
The manager of the world’s largest bond fund predicted Monday that the Federal Reserve “cannot afford” to let U.S. housing prices fall and will have to cut interest rates aggressively to prevent it from happening.
“A Fed cannot afford to let homes go down by 10 to 15 percent like we saw in Japan,” Bill Gross, chief investment officer of Pacific Investment Management Co., said on CNBC Television. “We’ve only begun to see the pain from the standpoint of the home owner in terms of those monthly payments. Defaults and delinquencies will increase as we extend throughout 2007 and then into 2008.”
Gross expects the Fed to cut the federal funds short-term rate to 3.5 percent, which implies that the 30-year mortgage rates will come down to 5 percent to 5.5 percent.
Source: Reuters News (11/05/07)
Mortgage Rates Drop to Five-Month Lows
Mortgage rates have fallen to lows not seen in five months, according to the latest weekly report from Freddie Mac. The average interest for 30-year fixed loans was 6.26 percent, compared to 6.33 percent a week ago; and this was the lowest level since rates averaged 6.21 percent during the week of May 17.
“Continued market concerns about weaker economic growth and further declines in the housing market have kept mortgage rates low over the last few weeks,” according to Frank Nothaft, chief economist at the mortgage finance giant.
Also, rates on 15-year fixed products fell to 5.91 percent from 5.99 percent last week; rates on five-year adjustable rate mortgages declined to 5.98 percent from 6.03 percent; and rates on one-year ARMs slipped to 5.57 percent from 5.66 percent a week ago.
Source: Chicago Sun-Times, Martin Crutsinger (11/02/07)
