Mortgage rates fell to their lowest point in three months at the end of January, and we are only one-quarter of a percentage point above the all-time low. According to MarketWatch, “home-buying power in December was 12.5 percent higher year-over-year largely due to a combination of lower mortgage rates and an uptick in annual household income.” Locally, the annual average sales price hit a new annual high, and inventory is not showing any signs of significant improvement. At the same time, a core metric used to define the type of market the Tri-Cities region is experiencing is solidly in the seller’s favor. That metric is the absorption rate.
The absorption rate is defined as the rate that properties listed for sale are sold over a specific time frame. It is calculated by taking the number of homes sold in a given time frame then dividing that number by the total number of homes available for sale. Anything above 20 percent is considered a seller’s market.
At the end of December, the 11-county region monitored by the Northeast Tennessee Association of REALTORS® (NETAR) Trends Report had a 26 percent absorption rate, according to REALTOR® Property Resource (RPR). Since real estate markets are hyper-local, here is what it looked like in the region’s major city markets:
Johnson City – 35 percent.
Erwin/Unicoi – 32 percent.
Elizabethton – 31 percent.
Greeneville – 31 percent.
Bristol, Va. – 28 percent.
Bristol, Tenn. – 27 percent.
Kingsport – 25 percent.
You have to drill down to the zip code level before you start seeing absorption rates that signal balanced conditions or a rate that favors buyers.
REALTORS® pay attention to the absorption rate because it is one of the tools used to determine how to price a home for sale. Appraisers factor in absorption rates when evaluating a home’s value, and the rate also serves as a market demand gauge for builders making plans for how many homes they need to build. Flipping the absorption rate calculation gives real estate professionals an idea of how long it would take to run out of housing inventory at the current month’s sales rate or months of inventory, typically expressed in the regional, county, and city markets and by price ranges.
An early look at January data showed two months of inventory of homes priced in the $200,000 and below range across the Tri-Cities region. In the $200,000 to $399,999 price range, there were four months of inventory in the region. In the Twin Cities and Johnson City markets, properties in that price range dropped to three months of inventory. Remember, a market with five to six months of inventory is said to have balanced market conditions. Therefore, current conditions are tipped in the sellers’ favor in the Tri-Cities region until you get to the $400,000 and above price ranges.
Yes, when you get into the weeds of measuring market demand with absorption rates and months of inventory, the statistics and the math can overwhelm all but the data nerds. But looking at those numbers drives home a significant point for owners who have been sitting on the fence – now is an excellent time to sell. Market conditions are four-square in the sellers’ favor.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region representing over 1,300 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, monthly Trends Reports, and the regional market analytics are available on the website at https://netar.us/voice-real-estate-northeast-tennessee.
2020 NETAR President