Don’t worry – we’re feeling it, too.
It’s not just you experiencing the “summer slump,” the real estate market is feeling it, too. The market is starting to slow down – but what does this really mean? Is this a bad thing for buyers or sellers? Not necessarily. Read on to find out why.
The market starts to slow at this time every year. Take a look at the graph below for Sacramento County. The yellow bars show the average days on market. Notice what happens just after June and July of each year:
Historically, homes in June and July sell the fastest.The days on market continue to go up until January when it starts to fall again. Right now, the “slump” we are feeling is the period where the market is starting to change. But why do homes start to take longer to sell? The answer is two-fold: inventory and absorption.
Let’s consider inventory by looking at the chart below. The light green bars show inventory, or the number of homes for sale. Take a look at the trend:
Historically, there are more homes for sale during July and August, and we reach the peak around September. But if there is more inventory, why are these homes selling the fastest? That brings us to absorption.
Absorption represents how much of the inventory is being absorbed each month as a percentage (for my economists and statisticians, absorption measures the inverse of months of inventory). Can you find any patterns in the graph below?
Absorption is at it’s peak around April, slowly decreases until November, and then jumps up again in December. In the summer months, we still have pretty good absorption rates, which makes up for the increase in inventory. So, even though there are more homes for sale, there are also more buyers out there, which is why these homes sell the fastest. This makes sense, as it is most preferable for people to move during good weather and when the kids are out of school.
The slowing real estate market does not mean doom and gloom for buyers or sellers who are looking to move now. In fact, more inventory and less absorption is a great equation for buyers because that means you have more to choose from and less competition. For sellers, we have not yet reached that low November absorption point or the peak days on market in January. It is a great time to buy AND sell. (So if you’re looking to trade up or downsize, what are you waiting for?!)