The Headrick-Wagner Report Create Your Own Market Report CALCULATING INVENTORY LEVELS   An Absorption Rate is also referred to as an Inventory Level.  It is reported in "months supply."  This technique is valuable to appraisers and real estate professionals in both macroeconomic and microeconomic situations.  Macro markets may include regions, MSA’s, counties, parishes or individual communities.  Micro markets could include neighborhoods, subdivisions, school districts, property types, and price ranges. The months supply is an important number, which calculates the inventory of homes available in relation to the typical number of homes to sell per month. A balanced supply would be 3 to 4 months worth of inventory. Greater than 4 months would be an oversupply, and less than 3 months would be an undersupply.  Our market studies include Pending Sales.  We believe this data to reflect the most current actions of the real estate market.  Some people do not include pendings in their absorption rate analysis and if that is the case, we would then consider an undersupply to be under 4 months, a balanced market to be 4 to 6 months, and an oversupply to be greater than 6 months. The Inventory Level is calculated by adding up the number of sales to have occurred in past 12 months, add in the current pendings, take that total and divide by 12.  This creates a monthly average over a 12 month period to remove the seasonal fluctuations that may take place in the marketplace. Once the monthly average of sales is figured, the current total number of listings should be divided into the average monthly sales to create the months supply. Knowing your area's Absorption Rate, helps to track trends.  Understanding the market and where it is headed is part of our job as real estate professionals. Absorption rate is NOT an exact science.  Figuring it is based on the premise that one will be looking for a TREND.  It is advised to consistently do the numbers each month, to be able to track a trend. The basic algebraic formula: Months Supply = A / [(P+S)/12)] A=Total # of Active Listings P =Total # of Pendings S=Total # of Sales in past 12 months Now you can utilize your own market data that you research and calculate your absorption rate.  Only three simple statistics need to be created from your own custom MLS search – the total number of Active Listings, the number of Pendings and the number of Sales to have occurred in the past year. You may utilize the output for your marketing materials by printing off the output page. Your Name or Company Name Email Address Telephone Number (Optional) Report Title (optional – i.e. Condos with 1st Floor Master Bedrooms in Naperville priced under $400,000) Enter Number of Active Listings Enter Number of Pendings (if zero type 0) Enter Number of Sales in previous 12-month period Grey Shaded areas are mandatory fields.   CLICK FOR YOUR PERSONALIZED REPORT