Many media sources are currently saying that in today’s market, buyers have a lot leverage over sellers. But is this really the case? The answer is…it depends. If you’re a first time home buyer in King County, the specific neighborhood you’re looking in can make a major difference in the level of leverage that you hold over a seller. Real estate has always been neighborhood specific. So a buyer looking in North Seattle, in the Green Lake neighborhood, is dealing with a completely different market than say a buyer looking in South Seattle, in the South Beacon Hill neighborhood. When buying your first home, the property type will also factor into your overall situation. For instance, a buyer looking for a condo in Green Lake is dealing with a different market than a buyer looking for a single family residence in Green Lake, even though it’s the same neighborhood. Lastly, obviously price point makes a big difference as well. So if your looking for a condo in Green Lake for $250,000, you wouldn’t really care what the million dollar condo market looked like in Green Lake, or anywhere else for that matter.
All of these specifics can be used to help estimate what a particular market is doing, through a calculation called an absorption rate. An absorption rate basically calculates months of inventory by dividing all the inventory on the market in any given area, by average monthly sales. For instance, if there were 100 single family residences for sale in an area, and an average of 10 per month were selling, you would have an absorption rate of 10 months (100/10=10). Generally speaking, an absorption rate of 6 months is considered a healthy market where neither buyer nor seller really have much leverage. Anything over 6 months is considered a buyer’s market as there is a lot of inventory and not many buyers, and under 6 months is considered a seller’s market as there is not much inventory but many buyers.
You may have heard about absorption rates in the local media. They are also referred to as “levels of inventory”. The problem is, often when media sources report on these figures, they’re taking to broad of a snapshot. Say for instance, they look at ALL property types, in ALL price ranges, in ALL of King County. These may be helpful if you’re looking to buy ANY type of property, in ANY price range, in ANY part of King County. However, most buyers are a bit more specific. They tend to want X property type, in Y price range, in Z neighborhood, ONLY. Further more, they want a specific number of beds and baths, with a particular floor plan, and even a certain type of style (new construction, old world charm, mid-century, etc.).
So let’s take a look at a specific example. We’ll look at a pocket in North Seattle consisting of: Wallingford, Fremont, Green Lake and Ballard. Then we’ll only look at single family residences (not condos or townhomes), with 2 bedrooms (entry level first time home buyer housing). You can also include any other specifics, you just don’t want to be too specific. The reason I included four neighborhoods instead of just one, is that whenever you’re calculating statistics you don’t want to pull from to small of a pool, as a single outlier can completely throw your numbers. For instance, if you look at just Green Lake and only 4 houses come up, your probably making assumptions based on too small of a pool. So, based on the previous criteria we see that there are 16 homes available for sale, 13 pending under contract, and 17 that have sold in the last 30 days. This means that there is only about 1 month of inventory on the market. This indicates a STRONG sellers market, contrary to what a lot of media sources are currently saying. We see this further confirmed by all the multiple offer situations that are currently occurring in these neighborhoods in North Seattle.
So the point is, if you don’t know what type of market you’re really dealing with, or what your competition is doing, you may waste a bunch of valuable time writing low ball offers, when every body else is offering full price. Conversely, if the area, property type, and price point your looking in has 12 months or more of inventory on the market, you may be able to offer well below list price. If you’re considering buying a home, and want more information in this regards, please go to our Calendar page and sign up for one of our FREE first time homebuyer seminars.