Of course, the health of the Central Pennsylvania real estate market can be a highly subjective question, but there are metrics out there that attempt to gauge the relative health (or balance) of a real estate market. Today I wanted to introduce one of those methods and apply it to the midstate homes market.
Absorption rate, or otherwise known as MSI ("months supply of inventory") looks at how much time will be needed to exhaust the current inventory of property listings, using historical sales data. The calculated rate for a given market is then compared to what is considered "healthy" or "balanced."
The rate is calculated by dividing the amount of current real estate inventory available by the average of recent sales (usually monthly). At my company, for example, we watch this metric using the average of the last 12 months of sales – to even out the highs and lows of the seasons. By the way, 5-7 MSI is generally accepted to be the range of a balanced market.
So how does Central PA stack up in April 2013? The chart shows the midstate counties and our tracking data of absorption rate as of April 4 for all home types excluding listings of land. As you can see, most of the counties in our area are just over the 5-7 month range. What this means is that it's still a "buyers market" in those counties in general. Cumberland County alone is in the "balanced" range.
By the way, developers and builders tend to watch the absorption rate as declining MSI can indicate that it's time to add more homes to the marketplace. The MSI of the region has been declining over the past year from the high 8s and the low 9s to where we are today.
I expect to see most counties entering the balanced range this year, and I bet Cumberland will move into a "sellers" market at five months or less of inventory. Let's come back and look at MSI in six months, shall we?
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