In today’s real estate landscape, the classic rule for identifying a buyer’s or seller’s market is changing. Traditionally, we’ve relied on absorption rates to gauge market dynamics. But as we head into late 2024, it’s becoming clear that newer indicators, like median days on market, are giving us a more accurate picture of market sentiment. Let’s dive into these metrics, how they’re evolving, and what it all means for buyers and sellers today.
Understanding Absorption Rate: Traditional Definitions
Historically, the absorption rate has been the gold standard for defining market conditions. The absorption rate tells us how long it would take for current listings to sell if no new homes came onto the market. Here’s a quick breakdown:
- Seller’s Market: If homes sell in under six months, the market favors sellers. Low inventory means fewer options for buyers, often leading to multiple offers on homes.
- Buyer’s Market: If homes take over six months to sell, the market favors buyers. More inventory gives buyers the advantage, allowing for price negotiations and favorable terms.
- Neutral Market: Around six months of inventory generally indicates a balanced market.
In the past, when real estate listings were printed in books that brokers shared internally, absorption rate was a reliable indicator. However, with the internet’s transparency, today’s buyers and sellers have near-instant access to listings, making the traditional six-month rule feel outdated.
Why Days on Market (DOM) Matters More Today
With the rapid exposure of listings online, homes that are accurately priced usually receive offers within the first 30 to 45 days. Sellers often adjust their prices if homes linger longer. As a result, median days on market (DOM) has become a more relevant measure than absorption rate. It reflects not only the pace at which homes sell but also buyer demand in real-time.
For example, let’s look at a few key cities based on current data:
- Portland: Median DOM is 63 days. Buyers have more leverage, and homes aren’t moving quickly. This aligns more with a buyer’s market.
- Austin: Median DOM is 84 days. With homes taking close to three months to sell, Austin strongly favors buyers.
- Seattle: Median DOM is 42 days, leaning slightly toward a seller’s market, but with some balance.
- San Francisco: Median DOM is only 21 days. Despite price decreases, the quick turnover of well-priced homes reflects a strong seller’s market.
As these numbers show, DOM provides a more immediate sense of the market pulse, highlighting whether buyers or sellers have the upper hand.
How Current Market Trends Affect Buyer and Seller Expectations
In today’s seller’s market, sellers tend to have the upper hand. They might receive multiple offers and feel comfortable declining lower offers. In contrast, a buyer’s market allows buyers to explore more options, negotiate prices, and ask for favorable terms.
Let’s use San Diego as an example. With a median DOM of 28 days, it’s still very much a seller’s market, allowing for price appreciation and giving sellers confidence. Miami, on the other hand, is showing mixed signals: while prices are high (up 14.3% year-over-year), the 63-day DOM suggests slower movement, hinting that buyers could gain the upper hand if conditions persist.
The Impact of Price per Square Footage
Another valuable metric to watch is the median sale price per square footage. By comparing cities, we can assess how each market’s pricing is trending relative to last year. Here’s a snapshot of key cities:
- Austin and Houston: Both show slight depreciation compared to last year, with Austin down 4.6%.
- Miami: Strong appreciation at 14.3%.
- San Francisco: A slight 3.3% depreciation, but stabilization is setting in.
This price-per-square-footage analysis helps track market trends, giving both buyers and investors a way to gauge whether prices are in line with demand.
A Look at Rent vs. Sale Prices: Predicting Market Shifts
Rental prices can also hint at future purchase price trends. Typically, if rental rates decrease, it may signal that sale prices will soon adjust downward. For example:
- Austin has a higher sale price than Portland, but its rental price is actually lower than Portland’s. This imbalance suggests that one of two things might happen: either Austin’s rental rates will rise, or its home prices may eventually fall.
- Los Angeles and San Francisco exhibit the opposite effect. Los Angeles has a higher rental rate compared to its home sale price, whereas San Francisco has a higher sale price but relatively lower rental rates.
These discrepancies highlight markets where either rent prices or home prices may soon adjust, potentially balancing the scales.
Conclusion: Moving Beyond Absorption Rate
In the current landscape, days on market is a more accurate and telling indicator than the traditional six-month absorption rate. It provides a real-time look at market conditions and offers insights that better match today’s fast-moving, internet-driven real estate environment.
The classic absorption rate will always have its place, but for now, focusing on days on market, price per square footage, and rent comparisons will give us a closer view of the true dynamics of a seller’s vs. buyer’s market.
As always, real estate is local. Each city—and even neighborhood—can present a unique market. For those considering buying, selling, or investing, tracking these indicators can provide a sharper view of opportunities as we move forward.
If you’re in the Portland, Oregon market and considering selling your home, feel free to reach out. I’m here to help and happy to guide you through the process.
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Disclaimer: The content in any of Shawn Yu (Shawn Realty) Youtube videos or this website shall not be construed as tax, legal, insurance, construction, engineering, health & safety, electrical, financial advice, or other & may be outdated or inaccurate. Shawn Yu/Shawn Realty is a licensed principal real estate broker/brokerage doing business in Oregon. To contact Shawn Realty for selling, buying investing in Oregon, please email shawn@shawn-realty.com or call 503-515-4499.
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