Archive for November, 2007
Absorption Rate - What it Means and Why You Need to Know It
Categories: Finance, For Buyers, For Sellers, Market Analysis
Absorption rate is a measure of supply. It gives us a way to calculate how long it would take to sell all the units currently for sale. It helps both buyers and sellers understand what’s going on in the market.
Most sellers, when pricing their own property, look to see what their neighbors got for their place. What that doesn’t tell them, however, is how saturated the market is with other properties for sale at the time that they want to sell. Absorption rate is a way to judge how much supply is out there against which, you, as a seller, are competing.
Absorption rate is important to buyers, too. If you are a buyer in a market with lots of inventory - guess what - you will have a better chance at negotiating a lower price. Basic economics teaches us that prices in any free market are determined by supply and demand. If demand is constant, an increased supply means prices will drop to restore balance in the market. When there is not much supply, buyers pay more to get the scarce item.
This is how absorption rate of Hoboken condo units would be calculated:
Take the number of properties that have actually sold over a period of one year. As a Realtor, I can pull this data right from the MLS. Take the total number of condos sold in the past year. Divide that number by 12 to get a monthly figure . Divide the number of properties actively for sale this month by the result and you get the absorption rate. It tells us how many months it should take to “sell out” all of the properties currently for sale. In our case, it should take just over five months for the market to “absorb” all of our current inventory.
Condo units listed on the MLS sold in the past year: 530
Monthly figure: 82
Active condos today: 530
Absorption Rate = 5.4
According to the National Association of Realtors, six months supply is considered a balanced market. That indicates that the number of listings, or properties for sale roughly equals the number of buyers. A number over six represents a buyer’s market and a number under 6 a seller’s market. We can also look at absorption rate by price range or by unit size. Here is an example:
studios and one bedroom units: 384 sold, 136 active = 4.25 absorption rate
two bedroom units: 515 sold, 243 active = 5.6 absorption rate
three bedrooms and bigger: 87 sold, 61 active = 8.7 absorption rate
Good news for one bedroom sellers. Good news for two bedroom sellers. But bad news for the sellers of the big units. This may seem counterintuitive to the demographics of the Hoboken condo market. We all see lots of strollers on Washington Street and the parks are full of kids. You would think there would be a huge demand for the bigger units to house our growing number of families. Keep in mind, however, that we looked only at condos so all those uptown brownstones are not included in the above analysis. Another thing to remember, is that all these figures come from the MLS. The huge, new projects, like Maxwell Place, are mostly not listed or sold on the MLS so they’re not included in this study. It would be interesting to see how the increase in supply thanks to Maxwell and all the other new construction around town that is sold directly by the developer, would impact the absorption rate. My guess is that the 5.6 and 8.7 numbers would be a bit higher, due to the added inventory.
It is also possible, using absorption rate, to look at sales trends over time. If you calculate supply over any number of three or six month periods you will get an indication which way the market is trending. Like other industries, real estate prices are mostly a matter of supply and demand. While absorption rate may just be a guide, it is another valuable tool for buyers and sellers to better understand the real estate market and assist them to make informed decisions.
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Did you see that gorgeous Hoboken condo?
Categories: Design, For Buyers
When Realtors get new listings they often hold what is called a “brokers open house” so all the agents in town can come see the new listing. Most of the time, the properties are quite ordinary but the lunch, especially if it is sushi, does get us out to see the place. Today, however, I saw two really beautiful condos.
The first was at the Shipyard, technically 2 Constitution, right on the waterfront in uptown Hoboken. Many of the Shipyard condos, while in a great location and one of Hoboken’s only full service buildings, are really dated looking. They have small, galley-style kitchens so the host is cut off from his or her guests or family when cooking. They have that awful square patterned parquet flooring. The ceilings are low with the ugly popcorn spray finish.
This owner, with the help of a clever architect, blew out an entrance closet and wall and opened the kichen up to the living space by wrapping the cabinets around the corner from the original galley. Not only that, they did it with taste! Beautiful country style custom-looking cabinetry in a lovely color coordinated perfectly with the granite counters and elegant fixtures. They chose nice and not too big stainless appliances, built-in wine cooler and wine rack and a second bar sink. The result is that the extension feels much like a bar or entertainment area and flows perfectly into the living space. Not to mention that the living space was sizable, has great windows and a southern exposure and a large terrace off the dining room. How often do we see balconies off the bedroom? What a waste. The owners also replaced all the flooring with nice plank hardwood, redid the bathrooms one in a subtle tumbled marble style with good lighting, and the other more country-like with a warm, cream-colored bead board. The key, I guess, is that none of it was overdone. Other touches like crown molding on the tops of all the walls, nice closet organizers and pretty wall paint and window treatments made this a real stunner. Priced near a cool million, it was actually worth it!
The other unit was just across the street on Hudson Street. A penthouse multilevel 2 bedroom unit with outdoor space for under $800K. Again, either the owner has amazing taste and skill at pulling things together or there was a decorator involved. While the furnishings and finishes were very unique and personal - lots of white and silver, mirrors, dramatic draperies and area rugs, it worked. The terrace, while small, was off the kitchen (yes - that makes sense for grilling) and had a nice river/NYC view. The bedroom was below and very private. While the closets were well organized they weren’t huge but there was a large storage crawl space in the unit. The living space flowed nicely and the upper level, used as an office, felt welcoming. This was another rare instance where I walked in and thought to myself, wow, I would really enjoy living here!
So while so much of the new construction around Hoboken looks cheap and flimsy, there are some really good properties to be had. A good realtor who knows the market can help you find them. Despite all the talk about the housing downturn, these beauties are few and far between and sell quickly. Lucky buyers!
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