I was listening to a webinar this morning discussing the supply of available homes and the need for absorption rate pricing. First, though, we need to understand just what that is.
Absorption rate pricing is a method used to calculate the value of your home based on the principles of supply and demand. Because appraisers are now required to use Absorption Rate Pricing to determine your home’s value, it is critical that you understand how the process works.
There are only a certain number of homes that will sell in any market in any given period of time. For example, if 12 homes sold in the last 12 months in a given market, that means that the market will absorb 1 house per month on average. If there are 10 homes currently on the market, there is a 10 month supply.
The concept is pretty simple math. Take the stats from the Shorewood, IL Real Estate Report for June 2010. In June, there were 130 homes for sale and 8 sold. At a rate of 8 homes a month, it will take a little over 16 months to sell all 130 homes. 16 months is the absorption rate.
Where homeowners error (and frankly I probably don't do a good enough job of explaining) is understanding the nuances of using absorption rate pricing. So let me try to clarify.
The real estate market in Shorewood, IL or any where else is neither democratic nor static.
As for democracy, what I mean is that there isn't a que that homes get into to sell. Just because your home is on the market doesn't entitle it to sell; there is no tenure or seniority. Usually, the next best home (as judged by price, location, features, etc.) sells.
And neither is the market static. Just because 8 homes sold in June, that doesn't mean there is going to be 8 less homes for sale in July. The inventory of homes grows and shrinks depending on the whims of area homesellers.
Therefore, to successfully sell your home you need to have a strategy based on absorption rate pricing:
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Drill down to find the true competition for your home: Comparing your home to the other 130 homes for sale in Shorewood is ridiculous. Your agent needs to drill down to a smaller, more accurate subset (by price, features, neighborhood, etc.) to find your true competition and then calculate the absorption rate for that group.
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Price your home to be attractive in that subset: If you find that you are competing against a smaller subset of 12 homes, 1 of those 12 sell a month, and you want to be under contract in the next 3 months, then your home must be in the top 3 most attractive homes for that subset. Understand that I didn't say lowest price, I said that your home as a whole must be in the top 3 on buyer's lists.
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Always be reevaluating your standing in that subset: As I mentioned the real estate market is not static. Homes are added and homes are eliminated (either thru sales or canceled/expired listings). Your agent must keep you aware of your standing and you must be willing to make price adjustments, general improvements, and offer enticements to keep your home at the top of buyer's wish lists.
I've ran on a little long with this post, but I think that you can see the general idea of how successful Shorewood, IL homes for sale get sold.
If you have any questions about absorption rate pricing or real estate questions in general, feel free to give me, Tim Soper of Realty Executives Success, a call at (815) 439–5051.
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So what impact is the new financial regulations bill (designed to keep the Wall St. wolves in check) going to have on your ability to get a mortgage? Well here are some of the changes as detailed in a recent CNN article:
- Greater acknowledgement from lender to borrower that an ARM loan will eventually adjust (potentially upward).
- No more “No Doc” or “Low Doc” loans. Borrowers are going to have to fully document their income, assets, liability, etc.
- No more pre-payment penalties on ARMs and 3 year limit on fixed loans.
And what is going to be the net impact on the consumer:
While bankers and consumer advocates differ on the bill's impact on mortgage availability and cost, one thing is for certain: It would take more work to get a home loan (emphasis mine).
And:
Borrowers, however, would still have to be on their guard and thoroughly read through their paperwork and make sure they understand the terms of the loan, experts said.
This is just one agent's opinion, but if protecting the consumer is the goal of this new regulation, I have a surefire method of insuring that:
Have the government stop buying or backstopping risky loans and that marketplace will dry up. Bankers are averse to lending when they may end up on the hook for the entire loan.
Getting the government to stop the government from meddling, though, just ain't gonna happen.
Attached below is the Shorewood, IL Real Estate Market Report for June, 2010. Some of the highlights in the report include:
Median Price
Unlike some other surrounding communities, the median price of Shorewood, IL homes for sale has held up pretty well. In fact, from last June, the Under Contract & Sold numbers are up (yeah!) and the For Sale numbers are down (signals smart homesellers!).
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For Sale: Down 2.1% from $265,445 to $259,900.
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Under Contract: Up 10.1% from $217,958 to $239,900.
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Sold: Up 5.8% from $234,000 to $247,500
Overall, it looks like Shorewood is holding its ground from last summer.
Supply & Demand
The most significant highlight is that Average Days On Market (DOM) for active Shorewood homes for sale listings has been dropping all year and found a new low at 143 days. What hasn't changed, though, is the Average DOM for closed/sold properties (its been bouncing around due to the small sample size). What that is telling me is that homeowners are getting frustrated with the marketing process and are taking their homes off the market.
Months Supply of Inventory (MSI)
(The amount of months that it would take to sell every active listing at the current sales pace. Found by dividing active listings by sold listings)
- The current MSI is 16.2 months supply of homes.
- I would have hoped that the frenzy to buy and close for the Homebuyer Tax Credit would have boosted the closed properties in June, but only 8 closed which seriously skewed our MSI. Of course, maybe some of those buyers did close in April & May, so lets wait till next month before quoting 16 months as the “be all, end all” number.
- I am very encouraged, though, by the new contracts, 16, that were written in June. And here we thought that the buyer spigot had been turned off with no tax credit buyers. Lets see (and pray) that this trend holds up.
To view the entire report, click on the link below:
Shorewood IL Real Estate Report JUNE 2010.pdf (640 KB)
For more information about Shorewood, IL homes for sale and Shorewood, IL real estate statistics, please give me, Tim Soper of Realty Executives Success, at (815) 439–5051 or fill out the contact form on the right.
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Its been touch and go for the last couple of weeks as the House and Senate went back and forth on passing a closing extension to the Homebuyer Tax Credit. As of late last night, both houses have approved. Now the only step left is for President Obama to sign the bill into law which reports say may happen as soon as today.
Looks like I get to make a few happy phone calls today.
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Well Bankrate.com makes the analogy to a horror film where the monster wouldn't die, and for those Shorewood homebuyers who got their contract signed by April 30th but won't get their purchase closed today, it may feel more like Friday the 13th than Wednesday the 30th.
Here is where we stand today:
The House actually passed a bill authorizing the three-month extension. The Senate late last night came up with their own bill that has the same Sept. 30 final (really, they mean it this time!) closing deadline.
There are two problems, however, before this can happen.
First, the Senate bill is part of a measure that includes continuation of unemployment compensation. The House defeated such a proposal yesterday, but reportedly will take up the measure again today.
But more daunting is getting the Senate bill through that legislative body. Right now there's only a new bill, cobbled together by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont. They've got to get that bill before their colleague and then get it passed.
If and when that happens, then the House and Senate bills will have to be reconciled.
And Bankrate hits on one of the reasons that I am trumpeting, NAR Lobby, for why this will eventually get passed:
The reason for my prediction? Representatives and senators will face their own scary movie if they don't do the bidding of the housing and real estate industries. It's a midterm election year horror flick called, "The Mysterious Disappearance of Campaign Contributions."
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