The real estate landscape is marked by unique challenges: rising interest rates, economic uncertainty, and fluctuating property values across many regions. For investors and buyers alike, the ability to interpret real estate metrics—particularly sale inventory trends, days on market (DOM), and absorption rates—can provide a critical edge in a shifting market. Understanding and leveraging these indicators can make the difference between securing a profitable deal and risking overpaying in an uncertain market.
Why Real Estate Metrics Matter More Than Ever
This year, economic pressures, such as increased borrowing costs and inflation, have made buyers more cautious. For sellers, rising inventory means increased competition. Now more than ever, data-driven insights can help investors understand underlying market dynamics. The key metrics to consider are:
- Sale Inventory Trends – Measuring the available supply of homes in a given area.
- Days on Market (DOM) – Gauging the demand by assessing how long listings remain unsold.
- Absorption Rate – Calculating the rate at which homes are sold in a particular area, providing a snapshot of market balance.
Each of these metrics can offer invaluable insight, guiding investors on when to buy, what to pay, and how to strategize in an unpredictable environment.
1. Sale Inventory Trends: A Key Supply Indicator
Why Inventory Levels Matter
Inventory levels measure the total number of homes available for sale in a market. When inventory is high, there is a greater supply of homes, often giving buyers more leverage. Conversely, low inventory levels create competition among buyers, potentially driving prices up.
Current Trend: Rising Inventory in Many Markets
Rising interest rates have tempered buyer enthusiasm, leading to an increase in unsold inventory in many regions. As properties remain on the market longer, this rise in available listings creates more options for buyers, offering a unique opportunity to negotiate lower prices or added benefits such as seller concessions.
Using Inventory Trends to Guide Investment Decisions
For investors, inventory trends offer a macro view of market conditions:
- Buyers’ Market: When inventory is high, buyers have the upper hand, as sellers may need to price competitively.
- Sellers’ Market: Low inventory favors sellers, as scarcity can drive up home prices.
Tracking inventory allows investors to time their purchases strategically, potentially buying during inventory spikes when sellers are more motivated to negotiate.
2. Days on Market (DOM): The Demand Indicator in a Softening Market
Understanding DOM and Its Impact on Pricing
Days on Market (DOM) measures how long a property remains listed before being sold. This metric is crucial as it provides a clear snapshot of buyer demand. High DOM suggests a slower market, where buyers have more options, while low DOM indicates high demand.
Current Trend: Longer DOM in Response to Economic Conditions
In many regions, DOM has been increasing as higher mortgage rates make potential buyers cautious, leading to more selective purchasing behavior. Longer DOM can indicate overpriced listings or waning demand in a specific area, giving investors an opportunity to negotiate on price. For properties with exceptionally high DOM, sellers may be willing to reduce prices to close a deal quickly.
Leveraging DOM for Investment Success
Investors can use DOM data to target properties that are likely priced above the market value or those where sellers might be motivated to make concessions. By focusing on listings with higher DOM, buyers can:
- Identify Price-Reduction Opportunities: Properties sitting longer on the market may be candidates for price adjustments.
- Assess Market Trends by Location: DOM data can vary widely by region, so analyzing DOM by neighborhood or city can reveal micro-trends and specific investment opportunities.
3. Absorption Rate as a Leading Indicator of Market Balance
Why the Absorption Rate Matters
Absorption rate measures the speed at which homes in a particular market sell, typically calculated monthly. A high absorption rate suggests strong demand, while a low rate can indicate an oversupplied or sluggish market. The absorption rate is crucial for determining whether the market favors buyers or sellers and can serve as a forecast for short-term price changes.
Current Trend: Shifting Absorption Rates Reflecting Localized Demand
As economic uncertainties persist, absorption rates have varied by region. While some high-demand markets still maintain rapid absorption rates, others are cooling off as more properties sit unsold. Investors can use the absorption rate to gauge the immediate competitiveness of a market:
- Balanced Market: An absorption rate between 15-20% often signals a balanced market.
- Buyer’s Market: Below 15%, indicating less buyer activity and potential for price negotiation.
- Seller’s Market: Above 20%, often suggesting upward pressure on prices due to high demand.
For a deeper dive on the power of absorption rate in shaping investment decisions, see this article on STRScout.
How Investors Can Use These Metrics for a Competitive Advantage
A Data-Driven Approach to Structuring Offers and Setting Prices
In today’s market, using real estate metrics isn’t just a bonus; it’s essential. Here’s how investors can apply these insights:
- Competitive Offer Structuring: Inventory and DOM data provide investors with leverage in negotiations, helping them make offers that reflect current market demand.
- Price Adjustments for Sellers: Sellers can use these metrics to set realistic prices, potentially reducing time on the market and attracting serious buyers.
- Timing Purchases: Monitoring trends in inventory and absorption rates can help investors time their entry to the market, ensuring they buy when conditions are favorable.
For Buyers: Leveraging Real-Time Data to “Make Money When You Buy”
An old real estate adage says, “You make money when you buy, not when you sell.” For buyers, data-backed decisions mean:
- Identifying Undervalued Properties: Higher DOM and rising inventory can point to properties priced above market value, opening up room for negotiations.
- Gaining Leverage in Negotiations: By referencing real-time metrics, buyers can justify lower offers based on market demand and supply conditions.
Conclusion: Staying Ahead in a Shifting Market
Navigating the real estate market today requires more than intuition. Rising interest rates, fluctuating inventory, and varying demand levels make it critical for investors and buyers to stay informed. By focusing on sale inventory trends, DOM, and absorption rates, investors can make data-driven decisions that align with current market conditions, ensuring they maximize their chances for a profitable investment.
As the market continues to evolve, staying informed and adaptable will be essential for sustained success. That’s why we’re refining our beta app, Spatial Hub—created by investors, for investors—to help you make these data-driven decisions with ease. Stay tuned to STRScout.com for updates on its upcoming launch!