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PALM COAST, FL – June 20, 2016 – Another Realtor® reminded me the other day that I had not taken a look at absorption rates lately. I do that today. I also look at some other important numbers at the community level.
The absorption rate, also known as “months sales in inventory,” is a good measure of the underlying strength of the housing market. Absorption rate is calculated by dividing the number of units listed for sale by monthly sales. For instance, there are 776 single-family Flagler County homes listed through Flagler MLS. The average number of homes sold monthly during the March - May period was 201.3. By dividing 201.3 into 776, we come up with the county absorption rate of 3.9.
A normal market, characterized as neither a buyer’s market nor a seller’s market, is generally believed to occur when the absorption rate is near 6.0. The further the rate is below 6.0, the stronger the seller’s leverage while a rate above 6.0 favors buyers.
As a general rule, higher priced homes take longer to sell. The absorption rate in higher-end market segments tend to have higher absorption rates. During March – May, nine homes in the Hammock Dunes CDD (Hammock Dunes, Hammock Beach, Ocean Hammock, Island Estates and Harbor Village Marina) were sold (three per month) for a median price of $834,000. But there are 88 homes listed for sale there. The absorption rate is 29.3.
The chart below shows the absorption rate of Flagler County and of its principle market segments. I did not include the Hammock Dunes CDD since it would have skewed the chart.
Home absorption rates
Current Median Home Prices Compared with Market Bottom
Flagler County’s condominium market is not as strong as its market for homes. Because there are fewer sales of condominiums, I used five months of sales (January – May) to determine the monthly average. With 284 condominiums listed for sale, the county-wide absorption rate for condominiums is 10.4, slightly into the buyer’s market range. The absorption rate for Flagler’s larger condominium markets are shown in the chart below.
Condominium absorption rates
Current Median Condo Prices Compared with Market Bottom
Note that the Hammock Beach condominiums median price was higher during the depth of the recession than current pricing. Hammock Beach has two levels of condominiums; high end luxury and single bedroom units (essentially hotel suites). With two such diverse components, median prices can be very misleading, depending on the selling mix between the two.
With some late-reported sales, the May total came up to 230 single-family Flagler County homes sold. The median selling price was $209,900, the highest monthly median price since June 2007, when only 112 homes were sold. The total value of those transactions was $23.98 million, making May’s the highest aggregate monthly sales level for single-family homes since June 2006.
The most significant trend in May was the decrease in distressed home sales. Of 230 sales, only two were short sales and 11 foreclosure sales. At current population growth estimates, Flagler County will need about 1,200 additional residential units per year. With 639 residential building permits issued in the past 12 months and 376 distresses (likely vacant) homes sold, Flagler is falling short of the 1,200 required residential units. New home construction is slowly on the rise, but distresses sales are in decline. The result will be upward pressure on home and condo prices as well as rental rates.
Decline in Distressed Home Sales