Sunday, March 6, 2011
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Steamboat Springs Charlie Dresen, of High Mountain Sotheby’s International Realty, advises prospective home buyers and sellers in the Steamboat Springs market to take inventory and absorption rates into account when shopping for property.
Understanding how inventory — the number of properties on the market — in a specific type of property varies from neighborhood to neighborhood can give homebuyers a better feel for negotiating a purchase price, Dresen said. Similarly, knowledge of the inventory in their market niche can help sellers price their property for a quick sale, he added.
“Absorption rate is an important indicator of what is going on in your market and should not be overlooked,” Dresen said. “If you are looking to buy a home here, knowing absorption rates may help you negotiate a better deal.”
Absorption rate is a function of the number of homes on the market compared with the number that recently have sold. Dresen did his latest calculations at the first of the year. During December 2010, he said, 13 homes sold in Steamboat — in the downtown area, in the Fish Creek neighborhood, at the ski mountain, in Strawberry Park and in western Steamboat.
At the time, there were 175 homes on the market in that area.
“If you divide the inventory of 175 homes by the 13 that closed in December, you get (an absorption rate of) 13.4 months,” he said. “That means if the current inventory stayed the same, meaning no other homes were put on the market, and the rate of sales remained the same, it would take 13.4 months to deplete or sell the existing homes.”
Doug Labor, of Buyers Resource, said total listings on the Steamboat Springs Multiple Listing Service had decreased to 1,912 at the end of the fourth quarter of 2010 compared with an all-time high of 2,385 at the end of the second quarter last year. He bases the record high on figures going back to 1995 and the assumption that no previous year was higher because there were far fewer properties in the valley going back more than 15 years.
Labor hastened to point out that inventory levels are cyclical, with the second quarter typically representing the high for the year. So don’t be surprised if they don’t continue to fall through 2011, he said.
With the end of the first quarter of 2011 in sight, Labor said there now are 1,974 listings on the market. Significantly, that’s lower than the 2,053 at the end of first quarter 2009 and 2,124 in first quarter 2010.
Of course, absorption rate is a dynamic number — a slow month or a busy month in a relatively small market such as Steamboat will change the rate. And the absorption rate isn’t a prediction of when a specific house listed for sale might sell — any home on the market could go under contract next week. That raises another point: Closings lag contracts by several weeks, if not a month or more, meaning a calculation of the absorption rate quickly can become out of date.
Five to six months of inventory is considered a normal market, Dresen said. If there is one to four months of inventory, it is considered a seller’s market. If there is more than seven months of inventory, sellers are confronted with a buyer’s market.
Steamboat has been in a buyer’s market for several years, Dresen said.
As a case study, he describes a buyer focusing on two properties, a home in Fish Creek with an absorption rate of 10 months and a second west of Steamboat with an absorption rate of 15.1 months. A buyer might choose to concentrate on west of Steamboat after concluding that sellers might be more willing to negotiate on price because homes are moving slower there. On the other hand, lower absorption rates might signal a more desirable area and a better investment.
Labor said pure inventory data from within a single neighborhood and particularly within a condominium complex is among the best telltale signs for buyers. Sellers within a subdivision who have looked at their comparables with their real estate agent know they have to price their property competitively, Labor said.
“In Red Hawk Village in Stagecoach, it’s a case of reverse leapfrogging,” he said. “Every new listing is priced lower than the previous low.”
On the optimistic side, Labor said that 27 properties have gone under contract in the preceding two weeks.
“That’s what I call a pretty fair number,” he said. “That’s almost two a day.”
— To reach Tom Ross, call 970-871-4205 or e-mail tross@SteamboatToday.com