It’s been an interesting month in the Greater LA housing market as more housing inventory flows into a parched market. We ended April’s absorption rate analysis with a prescient statement: “We did see a higher number of houses for sale in Los Angeles hitting the market in April. If that trend continues, we may see absorption rates drop closer to the buyer’s favor after all.” Well, here we are. But this is still LA, so we had our fair number of surges deeper into the seller’s market. Are we getting much-needed relief for homebuyers? Or are the numbers just stabilizing after a couple of months of surging? Before you contact your trusted real estate agent, let’s take a closer look at May’s absorption rate highlights, starting with a few absorption rate FAQs for those of you who are just joining us.
Absorption Rates – May 2024
- Burbank – 45%
- Encino – 26%
- Glendale – 40%
- Long Beach – 41%
- Los Angeles – 23%
- Northridge – 46%
- Palmdale – 35%
- Pasadena – 37%
- Rancho Cucamonga – 37%
- Reseda – 43%
- Upland – 45%
- Valencia/Santa Clarita – 47%
Absorption Rate FAQs
(1.) What is an absorption rate?
In real estate, an absorption rate is a statistical tool that we use to gauge whether a neighborhood is in a buyer’s market or seller’s market. Using the universal thresholds, an absorption rate of 20% or higher indicates market conditions that favor home sellers. Absorption rates of 15% or below indicate a market that favors the buyer. But as we established in our first absorption rate blog, these numbers estimate behavior but they don’t guarantee it!
(2.) Why does JohnHart only factor single-family homes into our absorption rates?
It’s true that we don’t count the condos and townhomes our agents sell into our absorption rate calculations. It may seem like we’re shortchanging our performance, but we’re just striving for accuracy. Our clients are overwhelmingly interested in single-family homes. Therefore, we filter our absorption rates to meet this criterion, creating a more accurate assessment of the market that interests our clients.
(3.) How is an absorption rate calculated?
At JohnHart, we adhere to the following universally accepted formula when calculating an area’s absorption rate:
Surprise Surging to Sellers’ Satisfaction
Okay, now let’s get down to the nitty-gritty. And the grittiest for May, as far as a seller’s market is concerned, is definitely Palmdale. The desert-adjacent community holds the highest surge of the month, jumping up a significant 7 percentage points for a total 35% absorption rate. That’s well within the seller’s territory for a community that’s typically a bit easier on buyers. This is the highest absorption rate we’ve seen for Palmdale in 2024.
The next highest surge was Encino with a 4 percentage point hop. That’s still a pretty big deal for Encino which is one of the very few LA area neighborhoods to breach the universally accepted buyer’s market since we started publicly sharing our stats in August 2022. Encino’s absorption rate is still relatively low at 26%. But with May marking the community’s third consecutive month of 4 percentage point jumps, Encino homeowners may want to take advantage of the demand by talking to their real estate agent about listing their homes.
Evening Out in Aggressive Markets
In May, the drops were much more dramatic than the surges. Northridge was predictably unpredictable, following up two consecutive months of intense surging with the biggest drop of the month. Plummeting 10 percentage points toward the buyer’s favor, Northridge is still holding a 46% absorption rate; well within the seller’s favor.
Just behind Northridge is Rancho Cucamonga, another high-demand area, with a 9 percentage point drop. This puts Rancho at a still solid 37% absorption rate. Finally, seller stronghold Burbank surprises with an 8 percentage point drop down to a 45% absorption rate. So, despite impressive falls toward buyer territory, all of May’s big plunges were in neighborhoods that continue to aggressively favor the seller. Perhaps May was just about evening the scales a bit in these markets.
Reliable Ends of the Spectrum
The highest and lowest absorption rates for May had only modest adjustments from April. Standing the deepest in the seller’s territory, Valencia/Santa Clarita rose a mere 3 percentage points for its lofty 47% absorption rate. If you’re on the fence about selling your home in that market, we’re not sure how much better the temperature’s going to get.
At the other end of the spectrum, Los Angeles proper dropped a single percentage point to secure the lowest absorption rate for May at 23%. This isn’t much of a surprise, considering LA has spent all of 2024 hovering just a percentage point or two from this mark.
Is a Change On Its Way?
So May moved the needle closer to the buyer’s favor in the majority of the neighborhoods we serve. But we’re writing this blog on the eve of the year’s first heat wave. Throw in the kids getting out of school, freeing up families to move homes more easily, and we can imagine things are about to get even more interesting.
After working with, and for, many different real estate firms, it became apparent to Harout that there was a major disconnect between what consumers needed/wanted and the service that was being provided to them. It was upon this realization that Harout founded and opened JohnHart Real Estate; and as the CEO/Principal Broker he has continued to break from the norm and redefine real estate with an insatiable appetite to give his clients the service and attention they deserve.
