This is the single most impressive absorption rate analysis we’ve published since we first started sharing our numbers in August 2022. Perhaps it was the market anticipating the federal interest rate drop. We’re finally below 5%! Or perhaps things really are just starting to swing in the buyer’s favor. Whatever the case, the dropping absorption rates this month were unusual but not that unusual. Yet, seven of these neighborhoods just posted their lowest absorption rates in at least 21 months. Three of these neighborhoods are posting their lowest absorption rates ever. That’s huge. Let’s get the FAQs out of the way and then dive into the details of this truly eye-opening absorption rate analysis.
Absorption Rate FAQs
(1.) What’s an absorption rate?
Absorption rates are statistics that we use to gauge whether a community that we serve tends to favor a home buyer or a home seller. Absorption rates in excess of 20% are generally considered as indicative of a seller’s market; a market in which conditions favor the seller. Absorption rates of 15% or below are generally thought to indicate a buyer’s market in which conditions favor home buyers. But there are always exceptions to this rule… especially in markets as complex as those in Southern California.
(2.) Why does JohnHart only factor single-family homes into absorption rates?
JohnHart opts not to include condominiums, townhouses and the like in our absorption rate analysis. This is because our clients have shown an overwhelming and singular interest in single-family homes. To create an analysis that accurately reflects our clients’ interests, we choose to only consider single-family homes in our absorption rate analysis.
(3.) How does JohnHart calculate an absorption rate?
To calculate our absorption rates, we use the following universal formula:
Don’t Call It a Surge
September was a drop-heavy month, to say the least, with all but three of our neighborhoods falling further into the seller’s favor. Yet, home sellers have enjoyed months and months of the odds stacked in their favor. That trend continued in Long Beach, Burbank, and Upland, all of which showed modest bumps further into a seller’s market. But even then, the highest surge (if you can call it a surge) for September was a 4 percentage point bump in Long Beach, bringing the port city up to a 36% absorption rate. That ties Long Beach with Upland for the highest absorption rates of September.
Still a pretty far cry from previous stats showing just how severely these markets have favored sellers. Who recalls when Upland boasted a brutal 60% absorption rate in May 2023? Or that same month, when Burbank breached a staggering 64% absorption rate? These markets sit in a much healthier space today, encouraging buyers with more favorable conditions while still incentivizing sellers with plenty of promise for a memorable closing price.
High Times and Low Absorption Rates
But September is really about the drop. In our 26 months of sharing these absorption rates, we’ve never seen a reason for buyers to celebrate quite like this. The month brought us a three-way tie for the steepest absorption rate drop into the buyer’s market. Reseda, Valencia/Santa Clarita, and surge-happy Northridge each dropped 9 percentage points.
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These aren’t the most dramatic drops we’ve witnessed over the years, but the triple knock-out is definitely worth a second or third look. Northridge hasn’t been this low since November 2022. Reseda hasn’t been this low since October 2022.
Buyer’s Market Heavyweights
The lowest absorption rate of the month goes to Encino, a community that has historically been kind to the buyer. At a 12% absorption rate, Encino is at the lowest it’s been since January 2023 and is clearly within the buyer’s market. But, for the first time since we’ve been reporting, Encino may not be alone. The City of Los Angeles dropped down to an 18% absorption rate. This places LA in that twilight area between the 20% low-end threshold of a seller’s market and the 15% high-end threshold of a buyer’s market. Could LA actually be starting to favor the buyers?
Record-Setting Absorption Rate Lows
September almost felt like a competition to see how low these neighborhoods could go. Palmdale? Lowest recorded absorption rate since November 2023 at 24%. Glendale? Lowest recorded absorption rate since December 2022 at 30%.
But two other neighborhoods joined the City of Los Angeles for record-setting absorption rate lows. The twin communities of Valencia/Santa Clarita, adding to their tie for steepest drop of September, hit an all-time low at 24%. Surprisingly, Rancho Cucamonga, noted for its relatively high absorption rates, also dropped to its low. Sure, that low is 32%… just 4 percentage points shy of the highest absorption rates of the month. But it’s still a low worth noting for anyone holding out for that dream home in Rancho Cucamonga.
All You Know is Now
Buyers, if this market has left you timid, we don’t blame you. But September’s stats offer a clear sign that conditions are shifting in your favor. And sellers, if you’ve been afraid to let go of your homes because of a discouraged market, buyers are starting to come out of their shells. Not to mention that the market is still handing you the reins in most cases. Now, with the Federal Reserve cautiously lowering interest rates, conditions are becoming comfortable for both sides of a transaction.
It will be interesting to see October’s numbers in light of these rate cuts. But keep in mind, these cuts are being introduced gradually to keep the economy stable. This means we shouldn’t count on additional cuts being fast-tracked by the Federal Reserve. If you’re waiting for conditions to get even better, we’ll just reiterate that all we know is now. Take advantage of these historic conditions. Get in touch with your agent today!
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.
