Bay Area Real Estate Analysis: Real Estate Terms Defined

There are several key statistics that are used to determine the health of any real estate market – average days on market, month’s supply of inventory, sales absorption rate, and the median sales price. Days on market (DOM) describes how long a home is active on the market before its status changes to pending.  The average days on market is determined by adding each listing’s days on market in a month, then dividing by the number of active listings for sale at the end of that month.

Month’s supply of inventory (MSI) is an estimation of how long it will take all the homes on the market to be sold.  It is based on the current number of homes for sale and the past absorption rate.  MSI is used to determine if the market is considered a seller’s market, a balanced market, or a buyer’s market.  Though opinions vary, 0-4 month’s supply of inventory is considered a seller’s market, 4-6 months is a balanced market, and anything over 6 months is considered a buyer’s market.

Sales absorption (SA) rate is a percentage rate that shows the ability of the real estate market to sell, or absorb, all the homes for sale (inventory) currently on the market.  It is calculated by dividing the number of homes sold in a month by the number of homes for sale at the end of that month.  A higher percentage rate means that the market is absorbing its inventory at a faster rate.

Median sales price is the middle price where half the homes were sold above this price and half were sold below this price.  The median sales price is considered less biased than average sales price since a small number of high priced homes won’t weigh as heavily on the outcome.  Since it is important to know specifics about the homes that make up this number (i.e. number of homes sold in a month, type of home sold), this number is just another piece of the formula.

Now that we have defined the key statistics, let us see how they relate specifically to the housing markets in Mountain View, Los Altos, Los Altos Hills, and Palo Alto.

Mountain View Market Analysis – May 2010 to May 2012 
Los Altos Market Analysis – May 2010 to May 2012
Los Altos Hills Market Analysis – May 2010 to May 2012
Palo Alto Market Analysis – May 2010 to May 2012