Appraising Downtown Long Beach in 2008

LONG BEACH REAL ESTATE

Appraising Downtown Long Beach in 2008 

 

Michael S. Tarabotto

January 6, 2008
 
 

Downtown Long Beach as well as many major cities in Southern California will be faced with a common question in 2008. "Are we in a declining market?" The answer matters if you're thinking about buying, selling or refinancing Downtown Long Beach real estate this year.

If you've been listening to the news lately, you probably heard that Nationally we have between 8 and 9 months of housing inventory. So what does this mean to Long Beach residents exactly?

Absolutely nothing...

What the news alludes to are Absorption Rates on a national level. But real estate is local. Hence, real estate absorption rate locally is what matter.

What are Absorption Rates?

 
In short, an absorption rate is rate in which existing listing inventory is being purchased or absorbed by buyers. Absorption Rate Analysis is the statistical means to measure these supply/demand characteristics of an area. It's a simple division problem with two basic variables.

1. number of listings
2. number of sales

These variables can be defined in a number of ways that allow real estate appraisers and Realtors® to view the market from different vantage points. Here we'll approach it in the way that Federal Regulators appear to want to see it done.

First, the listings and sales under analysis have to be of "like-kind" as the property in question (a.k.a. subject property), and they have to be in the same neighborhood.

If the subject is a 1920's Craftsman, 1500 SF in size on a 5,000 SF lot in Downtown Long Beach - appraisers will probably research "like-kind" sales and listings that range between 1200 and 1800 SF in size, built up to 1940 or so. Lot sizes will vary so we won't typically stress too much on that unless the area known premiums for specialty uses exist that result from size (i.e. equestrian/horse zoning...not very likely in Downtown Long Beach).

Then, we'll find all available listings within the neighborhood that meet the criteria. For illustration sake we'll assume we found 21 listings.

We then research closed sales in the past 12 months, in the same neighborhood, with the same criteria. Let's say our research yields 36 closed sales.

We then divide 36 closed sales by 12 months which gives us a monthly absorption rate of 3 sales per month.

Finally, we divide the 21 listings by the absorption rate of 3 sales per month, and this yields an inventory factor of 7 months. That is to say, there is 7 months of inventory of like properties in the subject neighborhood.

 
Why does this matter?

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Posted on January 05, 2008 18:18:27 by Laurie.Manny