Fredericksburg Market Watch

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Fredericksburg and N. VA
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Real Estate Market Terms

Absorption Rate. Absorption rate is the ratio of supply and demand. It is computed by dividing the total inventory by the new contracts and approximates the time required, at the current rate of contracting, for the market to absorb the existing inventory of residential housing. The absorption rate is generally more sensitive to changing market conditions than DOM.

Contracts. Contracts are written agreements between buyers and sellers for future home purchases. In general, most contracts lead to settlement (sale of home), typically within one to two months.

Days-On-Market (DOM). DOM is the average number of days from the listing date to the date homes are contracted for future settlement. The value computed for average DOM is influenced by a number of market factors. A group of homes that has been on the market an exceedingly long time can significantly increase the average DOM. And, over the short term, the rapid addition of new homes for sale can significantly decrease average DOM.

Inventory. The inventory, the number of active listings (homes available for sale) in the multiple listing system, is a measure of the supply of housing. New listings add inventory. Inventory is removed as contracts to sell homes go to settlement (sale of home) and when sellers withdraw listings from the market. The multiple listing system reflects the activity of real estate agents. Homes for sale by owners without agent representation and homes for sale by builders without agent marketing may not be included in the multiple listing system.

New Contracts. The number of new contracts is a measure of demand for housing in the real estate market. As used here, new contracts are those written in the last month or 30-day period and include both contingent and non-contingent contracts. Most but not all contracts lead to settlement. However, because contracts precede sales, the number of new contracts is considered a better indicator of recent demand than is the number of homes sold.

Sold Price. The sold price is the median price or midpoint of all homes sold. Often, people incorrectly infer that the value of their homes change in proportion to changes in the median sold price. The median sold price does reflect market-wide changes in the prices of homes. Multiple factors contribute to the median sold price. The median sold price is sensitive to the mix of sales by price. Increased buyer activity above or below the median will shift the median price. And, because new homes are generally priced above the median, sales of new homes raises the median price. In a buyers' market, sellers make costly concessions that don't show up in the selling price. Further, the median sold price reflects, in large part, the price that buyers feel they can afford to pay. When houses are less expensive, buyers tend to purchase larger houses, and conversely, when homes are more expensive they tend to purchase smaller houses. Therefore, buyers collectively tend to purchase homes at a median price established by what they feel they can afford to pay, rather than whether homes have risen or fallen in price.

Supply and Demand. On this site, the inventory of Fredericksburg homes for sale (as listed in the regional MLS) represents supply, and the number of new contract represents demand. Supply and demand trends are identified by observing changes in median sold price, inventory, new contracts, absorption rate, and DOM. The selling price of homes and the market psychology is strongly influenced by supply and demand. When homes are scarce, buyers feel compelled to move fast and offer more. And, investors are more likely to purchase when prices are increasing and expected to continue. Prices rise. Supply increases in response to higher prices - builders build more homes, landlords sell rental property, and owners decide it is a good time to sell. When the inventory of homes is plentiful, buyers are more likely to be more discriminating, search for the best deal, and offer less. Over time, local factors such as changes in population, jobs, and wages strongly influence demand while land and building cost, and governmental regulations influence supply.