Absorption rate and market velocity. What these important ratios refer to is better described as months of inventory, or number of months it would take to sell all the homes for sale in an area at the current rate they are selling. Traditionally 1-4 months of inventory indicates a seller’s market, 5-6 a neutral or balanced market, and 7 or more a buyer’s market.

Months of inventory in Santa Barbara has shown tremendous decrease this year in all price ranges except for the ultra luxury market of homes priced over $8 million.

Figures as of April 2011 are as follows:

Under $1M  –  3.1 months of inventory

$1M – $2M  –  8 months of inventory

$2M – $4M  –  9.4 months of inventory

$4M – $8M  –  7.5 months of inventory

Over $8M  –  45 months of inventory

Market Wide  –  5.1 months of inventory

Over the past year Santa Barbara’s market wide months of inventory has dropped from a buyer’s market 8 to a neutral market 5.1. It will be interesting to see how this number changes over the remainder of 2011.