Activity Index | Real Estate Glossary
Activity Index (Real Estate Glossary Definition)
The Activity Index is a robust metric used to assess the real estate market dynamics in specific geographic regions. It is calculated by dividing the number of pending properties by the sum of active and pending properties in a given market. This ratio, expressed as a percentage, offers insights into the absorption rate of properties—how quickly available properties are going under contract relative to the total inventory. A higher Activity Index indicates a more competitive or "hot" market, characterized by faster property sales and reduced inventory, often signaling a sellers’ market. Conversely, a lower index suggests a slower market with higher inventory levels, indicating a buyers' market or a cooling trend in property demand. The Activity Index is pivotal for real estate professionals and clients alike, as it aids in making informed decisions regarding buying, selling, and pricing strategies within a dynamic market environment.
Pending Properties
Definition: These are properties that have an accepted offer and are in the process of being sold but have not yet closed. They are under contract but not officially off the market. Importance: Pending properties reflect the immediate market activity and demand. A higher number of pending properties indicates strong buyer interest and faster-moving markets.
Active Properties
Definition: These are properties currently listed for sale that have not yet received an accepted offer. They are available for purchase and represent the existing supply in the market. Importance: The number of active properties shows the available inventory in the market. A higher number of active properties suggests a larger supply, which could balance or outweigh demand depending on the number of pending properties.
Total of Active and Pending Properties
Calculation: The sum of active and pending properties is the total number of properties in the market that are either for sale or under contract. This total is used as the denominator in the Activity Index ratio. Importance: This total gives context to the pending properties by showing what proportion of the entire market is actively being absorbed (pending) versus remaining available (active).
The Ratio (Activity Index)
Calculation: The Activity Index is calculated by dividing the number of pending properties by the total of active and pending properties, then multiplying by 100 to express it as a percentage. Example: If there are 30 pending properties and 70 active properties, the total is 100. The ratio would be 30 / 100 = 0.3 or 30%.
Interpretation:
- Above 50%: Indicates a sellers' market where properties are selling quickly, often leading to multiple offers and rising prices.
- 25%-50%: Suggests a balanced market with moderate activity where supply and demand are relatively even.
- Below 25%: Points to a buyers' market with slower sales, more inventory, and potentially declining prices.
- Below 10%: Indicates a very slow or cold market where properties may stay on the market longer, and sellers may need to lower prices to attract buyers.
The Activity Index is a powerful tool for understanding the current state of a real estate market. By analyzing the ratio of pending to active properties, both buyers and sellers can gauge market conditions and make more informed decisions about pricing, timing, and negotiation strategies.
Reports with an Activity Index
- Active Residential ListingsSale
- Activity Index CitySale
- Activity Index NeighborhoodSale
- Activity Index Zip CodeSale
- Activity Index CityLease
- Activity Index Zip CodeLease
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