The What: The Sales to Active Ratio is a measure of balance between supply and demand in the housing market. It is calculated as the number of sales divided by the number of active listings.
The How: The calculation is fairly simple. Number of Sales / Number of Active Listings = Sales / Active. See below for a few examples:
1 Sale : 3 Actives = 1 / 3 = .333333
3 Sales : 1 Active = 3 / 1 = 3.0
0 Sales : 3 Active = 0 / 3 = 0.0
3 Sales : 0 Active = 3 / 0 = – –
If there are more active properties than sales, the ratio will be represented as a decimal of zero. If there are more sales than active properties, the ratio will be represented by a number greater than zero.
While dividing zero by a number will always result in zero, dividing by zero results in a mathematical error. ShowingTime will always represent this as a dash-dash (- -). If there are zero sales, there will always be a zero for the ratio; if there are zero actives, the ratio will result in a dash-dash for the mathematical error.
The Oops: Typically, ratios are represented as a proportion using the format 2:1. However, ShowingTime chooses to represent the SAR as a decimal because it solidifies the fact that one cannot inflate or deflate the figures (like proportions can be) because each number represents a real number of homes.
For instance, if there were three actives and four sales, one couldn't use a multiple of each to say that there is a six-to-eight ratio of actives to sales.
The Beauty: Similar to how accountants use activity ratios to measure the ability to convert cash into sales, activity ratios in housing are a good indication of the market's ability to convert viable homes into sales. This is another way to identify a market's absorption rate since it measures the balance between supply and demand.
The decision to use SAR or Months Supply of Inventory is really a decision of preference. While Months Supply of Inventory may answer more clearly if the market is favoring sellers or buyers, SAR uses a much simpler calculation that can more transparently and directly indicate the relationship between supply and demand on the fly.
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