What Is Absorption Rate?
With all the terminology realtors use, it can sometimes seem they are speaking their own language. And if you aren’t familiar with the vocabulary, you can end up confused and frustrated. So we’re helping you out! Ever heard of absorption rate? It’s one of those phrases realtors often use, but most people are like, “Huh?” Let’s clear up the confusion. Today’s question is: What is absorption rate and what does it have to do with me?
Simply put, absorption rate is the number of months at which available homes are sold in a specific real estate market during a given time period. It answers the question, “how long would it take to sell all the homes that are available on the market?” The absorption rate is calculated by dividing the total number of available homes by the average number of sales per month. For example, let’s say there are 100 available homes on the market for a particular area. Of those 100 homes, 50 sold in the past month. So 100/50 is 2, which means it would take approximately 2 months for the market to absorb all the homes that are on the market.
So what does this all have to do with you? Well, the absorption rate is something real estate professionals use to define the market. Any time that number is under 3, it creates a “seller’s market”. If that number is over 5 or 6, it creates “buyer’s market”. So the absorption rate tells you what market you are selling and buying in.
Now that you’re informed, you’re probably dying to know what kind of market we’re currently in, right? Reach out to us and we’ll fill you in. We’re always here to answer your questions! We love educating our clients so they can make informed decisions that they feel confident about. Call us today if you’ve been wondering what it would take for you to buy or sell your home.